Reverse Mortgage

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SemperFi79
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Reverse Mortgage

Post by SemperFi79 » Thu Nov 08, 2018 7:18 pm

My parents own their home and it has come to a point where they need in home care. It has been suggested that a reverse mortgage may be suitable for extra cash per month. In the past I have heard horror stories, however am hearing that it is much better than it used to be. Any thoughts or experience with reverse mortgages? Thanks

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vineviz
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Re: Reverse Mortgage

Post by vineviz » Thu Nov 08, 2018 8:13 pm

SemperFi79 wrote:
Thu Nov 08, 2018 7:18 pm
My parents own their home and it has come to a point where they need in home care. It has been suggested that a reverse mortgage may be suitable for extra cash per month. In the past I have heard horror stories, however am hearing that it is much better than it used to be. Any thoughts or experience with reverse mortgages? Thanks
A reverse mortgage might be a good solution, though they have greater advantages when taken earlier rather than later as might be the case for your parents.

https://retirementresearcher.com/using- ... come-plan/
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

jalbert
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Re: Reverse Mortgage

Post by jalbert » Thu Nov 08, 2018 11:33 pm

SemperFi79 wrote:
Thu Nov 08, 2018 7:18 pm
My parents own their home and it has come to a point where they need in home care. It has been suggested that a reverse mortgage may be suitable for extra cash per month. In the past I have heard horror stories, however am hearing that it is much better than it used to be. Any thoughts or experience with reverse mortgages? Thanks
They may make sense, but they tend to have high closing costs, require mortgage insurance which, along with interest accrues on the increasing principal with compounding. If their care needs increase and they cannot continue living in the house, the house will have to be sold after substantial equity could have been consumed.

Definitely try to run some numbers to compare to alternatives before making the decision.
Risk is not a guarantor of return.

HIinvestor
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Re: Reverse Mortgage

Post by HIinvestor » Thu Nov 08, 2018 11:37 pm

It is good to consider other options as well—outright sale of the residence, perhaps with the ability to rent it back? Does a family member want to buy it for FMV, maybe on installment and rent it back? Other assets to consider tapping? If seriously considering this, read the fine print on when the balance becomes due. For some, it us when any owner dies or moves to some other housing (assisted living, etc).

adamthesmythe
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Re: Reverse Mortgage

Post by adamthesmythe » Fri Nov 09, 2018 6:01 am

If they need in-home care, they may not be far from needing to move to a nursing home.

The reverse mortgage will be called if neither one is living in the house.

Sounds risky to me.

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vineviz
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Re: Reverse Mortgage

Post by vineviz » Fri Nov 09, 2018 6:57 am

adamthesmythe wrote:
Fri Nov 09, 2018 6:01 am
If they need in-home care, they may not be far from needing to move to a nursing home.

The reverse mortgage will be called if neither one is living in the house.

Sounds risky to me.
What’s the risk? If neither parent is occupying the house, it’s going to be sold anyway.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

FBN2014
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Re: Reverse Mortgage

Post by FBN2014 » Fri Nov 09, 2018 7:51 am

Wade Pfau highly advocates reverse mortgages. Don't be frightened by scare tactics. In the past they weren't so good. Today's reverse mortgage is a great product. Wade has written a book on the topic. Another good resource is Don Graves who also wrote a very good book.
Last edited by FBN2014 on Fri Nov 09, 2018 1:39 pm, edited 1 time in total.
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Admiral
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Re: Reverse Mortgage

Post by Admiral » Fri Nov 09, 2018 10:51 am

I don't like them. If you require money for in-home care, I'd consider a home equity loan, assuming they can get one based on their finances. Or, if they intend to leave you the home, are you able to pay for their care with the expectation that you will recoup your outlay when you get the house?

How old are they?

DrakeSRT
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Re: Reverse Mortgage

Post by DrakeSRT » Fri Nov 09, 2018 12:28 pm

Home equity loans require payments unless they are a Reverse Mtg.

searchher
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Re: Reverse Mortgage

Post by searchher » Fri Nov 09, 2018 1:26 pm

I think they're a very useful, realistic solution to cash flow issues. Leaving assets behind to loved ones shouldn't be the primary financial goal. Before that must come surviving. There's nothing wrong with one as long as you are conservative with estimating how much you can get for the house when you eventually sell... you don't want to use a loan that isn't going to match or be over the amount it eventually sells for.

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vineviz
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Re: Reverse Mortgage

Post by vineviz » Fri Nov 09, 2018 1:29 pm

searchher wrote:
Fri Nov 09, 2018 1:26 pm
I think they're a very useful, realistic solution to cash flow issues. Leaving assets behind to loved ones shouldn't be the primary financial goal. Before that must come surviving. There's nothing wrong with one as long as you are conservative with estimating how much you can get for the house when you eventually sell... you don't want to use a loan that isn't going to match or be over the amount it eventually sells for.
A home equity conversion mortgage (HECM), which is the government-insured reverse mortgage, is a non-recourse loan.

