Cash-out refinance and buy a SPIA vs. reverse mortgage?

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willthrill81
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Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by willthrill81 » Mon Apr 08, 2019 6:10 pm

I'm not very familiar with the payout rates of reverse mortgages, but recent threads regarding both them and annuities has gotten me wondering whether doing a cash-out refinance on your property and using the proceeds to buy a SPIA instead of taking out a reverse mortgage. From what I know, it seems that this would give the retiree more flexibility regarding how much equity to tap into via the refinance and what sort of SPIA to buy (e.g. nominal vs. real) and possibly encounter lower fees.

I'm very curious to know what others' thoughts regarding this approach are.
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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by quantAndHold » Mon Apr 08, 2019 6:20 pm

I hope Taylor Larimore will chime in, because he mentioned in another thread that he had done this. I’m curious too.

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by delamer » Mon Apr 08, 2019 6:27 pm

My impression is that many — or maybe most — people taking out a reverse mortgage don’t have the income to support a refinance.

But I’d agree that if you need cash and can qualify for a refi, then in most cases that is the better option (SPIA ot not).

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by willthrill81 » Mon Apr 08, 2019 7:42 pm

delamer wrote:
Mon Apr 08, 2019 6:27 pm
My impression is that many — or maybe most — people taking out a reverse mortgage don’t have the income to support a refinance.
Can SS benefits be used in support of a cash-out refi?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by beardedbrit » Mon Apr 08, 2019 7:51 pm

willthrill81 wrote:
Mon Apr 08, 2019 7:42 pm
delamer wrote:
Mon Apr 08, 2019 6:27 pm
My impression is that many — or maybe most — people taking out a reverse mortgage don’t have the income to support a refinance.
Can SS benefits be used in support of a cash-out refi?
Yup. Just refinanced a 15 year mortgage (about 40% paid down) to a 30 year, to improve cash flow now that I'm retiring, with an extra 30K cash-out for some home improvements. No problem in including my SS along with my wife's self employment earnings as our income stream.

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by Taylor Larimore » Mon Apr 08, 2019 8:10 pm

quantAndHold wrote:
Mon Apr 08, 2019 6:20 pm
I hope Taylor Larimore will chime in, because he mentioned in another thread that he had done this. I’m curious too.
quantAndHold:

Here we go:

When my wife and I were about 80, we mortgaged our home and purchased two Single Premium Immediate Annuities (SPIAs). With the added income during our lives assured, we were able to give our children most of the equity in our home while we were still alive and when they needed the money most.

In my view, it is best to wait until around age 80 before purchasing an Single Premium Immediate Annuity (SPIA) for these reasons:

* You might need the cash for an emergency.
* If your health deteriorates an annuity is usually a bad choice.
* Life income is larger or premium less.
* Inflation is less of a factor which allows an expensive "inflation rider" to be avoided.
* Current low interest rates may become higher which will make payments higher.
* If you wait, your portfolio becomes larger and you might not want or need an annuity.

Mel Lindauer is an annuity expert and wrote this article for Forbes:

https://www.forbes.com/2010/07/29/singl ... a4da532d89

A SPIA provides the largest guaranteed income of any security. Currently they pay around 8% for a couple aged 80. You can quickly see payouts for different ages here:

https://www.immediateannuities.com/

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by TravelforFun » Mon Apr 08, 2019 8:18 pm

In my case(age 67), had I refinanced my home, taken out $250k at 4% for 30 years, and used the money to buy a joint life SPIA, no cash refund, no COLA; I would have gotten $1,150 a month payout from the SPIA. However, the mortgage principal and interest would have cost me $1,200 a month.

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by delamer » Mon Apr 08, 2019 8:36 pm

willthrill81 wrote:
Mon Apr 08, 2019 7:42 pm
delamer wrote:
Mon Apr 08, 2019 6:27 pm
My impression is that many — or maybe most — people taking out a reverse mortgage don’t have the income to support a refinance.
Can SS benefits be used in support of a cash-out refi?
Sure, as can pensions.

