Would a reverse mortgages a good idea for mom?

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squirm
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Joined: Sat Mar 19, 2011 11:53 am

Would a reverse mortgages a good idea for mom?

Post by squirm »

My mother lives alone, she is 77 and in good health (knocking on wood here). She has 4 rental income properties. One is a single family house that is paid off and worth about 150k and can generate about 1.2k a month. The other three are apartments that generate about 3k a month, small balance on that building is about 90k. The home she lives in is worth about 850k-950k. The balance of the mortgage on the house that she lives in is about $400k @ 4.5%. Frankly, my mother is getting low on cash. She has refi'd multiple times in the past and taken cash out, that is why her balance on the primary residence is 400k. She has cut expenses down where she really can't cut anymore.

Ruminating through alternatives, such as selling the single family rental house, to HELOC, to reverse mortgage. My brother and I were talking about a reverse mortgage for her, but really don't know the process any anything about it. I thought I read in the past to stay away from those, but don't know if that has changed.

Mom is thinking about moving in the next 3-5 years, however she has said that multiple times in the past and still hasn't moved.

Any help is highly appreciated and sorry if these statements are somewhat sketchy.
enderland
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Joined: Sat Mar 23, 2013 11:36 am

Re: Would a reverse mortgages a good idea for mom?

Post by enderland »

I feel like I am missing something.

Why doesn't she sell the house she owes $400k on but has $450k-500k equity, pay off the other rental immediately, buy a place for the $400k net (or less), and then stop worrying. She will be generating $4k a month gross from paid off rentals (I don't know what she pays in expenses here, subtract that) and presumably has some social security income as well?
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bottomfisher
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Joined: Fri Jan 04, 2013 8:03 am

Re: Would a reverse mortgages a good idea for mom?

Post by bottomfisher »

This article was published on CNBC earlier this week "Reverse Mortgages Backfiring on Some Seniors"

http://www.cnbc.com/id/100788816
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damjam
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Location: Brooklyn, NY

Re: Would a reverse mortgages a good idea for mom?

Post by damjam »

I would echo enderland and suggest your mother sell her primary residence and purchase something smaller outright. Not only would her mortgage payment be eliminated, but in all likelihood maintenance costs would also be reduced. Of course she would still need to pay taxes, insurance and maintenance. Would such a move be enough to get your mother back in the black?
I'm not sure if I would pay off the mortgage on the rental property because it is being expensed at this point. I would run some tax calculations before making a decision.

Edit to add: I'm not a fan of reverse mortgages. The fees are very high and it does not free you from having to pay for taxes, insurance and maintenance on a too big house. There is also required mortgage insurance for a reverse mortgage. See: Pros and Cons of Reverse Mortgages.
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