Reverse Mortgages - Pros, Cons

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Yellowjacket1
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Reverse Mortgages - Pros, Cons

Post by Yellowjacket1 » Tue Sep 18, 2018 7:07 pm

Financial advisor calculated our retirement assuming we would take a reverse mortgage on our home. I am not that familiar with them. What are their pros and cons?

drawpoker
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Re: Reverse Mortgages - Pros, Cons

Post by drawpoker » Tue Sep 18, 2018 7:15 pm

Yowza. You are opening up can of worms here.

There has been a ton of threads about reverse mortgages here. Do a search, start reading.

You will get an earful. :shock: :shock: :shock: :shock: :shock:

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Flobes
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Re: Reverse Mortgages - Pros, Cons

Post by Flobes » Tue Sep 18, 2018 8:28 pm

Wade Pfau wrote the book, "Reverse Mortgages: How to use Reverse Mortgages to Secure Your Retirement." Be sure to get the revised, 2018 edition.

Thesaints
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Re: Reverse Mortgages - Pros, Cons

Post by Thesaints » Tue Sep 18, 2018 8:32 pm

Yellowjacket1 wrote:
Tue Sep 18, 2018 7:07 pm
Financial advisor calculated our retirement assuming we would take a reverse mortgage on our home.
Did he do that because it is the only way to support your retirement, or because it allowed him more freedom with a big chunk of your capital ?

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Mlm
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Re: Reverse Mortgages - Pros, Cons

Post by Mlm » Tue Sep 18, 2018 8:43 pm

Ask him/her to redo the plan without the reverse mortgage. I would leave that as a last resort.

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Watty
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Re: Reverse Mortgages - Pros, Cons

Post by Watty » Tue Sep 18, 2018 8:58 pm

Mlm wrote:
Tue Sep 18, 2018 8:43 pm
Ask him/her to redo the plan without the reverse mortgage. I would leave that as a last resort.
+1

One problem with people taking a reverse mortgage when they are relatively young is that it can defer people having to cut back on a lifestyle that they really cannot afford.

AlohaJoe
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Re: Reverse Mortgages - Pros, Cons

Post by AlohaJoe » Tue Sep 18, 2018 9:03 pm

Yellowjacket1 wrote:
Tue Sep 18, 2018 7:07 pm
Financial advisor calculated our retirement assuming we would take a reverse mortgage on our home. I am not that familiar with them. What are their pros and cons?
According to a 2018 article in the Journal of Retirement, "Retire on the House: The Possible Uses of Reverse Mortgages to Enhance Retirement Security"
The author describes the features and history of reverse mortgages; reviews the existing literature on the motivations people have to use their houses to pay for retirement expenses, especially for long-term services and supports; and, in original empirical simulations, finds that only 12%–14% of all retired households are suitable for, and might sensibly use, an HECM.
Without knowing any details, it seems unlikely that a reverse mortgage should be part of your retirement plan.

drawpoker
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Re: Reverse Mortgages - Pros, Cons

Post by drawpoker » Tue Sep 18, 2018 9:11 pm

Yes, more details needed.

I think the consensus of the last thread we had hashing this out - a reverse mortgage is a last resort, the kind of thing to be considered only if all other possible sources of funds are exhausted.

Of the many reasons, high on the list is the obscenely high fees these type mortgages come with compared to conventional/and other FHA insured lending

bhsince87
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Re: Reverse Mortgages - Pros, Cons

Post by bhsince87 » Tue Sep 18, 2018 9:21 pm

The laws have changed drastically recently, so disregard anything you read that's more than a few years old.

From my perspective, they can be a good option to counter sequence of return risks. But I don't think I would include them as part of my main plan.

Then again, I'm a 3% safe withdrawal rate fan ....
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Kevin8696
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Re: Reverse Mortgages - Pros, Cons

Post by Kevin8696 » Tue Sep 18, 2018 10:48 pm

Maybe the FA wants you to have more AUM with him/her ? Ka-ching !!
Maybe the FA gets a referral fee from the lender. Ka-ching !!

Yellowjacket1
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Re: Reverse Mortgages - Pros, Cons

Post by Yellowjacket1 » Wed Sep 19, 2018 6:05 pm

FA put together spreadsheet with our assets, expenses, expected life expectancy. To achieve the standard of living we wanted in retirement, he had to use a reverse mortgage.

FA is a fee only advisor and we have depended on him for > 35 years. FA advises ex CEOs, pilots, doctors, etc. Hedoesn’t need To trick anybody or an additional $500 or $1000.

I guess we could cut back our retirement aspirations, but would need a good reason not to use the reverse mortgage.

