Reverse Mortgage

ChiefGator

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Thread to discuss reverse mortgages, their use, advantages, disadvantages.

For me they make no sense since I am not short of cash nor in love with my house.

Comment as you desire.
 

Concrete Helmet

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You have to meet age and equity requirements and they are backed by HUD which means you actually have 2 mortgages encumbering your primary residence...I see it as more of a last ditch desperation for retirement income if you own your house outright....hope I'm never in that position as I plan on taking the $500K exemption, then downsizing which gives me another tax break and using my rental resources and retirement savings to sail out of this life....
 
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Gatormb

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Jul 26, 2018
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Well, full disclosure, I originate them and have one myself.

When I was at UF in 1976 I took a Finance course from Professor Richardson. I believe he'd been Mayor of Gainesville several times. Anyway he wrote an article "Rent, Don't own". He explained that Seniors biggest asset was the equity in their home that improved the quality of retirement "Zero" other than not having a payment (assuming the home was free & clear). He advocated selling, banking the cash and renting.

Reverse Mortgages came during the Reagan Administration allowing Seniors to access the equity in their homes without a payment. Can't tell yo how many lives it's changed. You still own you home and when you (Both) die the equity goes to your heirs. If your home becomes upside down it is the only mortgage you are NOT responsible for the negative equity.

There was negative press when one younger spouse was left off the mortgage so they could get more money (the older you are the more you get) only to have to sell within a year when their spouse died. It was a sham. They were made aware at origination but used the press to advantage. That has produced changes in the product.
 

Gatormb

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Jul 26, 2018
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You have to meet age and equity requirements and they are backed by HUD which means you actually have 2 mortgages encumbering your primary residence...I see it as more of a last ditch desperation for retirement income if you own your house outright....hope I'm never in that position as I plan on taking the $500K exemption, then downsizing which gives me another tax break and using my rental resources and retirement savings to sail out of this life....

I'm downsizing now. Selling my 3,200 ft home and building a cabin on acreage in Plant City. Will be able to take advantage of the $500k exemption and pay cash for my $350K cabin. So now I have a free and clear home that does zero to enhance my retirement. So I'll reverse it and have access to another $175,000 tax free.
 

Concrete Helmet

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I'm downsizing now. Selling my 3,200 ft home and building a cabin on acreage in Plant City. Will be able to take advantage of the $500k exemption and pay cash for my $350K cabin. So now I have a free and clear home that does zero to enhance my retirement. So I'll reverse it and have access to another $175,000 tax free.
Why not take out a HELOC in first position for $175K? Use it if you need it(you can even invest it) and don't use it if you don't?
 

ChiefGator

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Good discussion, but how much of the actual value do you get. I understand that sometimes the deal ends when one of the couple dies.
 

BMF

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Well, full disclosure, I originate them and have one myself.

When I was at UF in 1976 I took a Finance course from Professor Richardson. I believe he'd been Mayor of Gainesville several times. Anyway he wrote an article "Rent, Don't own". He explained that Seniors biggest asset was the equity in their home that improved the quality of retirement "Zero" other than not having a payment (assuming the home was free & clear). He advocated selling, banking the cash and renting.

Reverse Mortgages came during the Reagan Administration allowing Seniors to access the equity in their homes without a payment. Can't tell yo how many lives it's changed. You still own you home and when you (Both) die the equity goes to your heirs. If your home becomes upside down it is the only mortgage you are NOT responsible for the negative equity.

There was negative press when one younger spouse was left off the mortgage so they could get more money (the older you are the more you get) only to have to sell within a year when their spouse died. It was a sham. They were made aware at origination but used the press to advantage. That has produced changes in the product.

This is interesting, but I just couldn't see a scenario where it's a "good" idea unless the person is old w/ no heirs.

You can do a google search and there are a ton of articles - from mostly reputable sources - on how it's a bad idea:

5 Signs a Reverse Mortgage Is a Bad Idea

Taking out a reverse mortgage is almost never a good idea — here's why

What Is a Reverse Mortgage?

Pros and Cons of Reverse Mortgages
 

Gatormb

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Jul 26, 2018
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This is interesting, but I just couldn't see a scenario where it's a "good" idea unless the person is old w/ no heirs.

