Reverse Mortgage?

[Jims5543]

I am doing a lot of Surveys for Reverse Mortgages these last few months, it seems like a new trend.

I sort of get the idea but I do not think I fully understand it.

Can someone explain it to me, because if I have it right it seems like a bad idea.

[Porsche-O-Phile]

I suppose if I were 70 years old, retired with no dependents and a crapload of equity, it wouldn't be a bad idea. Especially when you consider that selling in this market is almost a guaranteed loser.

For the "zero equity" crowd (which includes almost everyone today) it doesn't apply. Probably better than a HELOC in most cases though.

[widgeon13]

It means the banks are getting into the real estate / home ownership business. The only way it will work out is if and when home prices start up again.

[Jims5543]

Every time I am doing one of these surveys the homeowner is in their 70's.

If I am understanding correctly, your pulling equity from the home, what happens when you die? The house goes to the bank? This is the part I do not understand.

[Dueller]

Top Ten Things to Know if You're Interested in a Reverse Mortgage


Reverse Mortgages are becoming popular in America. The U.S. Department of Housing and Urban Development (HUD) created one of the first. HUD's Reverse Mortgage is a federally-insured private loan, and it's a safe plan that can give older Americans greater financial security. Many seniors use it to supplement social security, meet unexpected medical expenses, make home improvements, and more. You can receive free information about reverse mortgages by calling AARP at: 1-800-209-8085, toll-free. Since your home is probably your largest single investment, it's smart to know more about reverse mortgages, and decide if one is right for you!

1. What is a reverse mortgage?

A reverse mortgage is a special type of home loan that lets a homeowner convert a portion of the equity in his or her home into cash. The equity built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence. HUD's reverse mortgage provides these benefits, and it is federally-insured as well.

2. Can I qualify for a HUD reverse mortgage?

To be eligible for a HUD reverse mortgage, HUD's Federal Housing Administration (FHA) requires that the borrower is a homeowner, 62 years of age or older; own your home outright, or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan; and must live in the home. You are further required to receive consumer information from HUD-approved counseling sources prior to obtaining the loan. You can contact the Housing Counseling Clearinghouse on 1-800-569-4287 to obtain the name and telephone number of a HUD-approved counseling agency and a list of FHA approved lenders within your area.

3. Can I apply if I didn't buy my present house with FHA mortgage insurance?

Yes. It doesn't matter if you didn't buy it with an FHA-insured mortgage. Your new HUD reverse mortgage will be a new FHA-insured mortgage loan.

4. What types of homes are eligible?

Your home must be a single family dwelling or a two-to-four unit property that you own and occupy. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. Condominiums must be FHA-approved. It is possible for individual condominiums units to qualify under the Spot Loan program.

5. What's the difference between a reverse mortgage and a bank home equity loan?

With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow. You don't make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes and other conventional payments like utilities, but with an FHA-insured HUD Reverse Mortgage, you cannot be foreclosed or forced to vacate your house because you "missed your mortgage payment."

6. Can the lender take my home away if I outlive the loan?

No! You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. You can never owe more than your home's value.

7. Will I still have an estate that I can leave to my heirs?

When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs. None of your other assets will be affected by HUD's reverse mortgage loan. This debt will never be passed along to the estate or heirs.

8. How much money can I get from my home?

The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.

9. Should I use an estate planning service to find a reverse mortgage?

I've been contacted by a firm that will give me the name of a lender for a "small percentage" of the loan? HUD does NOT recommend using an estate planning service, or any service that charges a fee just for referring a borrower to a lender! HUD provides this information without cost, and HUD-approved housing counseling agencies are available for free, or at minimal cost, to provide information, counseling, and free referral to a list of HUD-approved lenders. Call 1-800-569-4287, toll-free, for the name and location of a HUD-approved housing counseling agency near you.

10. How do I receive my payments?

You have five options:


Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
Term - equal monthly payments for a fixed period of months selected.
Line of Credit - unscheduled payments or in installments, at times and in amounts of borrower's choosing until the line of credit is exhausted.
Modified Tenure - combination of line of credit with monthly payments for as long as the borrower remains in the home.
Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower.

[MikeSid]

It is basically seller financing a sale to the bank with occupancy reserrved in the seller until paid in full.

[Jims5543]

Thanks Dueller, that answered my question.