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Re: Reverse Mortgages - Pros, Cons

Post by fantasytensai » Wed Sep 19, 2018 6:12 pm

I have no kids, and do not plan on having any. For me, a reverse mortgage may not be a bad idea, if I can get a fair valuation.

JoeRetire
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Re: Reverse Mortgages - Pros, Cons

Post by JoeRetire » Wed Sep 19, 2018 6:13 pm

Yellowjacket1 wrote:
Tue Sep 18, 2018 7:07 pm
Financial advisor calculated our retirement assuming we would take a reverse mortgage on our home. I am not that familiar with them. What are their pros and cons?
Didn't you ask your financial adviser this question?
Is your adviser a fiduciary?
How old are you and your spouse?

In some cases, a reverse mortgage can make sense. But I would expect a good financial adviser to explain the pros and cons to you so that you can make an informed decision.
Last edited by JoeRetire on Wed Sep 19, 2018 6:18 pm, edited 1 time in total.

JoeRetire
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Re: Reverse Mortgages - Pros, Cons

Post by JoeRetire » Wed Sep 19, 2018 6:15 pm

Watty wrote:
Tue Sep 18, 2018 8:58 pm
Mlm wrote:
Tue Sep 18, 2018 8:43 pm
Ask him/her to redo the plan without the reverse mortgage. I would leave that as a last resort.
+1

One problem with people taking a reverse mortgage when they are relatively young is that it can defer people having to cut back on a lifestyle that they really cannot afford.
???

What if they can afford the lifestyle by using the reverse mortgage?
Then a cutback is avoided rather than being deferred.

Kevin8696
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Re: Reverse Mortgages - Pros, Cons

Post by Kevin8696 » Wed Sep 19, 2018 6:47 pm

Mlm wrote:
Tue Sep 18, 2018 8:43 pm
Ask him/her to redo the plan without the reverse mortgage. I would leave that as a last resort.
I would agree with this advice. Have your FA show you two plans, with and without the reverse mortgage.

Then have your FA explain the pros and cons of the reverse mortgage (lots of cons... costs, high interest rates, other costs, fees, and more fees).

Then go home and think it through, so that you know what you are getting into. Especially what happens if you ever want to move.

One thing to note is that a lot of folks here see the reverse mortgage as the last place to go for money when you absolutely have to do so.
Last edited by Kevin8696 on Wed Sep 19, 2018 6:48 pm, edited 1 time in total.

NextMil
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Re: Reverse Mortgages - Pros, Cons

Post by NextMil » Wed Sep 19, 2018 6:47 pm

Find a new advisor.

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Re: Reverse Mortgages - Pros, Cons

Post by Carefreeap » Wed Sep 19, 2018 7:05 pm

Watty wrote:
Tue Sep 18, 2018 8:58 pm
Mlm wrote:
Tue Sep 18, 2018 8:43 pm
Ask him/her to redo the plan without the reverse mortgage. I would leave that as a last resort.
+1

One problem with people taking a reverse mortgage when they are relatively young is that it can defer people having to cut back on a lifestyle that they really cannot afford.
Including no or low equity in the house to fund retirement/assisted living expenses thus limiting options getting into a good one.

I'm looking at the slow trainwreck that my father and his g/f have gotten themselves into. Took a mortgage at age 65 ish to buy a 2500 sq.ft. house on 2.5 acres. Within a few years couldn't afford the regular mortgage so took out a reverse mortgage. 15 years or so later mortgage is about 70% LTV despite the property appreciating substantially. Can't afford to hire anyone to help so the property is going into decline. This isn't going to be pretty and the kids (my brother and I) will get stuck trying to find a Medicaid approved facility in a HCOLA area as Dad has no other assets. He and Mom filed BK when Dad was 60, divorced and he basically gave up, stopped working and took early SS. He's now approaching 83, basically blind and deaf. Not a good situation for anyone involved.

drawpoker
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Re: Reverse Mortgages - Pros, Cons

Post by drawpoker » Wed Sep 19, 2018 7:13 pm

There are several troubling things here.

Presumably, your F.A. knows your age to be 62, right? That is awfully young to be taking out a reverse mortgage. In fact, one of the arguments against it at that age is you could conceivably use up all the money available (you can't borrow more than 80% against the house) The total amount of money available under a reverse, whether you take it as a lump sum or a line of credit, is finite.

Slick salesmen try to get around this by saying that as the market value of the house appreciates it will increase your borrowing limits. But, the interest rate is also changing, too, and it goes up, not down. So don't fall for that baloney that you can't use up all the money before you die (or get carted off to nursing home)

As for the F.A., didn't he come up with any alternate plans to support the lifestyle you crave? If your principal residence is worth a lot of money, (hence the idea behind the reverse) it is very odd that he did not suggest you sell it. Downsize to something that will not cost as much to insure, maintain, and pay taxes on.