There are asset depletion loans too, which use investments to qualify. But reverse mortgages have the most appeal to those with a lot of their net worth tied up in their home.
Last edited by delamer on Mon Apr 08, 2019 8:40 pm, edited 1 time in total.

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by willthrill81 » Mon Apr 08, 2019 8:38 pm

TravelforFun wrote:
Mon Apr 08, 2019 8:18 pm
In my case(age 67), had I refinanced my home, taken out $250k at 4% for 30 years, and used the money to buy a joint life SPIA, no cash refund, no COLA; I would have gotten $1,150 a month payout from the SPIA. However, the mortgage principal and interest would have cost me $1,200 a month.

TravelforFun
For that reason, I think that this strategy would work much better for older retirees (e.g. >80 years) when SPIA payouts are much higher.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by ThrustVectoring » Mon Apr 08, 2019 8:46 pm

Taylor Larimore wrote:
Mon Apr 08, 2019 8:10 pm

When my wife and I were about 80, we mortgaged our home and purchased two Single Premium Immediate Annuities (SPIAs). With the added income during our lives assured, we were able to give our children most of the equity in our home while we were still alive and when they needed the money most.
Note that you don't want to give all the equity in your home away while you are alive, assuming you have enough capital gains to owe taxes on sale. This is because of the step-up in basis that all estate assets receive after the owner dies - a $100k asset with $10k of taxes on unrealized capital gains on sale is essentially worth $100k to the estate, rather than the $90k you'd get by selling it.

All else equal, your estate is best served by financing your retirement through debt secured against appreciated assets, rather than selling them for cash. Transaction and carrying costs for various strategies can muddle things up a lot, though.
delamer wrote:
Mon Apr 08, 2019 6:27 pm
My impression is that many — or maybe most — people taking out a reverse mortgage don’t have the income to support a refinance.

But I’d agree that if you need cash and can qualify for a refi, then in most cases that is the better option (SPIA ot not).
If you have cash but no income, you could get the SPIA first and use the income from that to qualify for the refinance. If the money is locked up in appreciated taxable stocks, you could get bridge financing through a margin loan. Might also be able to talk to a mortgage underwriter about simply using existing assets to qualify you for the cash-out refinance.

I suspect that most people wait until their other options are exhausted before doing the reverse mortgage, though, so don't have the assets for any of these to really be feasible. Likely more relevant for the BH crowd, though.
Current portfolio: 60% VTI / 40% VXUS

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by TravelforFun » Mon Apr 08, 2019 10:50 pm

willthrill81 wrote:
Mon Apr 08, 2019 8:38 pm
TravelforFun wrote:
Mon Apr 08, 2019 8:18 pm
In my case(age 67), had I refinanced my home, taken out $250k at 4% for 30 years, and used the money to buy a joint life SPIA, no cash refund, no COLA; I would have gotten $1,150 a month payout from the SPIA. However, the mortgage principal and interest would have cost me $1,200 a month.

TravelforFun
For that reason, I think that this strategy would work much better for older retirees (e.g. >80 years) when SPIA payouts are much higher.
Idk. You're in the 80s, you borrow money on your home to buy an SPIA, then you and your wife die, the SPIA payout stops but the mortgage lives on.

TravelforFuns

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by quantAndHold » Mon Apr 08, 2019 11:42 pm

TravelforFun wrote:
Mon Apr 08, 2019 10:50 pm
willthrill81 wrote:
Mon Apr 08, 2019 8:38 pm
TravelforFun wrote:
Mon Apr 08, 2019 8:18 pm
In my case(age 67), had I refinanced my home, taken out $250k at 4% for 30 years, and used the money to buy a joint life SPIA, no cash refund, no COLA; I would have gotten $1,150 a month payout from the SPIA. However, the mortgage principal and interest would have cost me $1,200 a month.

TravelforFun
For that reason, I think that this strategy would work much better for older retirees (e.g. >80 years) when SPIA payouts are much higher.
Idk. You're in the 80s, you borrow money on your home to buy an SPIA, then you and your wife die, the SPIA payout stops but the mortgage lives on.