You can do a google search and there are a ton of articles - from mostly reputable sources - on how it's a bad idea:

5 Signs a Reverse Mortgage Is a Bad Idea

Taking out a reverse mortgage is almost never a good idea — here's why

What Is a Reverse Mortgage?

Pros and Cons of Reverse Mortgages

Well the first link was a winner. Five reasons not to get a reverse mortgage:

1) You want to leave a free and clear home to your children.
2) You are going to move soon.
3) You live with someone who is NOT on the loan with you (you cannot pass the benefits to them.
4) You have medical conditions that would cause you to go to a nursing home.
5) You can't afford to pay your taxes & insurance.

Well Duh. Don't think I could come up with more lame excuses if I tried.

It's pretty simple. Obviously they are not for everybody but

1) If you have an existing mortgage and have equity you can improve your cash flow by eliminating your principle & interest payment.

2) You convert your biggest asset into an income (assuming you could use it to enhance your retirement.
 

BMF

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Well the first link was a winner. Five reasons not to get a reverse mortgage:

1) You want to leave a free and clear home to your children.
2) You are going to move soon.
3) You live with someone who is NOT on the loan with you (you cannot pass the benefits to them.
4) You have medical conditions that would cause you to go to a nursing home.
5) You can't afford to pay your taxes & insurance.

Well Duh. Don't think I could come up with more lame excuses if I tried.

It's pretty simple. Obviously they are not for everybody but

1) If you have an existing mortgage and have equity you can improve your cash flow by eliminating your principle & interest payment.

2) You convert your biggest asset into an income (assuming you could use it to enhance your retirement.

I understand that you underwrite these products and have skin in the game....but I could have linked 30 more articles that advocate against it.
 

Gatormb

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Jul 26, 2018
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I understand that you underwrite these products and have skin in the game....but I could have linked 30 more articles that advocate against it.

Did one recently for a college professor who told me her financial advisor (Who handles the Manatee County Sheriff Dept & Bradenton Police) advised her against. I met with him. Twenty minutes later he turned to her and asked what she was waiting for. I lowered her mortgage payments (first & second) by $30,000/year so she could retire with having to sell her waterfront property.

They're not for everybody. For example if your loaded and extremely secure there's no reason but what about the seniors who have free & clear, or nearly, barely getting by on SS and maybe a pension. That equity does nothing to improve their quality of life. Sure they can get an equity loan but then add payments and eventually the draws stop and you have to amortize over a short period.

The horror storied mainly revolve around unscrupulous lenders who leave a younger spouse off to get more benefit and then the older spouse dies and the younger has to move.
 

BMF

Bad Mother....
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Sep 8, 2014
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Did one recently for a college professor who told me her financial advisor (Who handles the Manatee County Sheriff Dept & Bradenton Police) advised her against. I met with him. Twenty minutes later he turned to her and asked what she was waiting for. I lowered her mortgage payments (first & second) by $30,000/year so she could retire with having to sell her waterfront property.

They're not for everybody. For example if your loaded and extremely secure there's no reason but what about the seniors who have free & clear, or nearly, barely getting by on SS and maybe a pension. That equity does nothing to improve their quality of life. Sure they can get an equity loan but then add payments and eventually the draws stop and you have to amortize over a short period.

The horror storied mainly revolve around unscrupulous lenders who leave a younger spouse off to get more benefit and then the older spouse dies and the younger has to move.

Good info.
 

FireFoley

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There are very few situations IMO where a reverse mortgage makes good sense. They are quite expensive with fees and you need to decide whether you want the money up front, take it periodically or a line of credit. When you take a line and then use it, the finance charges are astronomical. I did help one person get one, but she is over 70, no family and still had a small mortgage, which was eating into her retirement. She got got great relief from not having to make the monthly mortgage payment and since she has no family to leave the house to, she did not care who gets it. She is now more comfortable paying the insurance and taxes and has that line of credit should an emergency arise,.
 

Gatormb

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Jul 26, 2018
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There are very few situations IMO where a reverse mortgage makes good sense. They are quite expensive with fees and you need to decide whether you want the money up front, take it periodically or a line of credit. When you take a line and then use it, the finance charges are astronomical. I did help one person get one, but she is over 70, no family and still had a small mortgage, which was eating into her retirement. She got got great relief from not having to make the monthly mortgage payment and since she has no family to leave the house to, she did not care who gets it. She is now more comfortable paying the insurance and taxes and has that line of credit should an emergency arise,.

