Reverse Mortgage, anyone partake in one?

[+ glutes]

Looking for pros and cons. If anyone has done one, I'm curious as to your experience.

What Is the Downside of a Reverse Mortgage?

WWW.EXPERIAN.COM

 

[TorontoDrew]

I haven't done one but looked into one for my sister.  I think that like many products offered by financial institutions, that its designed to make them a lot of money.  Its best to sell and downsize.

[handiacefailure]

I worked in title insurance for years and we would get title insurance orders sometimes and the two owners that are both real estate lawyers didn't care for them.   I'd only do it as a last resort and if you really want to stay in the home.

It's hard to get one on a condo and there are a lot of restrictions involved and you are still resonsible for making the tax and HOA and insurance payments.   And every reservse mortgage I did was on a house owned free and clear.    

If you own the house free and clear I would just sell it and downsize    

[Beancounter]

Reverse Mortgage Guide With Types and Requirements

WWW.INVESTOPEDIA.COM

---

Everything you need to know about reverse mortgages—what they are, how they work, and how to decide if one might be right for you.

Here’s a link to an educational website that explains the basics of how reverse mortgages work.  Hope this helps.  

[Guest]

On 7/9/2023 at 4:34 PM, handiacefailure said:

...If you own the house free and clear I would just sell it and downsize    

That depends on whether a person values his legacy or his ability to stay in his old house more. If the latter is the case, a reverse mortgage can help a person stay in his own home, and provide a stable income. There are many on this site who've stated that their goal in life is to die having spent as much money as possible, preferably being in debt. However, if you have people or causes you care about, and you don't need the room of your old house, after the younger generation has gone, then you might wish to sell and downsize. I want my much younger soon-to-be spouse to be taken care of, and I also want to greatly expand the scholarship program I have set up for students who were disadvantaged due to their sexual orientation or gender identity. This way I'll be remembered fondly long after my death. 

[+ tassojunior]

IMHO there's a lot of issues with reverse mortgages that should be regulated better. The cost of loan insurance is too high for any minimal "risk", lenders can require not replacement value but full value insurance on the home (at least in DC), and the points above prime for the interest rate are often a little high. Also the lenders doing them are not main banks but rather small lenders who may not be the easiest to deal with. My neighbor talked me into getting one after she did but it didn't take me long to realize I didn't need any extra "cushion" it provided and paid it to minimal. If I need a quick extra half million it's there but unless my lender drops the full-value home insurance requirement I've told him I'll just cancel it and get a regular home equity (they are basically home equities and that's how the feds treat them for tax purposes, ie if you pay it off you only can deduct a portion of interest). 

It's a shame terms aren't better and there's not enough pro-borrower regulation because they're a perfect idea to help the elderly have an alternative to the norm of the government taking your house away through forced sale to pay extended healthcare bills. Normal home equities can be much more limited amounts and borrowing limits can be decreased by the bank. My opinion is we're better than forced sales for healthcare but last week I was talking to someone at a bar in London who told me the forced-sale thing is in the UK too. 

Of course the best way to stiff the feds is to sell your home and divert the funds away long enough before you die or need extended care. But some of us like our homes and that's a tough one. Aging in place is my preference. 

[Luv2play]

I've never been interested in a reverse mortgage but from what little I know about them, I assumed you gave up the title to your home in exchange for a lump sum or other form of payment and could stay in the home till you died.

The amount of money you got was maybe 55 percent of the total value and you paid interest on that but that was deducted from the home's equity so you were not out of pocket. 

Is that not right? 

Edited July 14, 2023 by Luv2play

[+ tassojunior]

21 minutes ago, Luv2play said:

I've never been interested in a reverse mortgage but from what little I know about them, I assumed you gave up the title to your home in exchange for a lump sum or other form of payment and could stay in the home till you died.

The amount of money you got was maybe 55 percent of the total value and you paid interest on that but that was deducted from the home's equity so you were not out of pocket. 

Is that not right? 