TravelforFuns
If my wife and I are both deceased, we won’t need a house anymore. Presumably, the house would get sold and the mortgage paid off with the sale proceeds. Just like selling any other home that has a mortgage.

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by CurlyDave » Tue Apr 09, 2019 12:32 am

quantAndHold wrote:
Mon Apr 08, 2019 11:42 pm

...If my wife and I are both deceased, we won’t need a house anymore. Presumably, the house would get sold and the mortgage paid off with the sale proceeds. Just like selling any other home that has a mortgage.
The problem that comes up is what if you have the audacity to die in a bad real estate market?

The house can sit unsold for a long time, maybe years, while your heirs have to keep making the mortgage payments. Or, they can stop making them, but depending on the state, the mortgage holder may sell the house at auction, for whatever they can get, and then come after the estate for any deficiency.

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by willthrill81 » Tue Apr 09, 2019 9:57 am

CurlyDave wrote:
Tue Apr 09, 2019 12:32 am
quantAndHold wrote:
Mon Apr 08, 2019 11:42 pm

...If my wife and I are both deceased, we won’t need a house anymore. Presumably, the house would get sold and the mortgage paid off with the sale proceeds. Just like selling any other home that has a mortgage.
The problem that comes up is what if you have the audacity to die in a bad real estate market?

The house can sit unsold for a long time, maybe years, while your heirs have to keep making the mortgage payments. Or, they can stop making them, but depending on the state, the mortgage holder may sell the house at auction, for whatever they can get, and then come after the estate for any deficiency.
That's no different that what happens with a reverse mortgage. If your heirs want the home, then neither the 'cash-out refi and SPIA' or reverse mortgage are good options.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by quantAndHold » Tue Apr 09, 2019 10:18 am

CurlyDave wrote:
Tue Apr 09, 2019 12:32 am
quantAndHold wrote:
Mon Apr 08, 2019 11:42 pm

...If my wife and I are both deceased, we won’t need a house anymore. Presumably, the house would get sold and the mortgage paid off with the sale proceeds. Just like selling any other home that has a mortgage.
The problem that comes up is what if you have the audacity to die in a bad real estate market?

The house can sit unsold for a long time, maybe years, while your heirs have to keep making the mortgage payments. Or, they can stop making them, but depending on the state, the mortgage holder may sell the house at auction, for whatever they can get, and then come after the estate for any deficiency.
So? If it’s between taking out a mortgage on my house, or not being able to live comfortably at the end of my life, I’ll take the mortgage. While I would prefer to leave my heirs a nice, tidy estate, my first priority is taking care of my own needs, and not being a financial burden on my kids while I’m alive.

And yes, I’ve been in this situation. Mom in law had a condo in a retirement community. There were no mortgage payments, but like most retirement communities, the condo dues were obscene, and there was no discount because the place was sitting empty. We sold it for a fire sale price after paying the dues for several months. She had a reverse mortgage which ate into the equity, but she was happy there, and the alternative would have been to have her live with one of us kids. Neither she nor any of the kids wanted that.

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by GAAP » Tue Apr 09, 2019 10:46 am

willthrill81 wrote:
Tue Apr 09, 2019 9:57 am
CurlyDave wrote:
Tue Apr 09, 2019 12:32 am
quantAndHold wrote:
Mon Apr 08, 2019 11:42 pm

...If my wife and I are both deceased, we won’t need a house anymore. Presumably, the house would get sold and the mortgage paid off with the sale proceeds. Just like selling any other home that has a mortgage.
The problem that comes up is what if you have the audacity to die in a bad real estate market?

The house can sit unsold for a long time, maybe years, while your heirs have to keep making the mortgage payments. Or, they can stop making them, but depending on the state, the mortgage holder may sell the house at auction, for whatever they can get, and then come after the estate for any deficiency.
That's no different that what happens with a reverse mortgage. If your heirs want the home, then neither the 'cash-out refi and SPIA' or reverse mortgage are good options.
The HECM lender eats the difference -- they can't go after the estate for the deficiency. HECMs do not change the way the property is titled, Mortgages and HELOCs do.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by CurlyDave » Tue Apr 09, 2019 10:57 am

willthrill81 wrote:
Tue Apr 09, 2019 9:57 am
...That's no different that what happens with a reverse mortgage. If your heirs want the home, then neither the 'cash-out refi and SPIA' or reverse mortgage are good options.
Actually, I think there is a substantial difference.