Frankly, if I was only 62 and my F.A. could recommend nothing that did not include a reverse mortgage as the core, I would be wondering a whole lot. :shock:

Just because you have known and trusted the guy for over 35 years is no guarantee of future results. He could be at an age where he is starting to lose it, memory failing. Maybe taking many meds affecting his judgement. Or even hooked on drugs. There are more and more cases of white-collar professionals, lawyers, doctors, educators, etc. with these type problems. But they continue to work as long as they can get away with it.

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Watty
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Re: Reverse Mortgages - Pros, Cons

Post by Watty » Wed Sep 19, 2018 8:11 pm

JoeRetire wrote:
Wed Sep 19, 2018 6:15 pm
Watty wrote:
Tue Sep 18, 2018 8:58 pm
Mlm wrote:
Tue Sep 18, 2018 8:43 pm
Ask him/her to redo the plan without the reverse mortgage. I would leave that as a last resort.
+1

One problem with people taking a reverse mortgage when they are relatively young is that it can defer people having to cut back on a lifestyle that they really cannot afford.
???

What if they can afford the lifestyle by using the reverse mortgage?
Then a cutback is avoided rather than being deferred.
A lot really depends on their age and somewhat their health. At the age of 80+ I have no problem with seeing how a reverse mortgage can make a lot of sense to maintain their lifestyle and I have that on my list of options when I am older.

The problem is that the original poster is apparently in his or her 60's so they stand a reasonable chance of living another 30 years or longer. With a reverse mortgage they would be adding the interest of the reverse mortgage to their expenses so they would deplete their net worth faster. If they have other assets then they could avoid the interest cost by spending those first.

I would also be concerned that if you are pushing that far with a reverse mortgage that you might have serious problems if you run into five or ten years of poor investing returns early in your retirement.

There can be some grey areas but taking out a reverse mortgage in your 60's would be a bright red flag that you may be overspending.

stoptothink
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Re: Reverse Mortgages - Pros, Cons

Post by stoptothink » Wed Sep 19, 2018 8:36 pm

Yellowjacket1 wrote:
Wed Sep 19, 2018 6:05 pm
FA is a fee only advisor and we have depended on him for > 35 years. FA advises ex CEOs, pilots, doctors, etc. Hedoesn’t need To trick anybody or an additional $500 or $1000.
Not sure how this is remotely relevant. One of my best friend's is a crazy successful FA who "advises" some incredibly financially successful individuals; his credentials are virtually non-existent and I wouldn't even consider letting him look at my financial situation (and he is well aware of this). He's a fantastic salesman and that trait has done him well. Your FA's client list has no bearing on their actual level of expertise or whether they have your best interest in mind.

You might be better off posting more details about your current situation and getting the advice of some random internet strangers. It's worth a try.
Last edited by stoptothink on Wed Sep 19, 2018 8:38 pm, edited 1 time in total.

drawpoker
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Re: Reverse Mortgages - Pros, Cons

Post by drawpoker » Wed Sep 19, 2018 8:38 pm

Watty wrote:
Wed Sep 19, 2018 8:11 pm
The problem is that the original poster is apparently in his or her 60's ..............
Yellowjacket1 has posted in other threads he is a male age 62.

TravelforFun
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Re: Reverse Mortgages - Pros, Cons

Post by TravelforFun » Wed Sep 19, 2018 8:46 pm

If I didn't have kids or grandkids, I would definitely look into a reverse mortgage, the type that would pay me a stream of monthly payments until both of us pass. I would also take all my money and buy a deferred annuity to create another income stream. Add the third income stream called social security to it and now we know for certain how much we can spend each month until the day we die. No messing around with asset allocation or SWR; nor worrying about sequence of return.

But we have kids and grandkids.

TravelforFun

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SevenBridgesRoad
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Re: Reverse Mortgages - Pros, Cons

Post by SevenBridgesRoad » Wed Sep 19, 2018 9:19 pm

Yellowjacket1 wrote:
Wed Sep 19, 2018 6:05 pm
FA put together spreadsheet with our assets, expenses, expected life expectancy. To achieve the standard of living we wanted in retirement, he had to use a reverse mortgage.

FA is a fee only advisor and we have depended on him for > 35 years. FA advises ex CEOs, pilots, doctors, etc. Hedoesn’t need To trick anybody or an additional $500 or $1000.