This means that neither the owner nor the heirs will ever owe more than the home is worth: if the house sells for less than the outstanding balance of the loan, the FHA is on the hook for the difference and not you or your family.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

startwithtruth
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Re: Reverse Mortgage

Post by startwithtruth » Fri Nov 09, 2018 4:09 pm

Jane Bryant Quinn's book "How to Make Your Money Last" had a detailed chapter on reverse mortgages, including laying out multiple scenarios and alternatives; she didn't seem to have an ax to grind either way - just tried to outline out the pro's and con's for different situations

jalbert
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Re: Reverse Mortgage

Post by jalbert » Fri Nov 09, 2018 11:33 pm

vineviz wrote:
Fri Nov 09, 2018 6:57 am
adamthesmythe wrote:
Fri Nov 09, 2018 6:01 am
If they need in-home care, they may not be far from needing to move to a nursing home.

The reverse mortgage will be called if neither one is living in the house.

Sounds risky to me.
What’s the risk? If neither parent is occupying the house, it’s going to be sold anyway.
The risk is spending down equity that may be needed to pay for higher levels of care.
Risk is not a guarantor of return.

jalbert
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Re: Reverse Mortgage

Post by jalbert » Fri Nov 09, 2018 11:34 pm

vineviz wrote:
Fri Nov 09, 2018 1:29 pm
searchher wrote:
Fri Nov 09, 2018 1:26 pm
I think they're a very useful, realistic solution to cash flow issues. Leaving assets behind to loved ones shouldn't be the primary financial goal. Before that must come surviving. There's nothing wrong with one as long as you are conservative with estimating how much you can get for the house when you eventually sell... you don't want to use a loan that isn't going to match or be over the amount it eventually sells for.
A home equity conversion mortgage (HECM), which is the government-insured reverse mortgage, is a non-recourse loan.

This means that neither the owner nor the heirs will ever owe more than the home is worth: if the house sells for less than the outstanding balance of the loan, the FHA is on the hook for the difference and not you or your family.
Mortgage insurance to cover that scenario is charged off to the home equity.
Risk is not a guarantor of return.

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vineviz
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Re: Reverse Mortgage

Post by vineviz » Sat Nov 10, 2018 1:24 am

jalbert wrote:
Fri Nov 09, 2018 11:33 pm
vineviz wrote:
Fri Nov 09, 2018 6:57 am
adamthesmythe wrote:
Fri Nov 09, 2018 6:01 am
If they need in-home care, they may not be far from needing to move to a nursing home.

The reverse mortgage will be called if neither one is living in the house.

Sounds risky to me.
What’s the risk? If neither parent is occupying the house, it’s going to be sold anyway.
The risk is spending down equity that may be needed to pay for higher levels of care.
But spending the equity is the goal. It’s not going to be an unexpected shock if it’s what you’re trying to do to begin with.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Nissanzx1
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Re: Reverse Mortgage

Post by Nissanzx1 » Sat Nov 10, 2018 8:05 am

Are they needing 24 hour in home care? If so, it will only be a matter of months until all their equity is smoked. Do they/you have a grasp on what this costs?

Might have to set them down and explain if 24 hour in home care isn't an option. I know elders want to stay in their home, but the reality for most is it just isn't financially possible unless they have Piles of resources.

jalbert
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Re: Reverse Mortgage

Post by jalbert » Sat Nov 10, 2018 3:55 pm

But spending the equity is the goal. It’s not going to be an unexpected shock if it’s what you’re trying to do to begin with.
Reverse mortgages are often high cost, high fee products that may spend down the equity at a faster rate than other options for tapping the equity. Their fixed costs and mortgage insurance may make them less attractive for someone who does not expect to be in the home a long time. My point was just that it would be a good idea to try to run some numbers to compare it to other options.

A property tax deferral that attaches a lien and pays the accrued tax when a property is sold is another option to consider.
Risk is not a guarantor of return.

BSBHead
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Re: Reverse Mortgage

Post by BSBHead » Sun Nov 11, 2018 1:05 pm

My grandfather took one out in the early 90's to pay for some medical costs. More or less accrued at 8-10% rate, so interest ate up equity value quickly and when we sent him to assisted living, reverse mortgage value was $300k v. a house worth $150k. It was an easy decision to turn in the keys when we put him in assisted living.

That being said, I think it was a mistake given he didn't take enough equity out upfront. He should've just done a home equity line for the expenses in the 90's. On the back-end, dealing with the reverse mortgage company to turn in the keys was a nightmare. It was a major time suck and that's with me working in corporate finance and my wife as a lawyer. We had to call no less than 20-25x, send certified letters, etc. Also, the reverse mortgage company had changed hands several since times from when it was originated, so no one really had a clue.

Good luck - it might make sense financially, but my experience was challenging.

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