Origination fee is max $6,000 and usually only charged on free & clear (or close to) properties who only fund closing costs at funding. That's because the originator gets paid on the amount funded at closing. 2-3 points on $15,000 doesn't cut it (less than $500). If the loan funds a lot then I waive the origination fee. Yes there is mortgage insurance BUT if you get upside down you nor your heirs are responsible for the difference.

With reference to ASTRONOMICAL finance charges please explain. It's a simple interest FHA insured loan with current rates in the 3.5% range. Add MI of 1.25% and you're still under 5%. How is that Astronomical? Let's not forget the unused line of credit s not charged any interest and actually grows at the same rate. A $100,000 line of credit grows to $105,000 at the end of a year.

True story on my first reverse deal. Lady in her 80's. House appraised for $250K. She only wanted $30k for repairs. I got her that plus an additional $130k in a line of credit. Every month she came in with her statement pissed off. I finally got her to understand she was NOT paying interest on her line of credit and she calmed down.

Then she wrecked her car and needed $20K for another.
Then she needed $15k for dental work and now I'm her HERO.

Then the market crashed in '07 and the value of her house dropped to $125,000. I explained to her nobody is promised tomorrow and advised her to pull the entire $160k out and put it in saving for her son. At the time she owed around $80k. I explained if she passed he would have one year to sell her NOW $125K house and net maybe $30. Take it all out and he gets $80K and gets to live there for another year before handing the keys over with no obligation.

She took my advice and died two months later.
 

Gatormb

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Jul 26, 2018
707
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Why not take out a HELOC in first position for $175K? Use it if you need it(you can even invest it) and don't use it if you don't?

HELOC's start out interest only but eventually the draws stop and (usually after 10 years) you have to amortize it back over ten years (may vary). For example I had a $250k I had to start amortizing after the interest only ran out. The payment was nearly $2,500 a month plus taxes and insurance. I reversed it. I now only have taxes and insurance.
 

Gatormb

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Jul 26, 2018
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613
Good discussion, but how much of the actual value do you get. I understand that sometimes the deal ends when one of the couple dies.

The older you are the more you get. They just recently a couple of years ago cut it back about 10%. At 62 you get a little less than 50% of the value of the property (net after costs). Obviously if you're 75 they'll give you a lot more because all things being equal you will die sooner and there's less time for the neg am to build up.

The deal lasts until the last of the couple dies. Before you could have a "Non-borrowing" spouse that was too young and leave them off the mortgage. They were made aware if the spouse died they had one year to pay it off. That's some of the bad press. Even though they acknowledged it prior to closing when it happened they would go to the press who headlined "Greedy Lender Forecloses on Grieving Widow!" Now the figures are based on the younger non borrowing spouses age. They get less but they get to stay.
 

Traumagirl

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Jul 18, 2016
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It sometimes makes sense. If you are retired and very low income need the income to live and don’t want to leave your home. If you are not attached to staying it generally makes more sense to sell and use the money to create an income stream with a mix of closed end funds like nuveen.
 

ChiefGator

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Good discussion, but I have seen no marketing to poor people, more like middle class people who are attached to their home, and don't have enough money to do whatever they might like. As they say it is not a way for the bank to get your house, just your money.
 

Bushmaster

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Much like Vegas, if these were good deals for the property owner, reverse mortgages wouldnt exist. These mortgagors are making good money with little to no downside.

In Vegas, they aren't building billion $$ casinos because the house is losing money
 

Pablos Tunnel

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You have to meet age and equity requirements and they are backed by HUD which means you actually have 2 mortgages encumbering your primary residence...I see it as more of a last ditch desperation for retirement income if you own your house outright....hope I'm never in that position as I plan on taking the $500K exemption, then downsizing which gives me another tax break and using my rental resources and retirement savings to sail out of this life....
I hope you have nothing but “full sails”. Im with you. It is anlast ditch option. The HUD insurance is a killer on these. However, for many they can be a life saver.
 

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