I guess we could cut back our retirement aspirations, but would need a good reason not to use the reverse mortgage.
YJ1, please don't take this wrong. I'm not being critical in any way. I am coming from a truly curious place: what has this trusted FA done for the last 35 years? What have you "depended on him for", if not for a plan that you/"we" understood and would fund a successful retirement per your aspirations? Something isn't making sense here. Did he not five or ten or fifteen years ago tell you, hey, things are looking dicey and you need to do this, this and this? And, maybe start thinking about a RM? It sounds like in the final moments, he realizes only a RM will allow you to achieve your retirement aspirations (and then he doesn't explain it to you). But you've been working on this for three and a half decades. Can you see why this doesn't make sense? Please add more context. Something is missing from the story.
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JoeRetire
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Re: Reverse Mortgages - Pros, Cons

Post by JoeRetire » Thu Sep 20, 2018 6:38 am

Watty wrote:
Wed Sep 19, 2018 8:11 pm
JoeRetire wrote:
Wed Sep 19, 2018 6:15 pm
Watty wrote:
Tue Sep 18, 2018 8:58 pm
Mlm wrote:
Tue Sep 18, 2018 8:43 pm
Ask him/her to redo the plan without the reverse mortgage. I would leave that as a last resort.
+1

One problem with people taking a reverse mortgage when they are relatively young is that it can defer people having to cut back on a lifestyle that they really cannot afford.
???

What if they can afford the lifestyle by using the reverse mortgage?
Then a cutback is avoided rather than being deferred.
A lot really depends on their age and somewhat their health. At the age of 80+ I have no problem with seeing how a reverse mortgage can make a lot of sense to maintain their lifestyle and I have that on my list of options when I am older.

The problem is that the original poster is apparently in his or her 60's so they stand a reasonable chance of living another 30 years or longer. With a reverse mortgage they would be adding the interest of the reverse mortgage to their expenses so they would deplete their net worth faster. If they have other assets then they could avoid the interest cost by spending those first.

I would also be concerned that if you are pushing that far with a reverse mortgage that you might have serious problems if you run into five or ten years of poor investing returns early in your retirement.

There can be some grey areas but taking out a reverse mortgage in your 60's would be a bright red flag that you may be overspending.
This is a math problem with one variable being longevity.

If they are conservative enough with their longevity estimates, and do the math properly, then they won't have much risk. A good financial adviser would discuss all of this with them.

FWIW, I see no indication that there is any plan to take a reverse mortgage in their 60's. The OP hasn't indicated their ages, nor have they indicated at what point in their lives their financial adviser is suggesting that they take out the reverse mortgage.

Nissanzx1
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Re: Reverse Mortgages - Pros, Cons

Post by Nissanzx1 » Thu Sep 20, 2018 6:51 am

Reverse mortgages typically are loaded with very high fees. Fees for origination, and commissions for your FA. Might be better to take a traditional mortgage.

I would look at finding a new FA myself, and also question all other advice from this FA. Absolutely silly advise unless you are nearly flat broke and desperate.

SQRT
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Re: Reverse Mortgages - Pros, Cons

Post by SQRT » Thu Sep 20, 2018 9:18 am

It can be a great product. Problem is the fees and interest rate. In Canada the rates can easily be 3% higher than a conventional mortgage.

Kevin8696
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Re: Reverse Mortgages - Pros, Cons

Post by Kevin8696 » Thu Sep 20, 2018 9:24 am

When you take out a reverse mortgage, do they give you the bumper sticker that says "We're spending our kids inheritance" ?

Yellowjacket1
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Re: Reverse Mortgages - Pros, Cons

Post by Yellowjacket1 » Thu Sep 20, 2018 12:16 pm

FA is a former professor of tax accounting and has done our taxes for 35 plus years. He has provided excellent advice over the past 35+ years. That includes both tax advice and investment advice. He ran his own agency until about 15 years ago. His grandchildren were in Hilton Head, so he “retired” to Hilton Head. He took a select number of clients with him.

The retirement plan he created assumed I retired at 66, 4 months my Full Retirement Age (FRA). The retirement plan assumed we could use a reverse mortgage after we had expended our savings. Yes, we can sell the house and move into something smaller. Right now, that is not an option for my wife. She is attached to the house and wants to have room for kids/grandkids to come back and visit.

As another poster noted, I am 62 andon disability. Expect to be on disability until my FRA. So, am “retired” earlier than planned so I thought the reverse mortgage may be more probable. Based on the opinions so far, I will need to work on wife to sell this home and find something smaller/cheaper.

bhsince87
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Re: Reverse Mortgages - Pros, Cons

Post by bhsince87 » Fri Sep 21, 2018 10:54 am

I'd reccomend listening to your advisor. In some situations (possibly yours), a reverse mortage can be cheaper than selling and downsizing.

