Reverse Mortgage

Gatormb

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Jul 26, 2018
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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.

Have you seen the cost to rent these days? Two bedroom apartments here are $1,600 plus a month. Houses even more. Just sold a duplex in what used to be a great area. Bought it 30 years ago. Now not so much. I wouldn't walk the street at night unarmed. 2/1, 750 sq ft, carport. No upgrades. New owner raised the rent to $1,150/month.

With a reverse all you pay is taxes and insurance and the property creates an income with zero risk.
 

Gatormb

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Jul 26, 2018
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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.

Poor people don't generally have a lot of equity in their homes.

Reverses generally are broken down to three types of borrowers.

1) Those who want to turn their equity into an income stream with no payments.

2) Those who want to pay off their exiting mortgage to eliminate the payment.

3) Combination of 1 & 2.
 

Gatormb

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Jul 26, 2018
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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.

HUD insurance, if you use less than 60% of available, is 1/2% up front and 1.25% annually ONLY on what you have borrowed. Regular FHA loans are .85%. Over 60% is 2% up front.

Sell your home with a Realtor and pay 4-6%.
 

ChiefGator

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Poor people don't generally have a lot of equity in their homes.

Reverses generally are broken down to three types of borrowers.

1) Those who want to turn their equity into an income stream with no payments.

2) Those who want to pay off their exiting mortgage to eliminate the payment.

3) Combination of 1 & 2.

Perhaps my idea of poor people is for this case different. I meant folks without retirement savings as "poor". Not welfare and medicaid poor.

And if you had good retirement savings why would you want to do either of those things while selling for less than fair market value?
 

Gatormb

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Jul 26, 2018
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Perhaps my idea of poor people is for this case different. I meant folks without retirement savings as "poor". Not welfare and medicaid poor.

And if you had good retirement savings why would you want to do either of those things while selling for less than fair market value?

I think we may have a misunderstanding. When you get a Reverse you are not selling anything. It's your home. The lender is merely using it for collateral (as with all mortgages) but the loan to value is less (varies with age) because since you have no payments (still responsible for taxes and insurance) the interest accumulates and is paid when the house is sold. When the last borrower dies the heirs inherit and are given one year to refinance or sell. The heirs keep the equity. If the property is upside down they are given first shot at purchase of 90% of appraised value.
 

ChiefGator

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I think we may have a misunderstanding. When you get a Reverse you are not selling anything. It's your home. The lender is merely using it for collateral (as with all mortgages) but the loan to value is less (varies with age) because since you have no payments (still responsible for taxes and insurance) the interest accumulates and is paid when the house is sold. When the last borrower dies the heirs inherit and are given one year to refinance or sell. The heirs keep the equity. If the property is upside down they are given first shot at purchase of 90% of appraised value.

So they loan you money for 10% of the appraised value? How do they make any money that way, or perhaps I still don't understand.

In any case it is for only those that want to stay in their home and can't afford to do that otherwise.
 

Gatormb

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Jul 26, 2018
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So they loan you money for 10% of the appraised value? How do they make any money that way, or perhaps I still don't understand.

In any case it is for only those that want to stay in their home and can't afford to do that otherwise.

1) Have to be at least 62. At that age you will get available (after costs) approximately 45% of appraised value (recently dropped).

2) The older the youngest borrower is (assuming there are 2) the more loan to value they give you. For example an 80 year old will get a higher ltv than a 65 year old. Why? Because all things being equal he will die sooner so there's less time for the unpaid interest to be added to the amount due.

3) There are three products. 1) fixed (in the 5% range) 2) Annual adjustable with 2/5 caps and 3) monthly adjustable with a 10% (over start rate) lifetime cap.
The adjustable rate now is in the 3.5 - 4% range.

Added to that is mortgage insurance of 1.25%. That insures the borrower will get all funds if the lender goes under and insures that if the borrower gets upside down neither he nor the heirs are responsible for the deficit. It's the only mortgage where that applies.

The interest is added to the principle balance and paid to the investor when the loan is paid off. Interest and MI are only charged on funds taken and untaken funds increase by the rate plus MI.

It's NOT for those who can't stay otherwise. It's a tool to use your biggest asset to improve retirement if needed.

Example 1: You have a $400K house free & clear. You only pay taxes and insurance. You're 70 years old. A reverse mortgage will give you access to $225,000 with still no payment.

Example 2: Same house but you owe $225K with a $$1,600 P&I payment. Reverse it and your payment goes away improving your retirement cash flow by $1,600.
 

ChiefGator

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1) Have to be at least 62. At that age you will get available (after costs) approximately 45% of appraised value (recently dropped).

2) The older the youngest borrower is (assuming there are 2) the more loan to value they give you. For example an 80 year old will get a higher ltv than a 65 year old. Why? Because all things being equal he will die sooner so there's less time for the unpaid interest to be added to the amount due.

3) There are three products. 1) fixed (in the 5% range) 2) Annual adjustable with 2/5 caps and 3) monthly adjustable with a 10% (over start rate) lifetime cap.
The adjustable rate now is in the 3.5 - 4% range.