7. Will I still have an estate that I can leave to my heirs?

When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs. None of your other assets will be affected by HUD's reverse mortgage loan. This debt will never be passed along to the estate or heirs.

[stomachmonkey]

Take off on an old practice they have in Europe.

If you want a nice apt you find some old person and pay them a monthly stipend till they die then you get the place for whatever you have paid them, be it 1 month, 1year or 10 years.

Back in the late 80's I think it was, there was some wealthy Dr or Dentist that did a deal with some old woman who was in her 70's. She outlived him and his kids got stuck paying her. Think she lived to 100+ if I recall.

That was a bad deal.

[Dueller]

Out of curiosity I pulled up a calculator. Two diferent loan types. I put in 70 y.0. $200k in equity. One plan allowed c. $122K lump sum; the other $c. $58K.

Link: http://www.rmaarp.com/

[Jim727]

This is a subject that raises my blood pressure to stratospheric levels.

There may be better reverse mortgages but I strongly urge caution to anyone considering one. My father-in-law took one out on a home with substantial equity. It was really their only asset and he didn't "need" a huge chunk of cash so he did the reverse mortgage thing. We offered to loan him the money, but....

So, the reverse mortgage is actually a negative amortization loan. There are no payments, so the payment is added back into the loan principal each month. Doesn't take much thinking to realize that the outstanding mortgage is going to grow at an ever-increasing rate. I forget the actual figure at which he would have had zero equity left in the house, but it was under ten years.

But you can stay there forever, right? Maybe. There's always fine print. In his case, if they had to leave the house for over 30 days they lost the title. After he passed away, we had to do a very quick sale on the house to pay for my mother-in-law's nursing home care. There was frighteningly little left.

Note that these are not my interpretations - we took the docs to an attorney because we needed to formulate a plan to pay for her nursing home expenses. It would be an understatement to say that his words regarding reverse mortgages were "unkind". A far better option would be to take out the biggest 30-year fixed mortgage possible, invest the cash, the draw against the account for living expenses and mortgage payments.

Minimum for considering a reverse mortgage should be:
1) An attorney review of the "fine print";
2) Accurately calculate the zero-equity point;
3) Assess your options for how you are going to pay your bills after hitting the zero-equity point;
4) Consider (1) again, especially with regard to conditions - such as medical - which might not permit occupying the home for more than short terms;
5) Finally, don't do it.

As I said, maybe there are better reverse mortgages out there. Maybe there are even some good ones; however, my direct experience indicates that the peddlers of reverse mortgages are predators for whom boiling in oil would be far too good a fate.

[MT930]

Just Say No! I have not seen a lot of success stories. They are acceptable if it's the last option for a parent that wants to stay in the house and has depleted their money.They can be risky for the banks in this market.

[Nathans_Dad]

This sounds like banks trying to take advantage of older people to me. They "pay you" on a monthly basis but guess what? When you die, all the interest from those "payments" comes due in one lump sum. Add to that the fact that you are losing equity in your house every month and it becomes quite possible that the interest on your reverse mortgage will eat up a good chunk of your estate when you die.

Seems to me it would be much better to simply refinance the home and cash out the balance, then stick that money in a interest earning account and pay the new monthly payments from there. You can withdraw the surplus on a monthly basis or whatever works for you. Plus you EARN interest on the money in the bank.

[berettafan]

it's a bull***** scam on clueless oldsters. ****ing disgusting the people they are getting to hawk this crap. yet another assault on america's dissappearing middle class.

[Jims5543]

Originally Posted by Nathans_Dad

This sounds like banks trying to take advantage of older people to me. They "pay you" on a monthly basis but guess what? When you die, all the interest from those "payments" comes due in one lump sum. Add to that the fact that you are losing equity in your house every month and it becomes quite possible that the interest on your reverse mortgage will eat up a good chunk of your estate when you die.

Seems to me it would be much better to simply refinance the home and cash out the balance, then stick that money in a interest earning account and pay the new monthly payments from there. You can withdraw the surplus on a monthly basis or whatever works for you. Plus you EARN interest on the money in the bank.

This was my initial thought on it. I felt like it was the banks taking advantage of older folks who are desperate for extra money since SS is not cutting it.

I can attest that with the exception of 1 out of 20 so far, 95% of the homes I have surveyed for Reverse Mortgages have been occupied by folks in the 70's and the houses are VERY run down. Sort of like either, no one cares about them or there is no one to care about them so they really do not care what happens to the house once they are gone.