Where folks can get into trouble with a reversemortage is if they take a lump sum and expect that to last them the rest of their lives.

But if you take the lifetime payment option,a reverse mortgage can act like an annuity and possibly even offer some inflation protection.

The only situation I've seen where people get into trouble with that option is if both members of the couple need to move out of the house near the same time.
Retirement: When you reach a point where you have enough. Or when you've had enough.

bhsince87
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Re: Reverse Mortgages - Pros, Cons

Post by bhsince87 » Fri Sep 21, 2018 11:01 am

For example, read this post on recent research on reverse mortgages. If your advisor was a financial academic, I suspect he is aware of this research. Most folks on this board may not be.

https://retirementresearcher.com/using- ... come-plan/
Retirement: When you reach a point where you have enough. Or when you've had enough.

drawpoker
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Re: Reverse Mortgages - Pros, Cons

Post by drawpoker » Fri Sep 21, 2018 2:25 pm

Research? You call this research?

Never heard of this guy so I read thru the link. Guess what, gee, in order to learn the secrets of reverse mortgages, you hafta

Buy His Book!

What a load of baloney. :P :P :P

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arcticpineapplecorp.
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Re: Reverse Mortgages - Pros, Cons

Post by arcticpineapplecorp. » Fri Sep 21, 2018 2:47 pm

drawpoker wrote:
Fri Sep 21, 2018 2:25 pm
Research? You call this research?

Never heard of this guy so I read thru the link. Guess what, gee, in order to learn the secrets of reverse mortgages, you hafta

Buy His Book!

What a load of baloney. :P :P :P
Just because you haven't heard of him doesn't mean he's not a trusted and highly valuable resource to the boglehead community and retirement planning in general. Dr. Pfau is highly respected and has authored and co-authored widely cited papers (one of which, with Michael Kitces, whom you probably also never heard of but that doesn't mean he hasn't provided a wealth of information through the years) and teaches at the American College. Dr. Pfau has spoken at bogleheads conferences. Please do not disparage those intelligent folks who have devoted their lives to helping others and expanding the base of knowledge for future generations merely because they wish to make a buck like everyone else. You can learn more about Dr. Pfau if you wish to keep an open mind by starting here: https://www.google.com/search?q=wade+pf ... fox-b-1-ab

Another interesting podcast (discussed briefly on bogleheads) was with Robert Merton on the New Retirement Podcast, link here: https://www.newretirement.com/retiremen ... etirement/

What was particularly interesting about this interview was Dr. Merton's take on using reverse mortgages in certain cases (this doesn't apply to the OP's situation, but it may to some bogleheads). His thinking was out of the box regarding reverse mortgages and made me consider things I hadn't before. That's what learning's all about. Each situation may not apply, but I'd rather have more options, more understanding than less. We should be open to new ideas when they come along, if only to critique them or see the nuances/the pros and cons.
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

sailaway
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Re: Reverse Mortgages - Pros, Cons

Post by sailaway » Fri Sep 21, 2018 2:50 pm

drawpoker wrote:
Fri Sep 21, 2018 2:25 pm
Research? You call this research?

Never heard of this guy so I read thru the link. Guess what, gee, in order to learn the secrets of reverse mortgages, you hafta

Buy His Book!

What a load of baloney. :P :P :P
You could check with your local library. You could clearly use some more reading on retirement investing if you have never heard of Dr. Pfau.

bhsince87
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Re: Reverse Mortgages - Pros, Cons

Post by bhsince87 » Fri Sep 21, 2018 6:16 pm

sailaway wrote:
Fri Sep 21, 2018 2:50 pm
drawpoker wrote:
Fri Sep 21, 2018 2:25 pm
Research? You call this research?

Never heard of this guy so I read thru the link. Guess what, gee, in order to learn the secrets of reverse mortgages, you hafta

Buy His Book!

What a load of baloney. :P :P :P
You could check with your local library. You could clearly use some more reading on retirement investing if you have never heard of Dr. Pfau.

And you can subscribe to amazon kindle unlimited for a one month free trial, read this and other books, and cancel before 30 days is up and not spend a penny.
Retirement: When you reach a point where you have enough. Or when you've had enough.

michaeljc70
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Re: Reverse Mortgages - Pros, Cons

Post by michaeljc70 » Fri Sep 21, 2018 6:27 pm

The fees are substantial. I think, and I know a lot of people don't want to do this when they are too old, moving when you are younger (like 65) to a smaller/cheaper place or rental is a better idea if you think you are cutting it close and have substantial equity. There are people living in the same house they have for xx years when they had 4 kids and don't need that kind of space. I know there are sentimental attachments, but not running out of money is more important.