The balance on a reverse mortgage starts low and increases each month that the borrower lives, and probably until the house is sold.

A mortgage taken out to buy a SPIA, starts high, many times higher than the reverse mortgage, and slowly decreases with amortization.

An actuary could probably make up a table showing which one was better depending on years of life left.

But, since we are dealing with a sample of one or two the table would not have a lot of value in any individual situation.

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by james22 » Tue Apr 09, 2019 10:59 am

Another variable - a number of states allow the elderly to defer property taxes until they pass. They need own their home outright, however.
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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by willthrill81 » Tue Apr 09, 2019 11:10 am

CurlyDave wrote:
Tue Apr 09, 2019 10:57 am
A mortgage taken out to buy a SPIA, starts high, many times higher than the reverse mortgage, and slowly decreases with amortization.
It's not necessary to take out a mortgage for the full amount possible; the amount could be considerably less than the retiree's equity in the property.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by willthrill81 » Tue Apr 09, 2019 11:11 am

GAAP wrote:
Tue Apr 09, 2019 10:46 am
willthrill81 wrote:
Tue Apr 09, 2019 9:57 am
CurlyDave wrote:
Tue Apr 09, 2019 12:32 am
quantAndHold wrote:
Mon Apr 08, 2019 11:42 pm

...If my wife and I are both deceased, we won’t need a house anymore. Presumably, the house would get sold and the mortgage paid off with the sale proceeds. Just like selling any other home that has a mortgage.
The problem that comes up is what if you have the audacity to die in a bad real estate market?

The house can sit unsold for a long time, maybe years, while your heirs have to keep making the mortgage payments. Or, they can stop making them, but depending on the state, the mortgage holder may sell the house at auction, for whatever they can get, and then come after the estate for any deficiency.
That's no different that what happens with a reverse mortgage. If your heirs want the home, then neither the 'cash-out refi and SPIA' or reverse mortgage are good options.
The HECM lender eats the difference -- they can't go after the estate for the deficiency. HECMs do not change the way the property is titled, Mortgages and HELOCs do.
It depends on the state. In mine, WA, lenders can't go after the estate if the proceeds of the collateralized property are insufficient to satisfy the mortgage.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by GAAP » Tue Apr 09, 2019 11:47 am

I think an alternative might be to take out a HECM LOC at age 62 (the minimum), don't touch it (let it grow as much as possible), and then buy the SPIA if needed at 80. There is no requirement to take a cash-out HECM.
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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by willthrill81 » Tue Apr 09, 2019 12:32 pm

GAAP wrote:
Tue Apr 09, 2019 11:47 am
I think an alternative might be to take out a HECM LOC at age 62 (the minimum), don't touch it (let it grow as much as possible), and then buy the SPIA if needed at 80. There is no requirement to take a cash-out HECM.
That sounds reasonable and would almost certainly result in lower fees.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by delamer » Tue Apr 09, 2019 1:55 pm

willthrill81 wrote:
Tue Apr 09, 2019 12:32 pm
GAAP wrote:
Tue Apr 09, 2019 11:47 am
I think an alternative might be to take out a HECM LOC at age 62 (the minimum), don't touch it (let it grow as much as possible), and then buy the SPIA if needed at 80. There is no requirement to take a cash-out HECM.
That sounds reasonable and would almost certainly result in lower fees.
Lower fees relative to...?

I am not sure what you mean.

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by CurlyDave » Tue Apr 09, 2019 2:00 pm

willthrill81 wrote:
Tue Apr 09, 2019 11:10 am
CurlyDave wrote:
Tue Apr 09, 2019 10:57 am
A mortgage taken out to buy a SPIA, starts high, many times higher than the reverse mortgage, and slowly decreases with amortization.
It's not necessary to take out a mortgage for the full amount possible; the amount could be considerably less than the retiree's equity in the property.
If one is looking for a reverse mortgage that will make payments the same size as the SPIA payments, my statement is absolutely true.

