Reverse mortgages
 

For a few self-induced reasons, my parents are considering a reverse mortgage. They are completely broke, have been living on a line of credit on their house, have living expenses that exceed their SS payments and are desperate.

Is there some sort of rule of thumb that companies use to determine what they will pay for a reverse mortgage? It seems that someone will try to take advantage of them and will succeed with about 99% certainty.

I've looked into the subject and I think when it gets to be that time it's better to sell and move into something affordable with the proceeds. If they don't have much equity left, they won't be considered for a RM anyway.

And you're right, the banks hold the upper hand in these. The only way one really makes out on a RM is to live to be really old and leave nothing behind for anyone else.

One other option (and one I will probably take) is to rent out the house and try to find a differential in expenses vs. income to help out. I don't know how it is in WI, but here in SoCal, I would be bringing in some good cash while still holding the real estate.

But, I won't be able to stay in SoCal.

With rare exceptions this is a bad idea. Rough example...very fact dependent. Husband and wife own home outright..no liens...worth $100K. He's 69/she's 65. They could probably get a max lump sum in the $38-40K range. Upon death of the latter home would go to mortgagee. They'd still have to pay property taxes, insurance etc...if not there are ways for the RM company to get the house before they died.

PLEASE read every article in this link before you talk to them about it/let them do it. Rife with suprises and even fraud: Reverse Mortgages, Reverse Mortgage Education Program, - AARP

No real advice re: rules of thumb for RM valuation, but a heads up to take a serious look at the closing costs etc associated with the reverse mortgage market... some are downright predatory. They typically take the bite out of your equity (i.e. you won't need to pay these costs out of pocket, they are paid out of the amount the bank "owes" you over the life of the loan) but they can be quite large.
I think AARP might have a tutorial on the subject.

I think I saw a recent Consumer Reports article on this too.

My dad went through this last year. He had @$40k cash and another @$100k in simple stocks. House was valued. @$800k - no liens

He was afraid of running out of cash - he was 88 - we talked him out of it - based on his burn rate he had enough to last 3 years. - he passed this past Feb