I have a 91 yo Grandma that struggles with money and lives in one room in her house. It doesn't make sense. She owes my Mother $$$$$, but that is better than a reverse mortgage. My Mother will recover her $$$$ when Grandma passes and the house is sold.

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mlebuf
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Re: Reverse Mortgages - Pros, Cons

Post by mlebuf » Fri Sep 21, 2018 7:47 pm

We opted for a reverse mortgage (aka HECM) in August 2016. The total upfront cost was $125. The initial line of credit was $369,670. Today the LOC has appreciated to $410,496. Since that time the rules have changed and the intial LOC would be less. Under today's rules my initial LOC would be $291,109 according to this calculator: https://retirementresearcher.com/revers ... alculator/

Wade Pfau, who wrote an excellent book on reverse mortgages was very helpful in the process of finding a company to handle it. Thank you again, Wade.
https://www.amazon.com/Reverse-Mortgage ... e+mortgage

Given that both of us are in our 70's, have a flagship portfolio, no debt. Social Security and pensions, odds are we will never need the HECM to pay our bills. However, I see it as another tool on the financial planning belt that gives us access to appreciating, tax-free liquidity that does not have to be repaid until the house is sold or the last one of us dies. If we never use the HECM, we are only out of $125 spent 2 years ago. For people 62 and older who have a lot of home equity, I believe it's a good deal. Even with the new rules and a lower initial LOC, if I had it to do all over, I would still do it.
Best wishes, | Michael | | Invest your time actively and your money passively.

JoeRetire
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Re: Reverse Mortgages - Pros, Cons

Post by JoeRetire » Fri Sep 21, 2018 8:42 pm

drawpoker wrote:
Fri Sep 21, 2018 2:25 pm
Never heard of this guy
You never heard of Wade Pfau? Seriously?

You've been here over 4 years. In that period of time, he has been mentioned at least100 times (you can search for "Wade Pfau" using the Google tool in the upper-right).

Perhaps you missed it.
Last edited by JoeRetire on Sat Sep 22, 2018 2:35 pm, edited 1 time in total.

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mlebuf
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Re: Reverse Mortgages - Pros, Cons

Post by mlebuf » Sat Sep 22, 2018 1:57 am

drawpoker wrote:
Fri Sep 21, 2018 2:25 pm
Research? You call this research?

Never heard of this guy so I read thru the link. Guess what, gee, in order to learn the secrets of reverse mortgages, you hafta

Buy His Book!

What a load of baloney. :P :P :P
"Better to remain silent and be thought a fool than to speak and to remove all doubt."
- Mark Twain
Best wishes, | Michael | | Invest your time actively and your money passively.

michaeljc70
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Re: Reverse Mortgages - Pros, Cons

Post by michaeljc70 » Sat Sep 22, 2018 8:57 am

mlebuf wrote:
Fri Sep 21, 2018 7:47 pm
We opted for a reverse mortgage (aka HECM) in August 2016. The total upfront cost was $125. The initial line of credit was $369,670. Today the LOC has appreciated to $410,496. Since that time the rules have changed and the intial LOC would be less. Under today's rules my initial LOC would be $291,109 according to this calculator: https://retirementresearcher.com/revers ... alculator/

Wade Pfau, who wrote an excellent book on reverse mortgages was very helpful in the process of finding a company to handle it. Thank you again, Wade.
https://www.amazon.com/Reverse-Mortgage ... e+mortgage

Given that both of us are in our 70's, have a flagship portfolio, no debt. Social Security and pensions, odds are we will never need the HECM to pay our bills. However, I see it as another tool on the financial planning belt that gives us access to appreciating, tax-free liquidity that does not have to be repaid until the house is sold or the last one of us dies. If we never use the HECM, we are only out of $125 spent 2 years ago. For people 62 and older who have a lot of home equity, I believe it's a good deal. Even with the new rules and a lower initial LOC, if I had it to do all over, I would still do it.
Is there any cost to draw out money? Isn't some insurance required? What is the interest rate? You've only listed one fee that is low if you don't use it.

spectec
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Re: Reverse Mortgages - Pros, Cons

Post by spectec » Sat Sep 22, 2018 11:03 am

If the FA is really reliable and knowledgeable, perhaps he is floating the idea of a reverse mortgage as a roundabout way to get you to rethink your expectations in retirement. Perhaps he expects you to reject the idea of lowering your expectations if he just comes right out and says it, so he is proposing a last-resort financial move as the only possible way to achieve those expectations if you live too long.