If you are looking at different monthly income from the two schemes it is the classic apples vs. oranges thing.

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by willthrill81 » Tue Apr 09, 2019 3:26 pm

delamer wrote:
Tue Apr 09, 2019 1:55 pm
willthrill81 wrote:
Tue Apr 09, 2019 12:32 pm
GAAP wrote:
Tue Apr 09, 2019 11:47 am
I think an alternative might be to take out a HECM LOC at age 62 (the minimum), don't touch it (let it grow as much as possible), and then buy the SPIA if needed at 80. There is no requirement to take a cash-out HECM.
That sounds reasonable and would almost certainly result in lower fees.
Lower fees relative to...?

I am not sure what you mean.
The fees for reverse mortgages are reportedly quite high, whereas HELOCs are much more competitive.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by delamer » Tue Apr 09, 2019 3:34 pm

willthrill81 wrote:
Tue Apr 09, 2019 3:26 pm
delamer wrote:
Tue Apr 09, 2019 1:55 pm
willthrill81 wrote:
Tue Apr 09, 2019 12:32 pm
GAAP wrote:
Tue Apr 09, 2019 11:47 am
I think an alternative might be to take out a HECM LOC at age 62 (the minimum), don't touch it (let it grow as much as possible), and then buy the SPIA if needed at 80. There is no requirement to take a cash-out HECM.
That sounds reasonable and would almost certainly result in lower fees.
Lower fees relative to...?

I am not sure what you mean.
The fees for reverse mortgages are reportedly quite high, whereas HELOCs are much more competitive.
But a HECM as suggested by GAAP is a reverse mortgage. That’s why I was confused.

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by willthrill81 » Tue Apr 09, 2019 3:54 pm

delamer wrote:
Tue Apr 09, 2019 3:34 pm
willthrill81 wrote:
Tue Apr 09, 2019 3:26 pm
delamer wrote:
Tue Apr 09, 2019 1:55 pm
willthrill81 wrote:
Tue Apr 09, 2019 12:32 pm
GAAP wrote:
Tue Apr 09, 2019 11:47 am
I think an alternative might be to take out a HECM LOC at age 62 (the minimum), don't touch it (let it grow as much as possible), and then buy the SPIA if needed at 80. There is no requirement to take a cash-out HECM.
That sounds reasonable and would almost certainly result in lower fees.
Lower fees relative to...?

I am not sure what you mean.
The fees for reverse mortgages are reportedly quite high, whereas HELOCs are much more competitive.
But a HECM as suggested by GAAP is a reverse mortgage. That’s why I was confused.
Looking back, I was confused as well. I don't see the point in taking out a reverse mortgage LOC only to then use the proceeds to buy a SPIA.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by delamer » Tue Apr 09, 2019 4:03 pm

willthrill81 wrote:
Tue Apr 09, 2019 3:54 pm
delamer wrote:
Tue Apr 09, 2019 3:34 pm
willthrill81 wrote:
Tue Apr 09, 2019 3:26 pm
delamer wrote:
Tue Apr 09, 2019 1:55 pm
willthrill81 wrote:
Tue Apr 09, 2019 12:32 pm


That sounds reasonable and would almost certainly result in lower fees.
Lower fees relative to...?

I am not sure what you mean.
The fees for reverse mortgages are reportedly quite high, whereas HELOCs are much more competitive.
But a HECM as suggested by GAAP is a reverse mortgage. That’s why I was confused.
Looking back, I was confused as well. I don't see the point in taking out a reverse mortgage LOC only to then use the proceeds to buy a SPIA.
Agreed. A reverse mortgage can be a useful tool, but tying up the proceeds in a SPIA eliminates flexibility.

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by willthrill81 » Tue Apr 09, 2019 4:37 pm

delamer wrote:
Tue Apr 09, 2019 4:03 pm
willthrill81 wrote:
Tue Apr 09, 2019 3:54 pm
delamer wrote:
Tue Apr 09, 2019 3:34 pm
willthrill81 wrote:
Tue Apr 09, 2019 3:26 pm
delamer wrote:
Tue Apr 09, 2019 1:55 pm


Lower fees relative to...?