Title doesn't change, it's the same as other mortgages. Upon death the house is sold and the excess value over the loan amount due and interest is given to your estate. The exception is if you have a surviving spouse they get to stay in the home until their death even though they were not an original borrower. I think 25% of value is closer than 55 % in most cases, especially if you are younger or have a younger spouse. It's basically a home equity line of credit (HELOC) with payments deferred.  

[handiacefailure]

Depending on how long you plan to stay in your house and your life expendiancy a HELOC may be a better fit if you can afford the interest.

Most Helocs you only pay the interest but the downside is it's adjusted monthly or quarterly.

My bank doesn't charge a annual fee or any fees at all fora  HELOC so I have one in place for emergencies.   Most banks charged around $50 a year

[+ tassojunior]

2 hours ago, handiacefailure said:

Depending on how long you plan to stay in your house and your life expendiancy a HELOC may be a better fit if you can afford the interest.

Most Helocs you only pay the interest but the downside is it's adjusted monthly or quarterly.

My bank doesn't charge a annual fee or any fees at all fora  HELOC so I have one in place for emergencies.   Most banks charged around $50 a year

I agree a regular HELOC many times (like mine maybe) is better but there are downsides. The big one I'm aware of is the lender on a normal home equity can lower your credit limit at any time at will and that's more likely as you age. The RM credit limit is set no matter how old you get. Maybe a normal HELOC is best at first with RM if and when one's credit limit is, in fact, lowered or one needs more equity out than they can get from their normal HELOC. 

[handiacefailure]

8 hours ago, tassojunior said:

I agree a regular HELOC many times (like mine maybe) is better but there are downsides. The big one I'm aware of is the lender on a normal home equity can lower your credit limit at any time at will and that's more likely as you age. The RM credit limit is set no matter how old you get. Maybe a normal HELOC is best at first with RM if and when one's credit limit is, in fact, lowered or one needs more equity out than they can get from their normal HELOC. 

I haven't heard of a HELOC being able to be lowered, I know a line of credit can.   

I just closed on a HELOC on my condo last week (hopefully I'll never have to use it but there are no fees and if I decide to buy a new condo I can write a check on the HELOC as a bridge loan until my current condo sells).   I signed an open end mortgage that is recorded with the county recorder that states the amount of my HELOC.   I thought they were really generous in the appraiasal but they never came into my unit and looks like they did a comparisson and my condo is one of the cheapest units in my building.

One thing that sucks about a HELOC is you can't write off the interest unless it's being used for a home improvement    But most people that would have to do a reverse mortgage probably aren't itemizing anyway 

[+ tassojunior]

1 hour ago, handiacefailure said:

I haven't heard of a HELOC being able to be lowered, I know a line of credit can.   

I just closed on a HELOC on my condo last week (hopefully I'll never have to use it but there are no fees and if I decide to buy a new condo I can write a check on the HELOC as a bridge loan until my current condo sells).   I signed an open end mortgage that is recorded with the county recorder that states the amount of my HELOC.   I thought they were really generous in the appraiasal but they never came into my unit and looks like they did a comparisson and my condo is one of the cheapest units in my building.

One thing that sucks about a HELOC is you can't write off the interest unless it's being used for a home improvement    But most people that would have to do a reverse mortgage probably aren't itemizing anyway 

There's actually a lot of people with paid off houses and a lot of income and other assets they did it with. Many people who do reverses don't want the government to get their homes and have complex tax avoidance trusts etc that a reverse sometimes fits into even though you can only pull out so much equity with one. Obviously the best plan is to sell your home and put the money into a trust of some kind so many years before your death or any extended care. But it's hard to plan when your death will be. 

I'm faced with the issue this year as I paid most of mine down and I got an extension to October to file to figure it out. It seems like I only get a fraction of the interest I paid as a deduction.  (10% or 20%?). I'm not sure if I'll have to show repairs or improvements. It's usually an big issue to people who sell their home with a reverse on it they have to pay off. IDK.