Added to that is mortgage insurance of 1.25%. That insures the borrower will get all funds if the lender goes under and insures that if the borrower gets upside down neither he nor the heirs are responsible for the deficit. It's the only mortgage where that applies.

The interest is added to the principle balance and paid to the investor when the loan is paid off. Interest and MI are only charged on funds taken and untaken funds increase by the rate plus MI.

It's NOT for those who can't stay otherwise. It's a tool to use your biggest asset to improve retirement if needed.

Example 1: You have a $400K house free & clear. You only pay taxes and insurance. You're 70 years old. A reverse mortgage will give you access to $225,000 with still no payment.

Example 2: Same house but you owe $225K with a $$1,600 P&I payment. Reverse it and your payment goes away improving your retirement cash flow by $1,600.

Better sell it, buy a house for say 200K, reduce your taxes and maintenance so your expenses go down. Now if you owe money that makes a difference, but in retirement you can't afford to owe money, at least I could not. Thanks for the information, I always know that if you spend a lot advertising something you have to be making a lot of money doing it. Buying gold and silver, converting your payments to a lump sum, and reverse mortgages are things I see every day on the business channel. Things I would never even consider doing, but then I have a secure retirement. Now selling your life insurance is probably not that great of an idea, but if you need or want the money is something that if I had such I would consider.
 

Gatormb

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Jul 26, 2018
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Better sell it, buy a house for say 200K, reduce your taxes and maintenance so your expenses go down. Now if you owe money that makes a difference, but in retirement you can't afford to owe money, at least I could not. Thanks for the information, I always know that if you spend a lot advertising something you have to be making a lot of money doing it. Buying gold and silver, converting your payments to a lump sum, and reverse mortgages are things I see every day on the business channel. Things I would to even consider doing, but then I have a secure retirement. Now selling your life insurance is probably not that great of an idea, but if you need or want the money is something that if I had such I would consider.

I'm currently selling in the $650 range (owe $250) and downsizing to The $350 range that will be free and clear but I still want access to the $175K a reverse will give me on the new home to supplement my retirement. It will give me an extra $18K/year tax free for the next 11+ years.
 

Detroitgator

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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
There was an odds maker I read back in the mid-90's when my 1SG and I were teaming to scam the office football pool and I've used his quote a million times: "I don't understand the line on this one, but they don't build 3,000 room hotels because they don't know what they are doing!" ;)

Other Vegas quote told to me by a casino management guy on a flight once: "We make money because EVERYONE coming to visit Vegas comes in thinking 'I am willing to lose $X' and no matter how much they are up at some point, they'll all keep gambling until they lose $X, and they go home happy because they only lost $X."
 

Bushmaster

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Better sell it, buy a house for say 200K, reduce your taxes and maintenance so your expenses go down. Now if you owe money that makes a difference, but in retirement you can't afford to owe money, at least I could not. Thanks for the information, I always know that if you spend a lot advertising something you have to be making a lot of money doing it. Buying gold and silver, converting your payments to a lump sum, and reverse mortgages are things I see every day on the business channel. Things I would never even consider doing, but then I have a secure retirement. Now selling your life insurance is probably not that great of an idea, but if you need or want the money is something that if I had such I would consider.

Funny, I knew I was going to like your response before I read it when I saw what you quoted.
 

ChiefGator

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I'm currently selling in the $650 range (owe $250) and downsizing to The $350 range that will be free and clear but I still want access to the $175K a reverse will give me on the new home to supplement my retirement. It will give me an extra $18K/year tax free for the next 11+ years.

If I downsized it would be like 100K, I will be going up when I move to Florida for say that 300K. Move here and perhaps you could get a decent home under 100K with way less taxes and insurance.
 

Gatormb

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If I downsized it would be like 100K, I will be going up when I move to Florida for say that 300K. Move here and perhaps you could get a decent home under 100K with way less taxes and insurance.

Perhaps an interior county would get you a decent home for $100K if rural. Just did a reverse for a retired nurse. Good location in Bradenton near Blake hospital but still only around 1,600 sq feet and 35 years old. Came in at $244k. Cost of construction for my small cabin is over $220k.
 

ChiefGator

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Perhaps an interior county would get you a decent home for $100K if rural. Just did a reverse for a retired nurse. Good location in Bradenton near Blake hospital but still only around 1,600 sq feet and 35 years old. Came in at $244k. Cost of construction for my small cabin is over $220k.

I live in a small city in west TN. It is cheap to live pretty well here.
 

Gator By Marriage

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I live in a small city in west TN. It is cheap to live pretty well here.
I lived in Lakeland outside Memphis in the mid 2000s. At least in those days, real estate was cheap. And we "got by" on a heck of a lot less than $500K!

Edit: Sorry, mixed up my threads
 

ChiefGator

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I lived in Lakeland outside Memphis in the mid 2000s. At least in those days, real estate was cheap. And we "got by" on a heck of a lot less than $500K!

Edit: Sorry, mixed up my threads

Not a problem. I live in Jackson, it is pretty nice if you can stand the cold.
 

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