Personally, I have always thought of a reverse mortgage as the final desperate step, to be implemented only after everything else in a financial plan has irretrievably failed.
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. - Will Rogers

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mlebuf
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Re: Reverse Mortgages - Pros, Cons

Post by mlebuf » Sat Sep 22, 2018 12:14 pm

michaeljc70 wrote:
Sat Sep 22, 2018 8:57 am
Is there any cost to draw out money? Isn't some insurance required? What is the interest rate? You've only listed one fee that is low if you don't use it.
When money is drawn out, the home owner is charged interest that will be paid when the home is sold in addition to the amount borrowed. Like any other mortgage, it is not interest free. I suspect that the interest rate will be determined by interest rates at the time, but I honestly don't know. As for insurance, the property must be insured. The borrower is required to provide proof that he can pay the premiums, taxes and other costs to maintain the property in order to qualify for a HECM.
Best wishes, | Michael | | Invest your time actively and your money passively.

michaeljc70
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Re: Reverse Mortgages - Pros, Cons

Post by michaeljc70 » Sat Sep 22, 2018 12:31 pm

mlebuf wrote:
Sat Sep 22, 2018 12:14 pm
michaeljc70 wrote:
Sat Sep 22, 2018 8:57 am
Is there any cost to draw out money? Isn't some insurance required? What is the interest rate? You've only listed one fee that is low if you don't use it.
When money is drawn out, the home owner is charged interest that will be paid when the home is sold in addition to the amount borrowed. Like any other mortgage, it is not interest free. I suspect that the interest rate will be determined by interest rates at the time, but I honestly don't know. As for insurance, the property must be insured. The borrower is required to provide proof that he can pay the premiums, taxes and other costs to maintain the property in order to qualify for a HECM.
I believe mortgage insurance is also charged.

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vineviz
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Re: Reverse Mortgages - Pros, Cons

Post by vineviz » Sat Sep 22, 2018 12:33 pm

spectec wrote:
Sat Sep 22, 2018 11:03 am
Personally, I have always thought of a reverse mortgage as the final desperate step, to be implemented only after everything else in a financial plan has irretrievably failed.
I think this is the common view, which may be one reason they aren't as popular in the U.S. as they probably should be.

The reality is that reverse mortgages may very well be better for investors if they are taken out relatively early in retirement.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

inbox788
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Re: Reverse Mortgages - Pros, Cons

Post by inbox788 » Sat Sep 22, 2018 1:23 pm

Would you be taking out a reverse mortgage immediately? What would you do with those funds? You're basically borrowing to invest if you don't spend the funds right now. It's not all that different from charging it to your credit card and letting your estate pay it off in the end. The mostly false promise of you ever paying it off before that and keeping your home is very unrealistic. Some people have no alternative, but the question becomes, what is your alternative, short of reducing spending, to financing the desired expenses? A credit card is probably more expensive, but short term, not by much because of the high startup costs of a reverse mortgage. A HELC is probably less expensive, but may be more limited.

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dm200
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Re: Reverse Mortgages - Pros, Cons

Post by dm200 » Sat Sep 22, 2018 1:26 pm

We have a lot of equity in our home of 40 years. Still a mortgage, because we took some money out 15 years ago. The first mortgage is only 10-15% of market value -- and the house needs a bit of work.

I believe we will get a reverse mortgage in the next 5-10 years - since there are several strong reasons for us to stay in the house.

spectec
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Re: Reverse Mortgages - Pros, Cons

Post by spectec » Sat Sep 22, 2018 10:27 pm

vineviz wrote:
Sat Sep 22, 2018 12:33 pm
spectec wrote:
Sat Sep 22, 2018 11:03 am
Personally, I have always thought of a reverse mortgage as the final desperate step, to be implemented only after everything else in a financial plan has irretrievably failed.
I think this is the common view, which may be one reason they aren't as popular in the U.S. as they probably should be.

The reality is that reverse mortgages may very well be better for investors if they are taken out relatively early in retirement.
Maybe so, but I remain unconvinced. Possibly some day I'll see the light. But for now, every time I see a TV personality I otherwise like doing a reverse mortgage commercial, my respect for them diminishes roughly to the same degree as when I see them pushing annuities.
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. - Will Rogers

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mlebuf
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Re: Reverse Mortgages - Pros, Cons

Post by mlebuf » Sat Sep 22, 2018 10:28 pm

This link should answer most questions about fees involved in a reverse mortgage:https://www.reversemortgage.org/Your-Ro ... isclosures

In the two years I have had the unused line of credit, my out of pocket costs have been zero.