I am not sure what you mean.
The fees for reverse mortgages are reportedly quite high, whereas HELOCs are much more competitive.
But a HECM as suggested by GAAP is a reverse mortgage. That’s why I was confused.
Looking back, I was confused as well. I don't see the point in taking out a reverse mortgage LOC only to then use the proceeds to buy a SPIA.
Agreed. A reverse mortgage can be a useful tool, but tying up the proceeds in a SPIA eliminates flexibility.
I see potential value in someone doing what Taylor outlined above. At an advanced age, SPIA payouts can be very attractive and could potentially serve as a stop-gap measure for those with significant home equity who needed to convert some of that to lifetime income. But it seems that there would need to be many boxes to be checked first for it to truly be worthwhile.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by delamer » Tue Apr 09, 2019 4:42 pm

willthrill81 wrote:
Tue Apr 09, 2019 4:37 pm
delamer wrote:
Tue Apr 09, 2019 4:03 pm
willthrill81 wrote:
Tue Apr 09, 2019 3:54 pm
delamer wrote:
Tue Apr 09, 2019 3:34 pm
willthrill81 wrote:
Tue Apr 09, 2019 3:26 pm


The fees for reverse mortgages are reportedly quite high, whereas HELOCs are much more competitive.
But a HECM as suggested by GAAP is a reverse mortgage. That’s why I was confused.
Looking back, I was confused as well. I don't see the point in taking out a reverse mortgage LOC only to then use the proceeds to buy a SPIA.
Agreed. A reverse mortgage can be a useful tool, but tying up the proceeds in a SPIA eliminates flexibility.
I see potential value in someone doing what Taylor outlined above. At an advanced age, SPIA payouts can be very attractive and could potentially serve as a stop-gap measure for those with significant home equity who needed to convert some of that to lifetime income. But it seems that there would need to be many boxes to be checked first for it to truly be worthwhile.
My understanding is that Taylor did a conventional mortgage that he and his wife had the income to repay, not a reverse mortgage.

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willthrill81
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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by willthrill81 » Tue Apr 09, 2019 5:26 pm

delamer wrote:
Tue Apr 09, 2019 4:42 pm
willthrill81 wrote:
Tue Apr 09, 2019 4:37 pm
delamer wrote:
Tue Apr 09, 2019 4:03 pm
willthrill81 wrote:
Tue Apr 09, 2019 3:54 pm
delamer wrote:
Tue Apr 09, 2019 3:34 pm


But a HECM as suggested by GAAP is a reverse mortgage. That’s why I was confused.
Looking back, I was confused as well. I don't see the point in taking out a reverse mortgage LOC only to then use the proceeds to buy a SPIA.
Agreed. A reverse mortgage can be a useful tool, but tying up the proceeds in a SPIA eliminates flexibility.
I see potential value in someone doing what Taylor outlined above. At an advanced age, SPIA payouts can be very attractive and could potentially serve as a stop-gap measure for those with significant home equity who needed to convert some of that to lifetime income. But it seems that there would need to be many boxes to be checked first for it to truly be worthwhile.
My understanding is that Taylor did a conventional mortgage that he and his wife had the income to repay, not a reverse mortgage.
Precisely, which is what seems the better option to me.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Cash-out refinance and buy a SPIA vs. reverse mortgage?

Post by GAAP » Tue Apr 09, 2019 5:51 pm

willthrill81 wrote:
Tue Apr 09, 2019 3:54 pm

Looking back, I was confused as well. I don't see the point in taking out a reverse mortgage LOC only to then use the proceeds to buy a SPIA.
The point is to take out the LOC early and not use the proceeds unless you need them. Taking out the LOC early allows the value to grow over time. Buying the SPIA late increases the resulting monthly income. The LOC will continue to grow regardless of what the housing market does -- which decouples the funds source from that market. The LOC also provides ready cash for emergencies, especially useful if the housing and financial markets take a big hit at the same time.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee

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