One excellent strategy for someone with a lot of home equity, who plans to stay in their home for a long time is to take out a HECM line of credit at age 62 (or ASAP) and only draw on it after all other financial resources have been exhausted. That gives the line of credit years to appreciate. However the money can be used to pay for home improvements, long-term care and numerous other options. Anyone seriously considering a reverse mortgage needs to read Wade Pfau's book. It's an excellent resource. Just be sure to get the 2018 edition.
Best wishes, | Michael | | Invest your time actively and your money passively.

Kompass
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Re: Reverse Mortgages - Pros, Cons

Post by Kompass » Sat Sep 22, 2018 11:17 pm

mlebuf wrote:
Sat Sep 22, 2018 10:28 pm
This link should answer most questions about fees involved in a reverse mortgage:https://www.reversemortgage.org/Your-Ro ... isclosures

In the two years I have had the unused line of credit, my out of pocket costs have been zero.

One excellent strategy for someone with a lot of home equity, who plans to stay in their home for a long time is to take out a HECM line of credit at age 62 (or ASAP) and only draw on it after all other financial resources have been exhausted. That gives the line of credit years to appreciate. However the money can be used to pay for home improvements, long-term care and numerous other options. Anyone seriously considering a reverse mortgage needs to read Wade Pfau's book. It's an excellent resource. Just be sure to get the 2018 edition.
+1 Anything from before Oct 2017 is out of date

I have this idea on my list for review when I turn 62. If I own a home at that time it will be paid for and I hope to use this as tool to have access to funds that would otherwise be illiquid if the need should arise. I think it would be a “sleep at night” measure as well as a resource to smooth out withdrawals during down markets and either repay during up years or let it sort out upon death or sale. I have no heirs.

I am 57 now but will continue to study this and other strategies for transitioning from accumulation phase to retirement income phase. I believe breaking it down this way will be the way many start looking at it as opposed to the previous way of having a big chunk of funds and praying for the right SWR. I think annuities can also play a roll and will study these as well.

I have a lot of respect for the work of Wade Pfau and would recommend anyone to read both of his books before judging the content.
The large print giveth and the fine print taketh away.

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Re: Reverse Mortgages - Pros, Cons

Post by Dandy » Sun Sep 23, 2018 9:02 am

I'm sure there are cases where it is very useful. My limited experience with aging relatives/in laws is that there is a great feeling to stay in their home. Often this extends far longer than is really good for them. At age 70 I get it. Who wants to uproot their life and move to an apartment, assisted living etc. too much hassle too much adjustment.

I'm not saying the urge to stay in the home is wrong only that it can be. The reverse mortgage option can just reinforce that feeling when finances are tight and defer the move. My feeling is it is better to move while you still have most of your physical and mental abilities and your finances so you can adjust to the new setting easier. It may postpone or avoid a move to institutional care.

My parents moved to Florida for financial reasons and had to be "rescued" by my sister when dad got sick. Not a critical sickness just needed to recover from surgery but he couldn't drive and Mom had dementia. They refused offers to them to move in with my sister for years.

My mother-in-law stayed in a large house for a decade by herself. Was a virtual prisoner in the winter with a hilly/icy driveway. Once fell on the driveway and was saved by a neighbor who happened to see her lying on the ground. later she fell and broke her wrist and never returned home after being hospitalized and sent to rehab. She didn't have a reverse mortgage but would have been much happier in an apartment close to her daughters or in assisted living where she even knew some friends that were residents. But, there are very strong emotional ties to your home and lots of fear about making such a change.

Finally, it is very hard and often expensive to keep a house in good condition if you can't do some of the work yourself. So, while the lawn mowing/driveway plowing can be relatively inexpensive other tasks often are not. e.g. gutter cleaning and maintenance, painting, landscaping, roof leaks, weeding, driveway repair/sealing, plumbing, etc. The point is that the house value starts depreciating vs others in the area.

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Re: Reverse Mortgages - Pros, Cons

Post by TTBG » Sun Sep 23, 2018 9:57 am

Dandy wrote:
Sun Sep 23, 2018 9:02 am
...
I'm not saying the urge to stay in the home is wrong only that it can be. The reverse mortgage option can just reinforce that feeling when finances are tight and defer the move. My feeling is it is better to move while you still have most of your physical and mental abilities and your finances so you can adjust to the new setting easier. It may postpone or avoid a move to institutional care.
...
+1. After seeing several relatives decline in their 'forever homes' when they would have been less isolated and more financially secure by downsizing, I personally wouldn't consider taking out a reverse mortgage since it might make it even harder to make the right decision when it's time to move.

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