Reverse Mortgage info?

Does anyone have any experience with reverse mortgages? My mom seems like a good candidate for one, but in some ways they seem too good to be true, so if anyone can give me any thoughts, pro or con, I'd be grateful.

Thanks,

Kevin

KOK, I'm not aware of anyone I personally know who has taken advantage of utilizing a reverse mortgage, however I do believe this to be a good plan for some older citizens. Shop around, the devils in the details.
Ole Rouxdog

Suze Orman has some good advice and it's not for everyone. I thought she was against the idea, but she does recommend it for some people. Here's her article on the subject I saw on Oprah's website.

http://www.oprah.com/omagazine/200607/omag_200607_suze.jhtml

My thoughts about it. and not knowing anything about it is...
If you take a reverse mortgage, then your heirs must pay off the mortgage you assumed when you pass on....they are responsible for your loan...
thats the bonus for you, but the bad thing for the heirs.. whomever they are.
I may be mistaken, as I dont know all the details, but... That is the gist that I get from it.

^^^It amounts to a way of monetizing some (or all) of the equity in your property. That does mean, of course, that your heirs get less (or no) equity. But what's the alternative? If someone who is too old to work and has inadequate income but owns a home, they are not going to be eligible for taxpayer support (welfare) usually and those same heirs are going to have to chip in to help them. As someone who could be in this situation, I can tell you I'd rather give up a future inheritance than have to dip into my own income or savings now.

The problem with some reverse mortgages, I have read, is high costs--closing costs and/or interest rates--compared with conventional fixed-rate mortgages. And such a conventional mortgage could be an alternative. Rather than having the money borrowed doled out as periodic (monthly?) income as in a "reverse" mortgage, you simply get it all at once. Then of course, you have to invest it and dole it out to yourself. For this to work, you have to be both disciplined enough not to run through the money irresponsibly and you have to be able to invest it at a rate of return high enough to cover the interest you are paying on it (since, with a reverse mortgage, you pay no interest until you actually borrow the money, I believe, as with a line of credit). And, of course, actually getting a conventional mortgage at a reasonable rate could be difficult when you are very old and low income even if you have good credit.

There is, of course, one final alternative: Sell the house, invest the money and rent a home.

I'm familiar with the subject. But once again, I can think of nothing to add to what BT has already covered.

I did a lot of research on reverse mortgages on the 'net about five years ago. There is a lot of info out there, but make sure you're getting it from a reliable source and not a scam artist. AARP is a good start. Also make sure you look at the HUD site, in almost all instances you will want a Federally insured loan. They include lists of lenders in each state. http://www.hud.gov/buying/rvrsmort.cfm

Do be aware that the amount of the mortgage is based on current property values, so if your area has slumped, you won't be eligible for as much as you might have some years ago. You have options on how you draw (lump sum, regular payments, line of credit). Also, the interest rates are all variable rather than fixed, but regulated.

If the heirs aren't concerned about inheritance, reverse mortgage can be a good choice. Ultimately, we decided against it based on the fact that we didn't think our Mom could stay in her 2-story townhouse. In retrospect we all think we made the wrong choice. If it sounds good to you, investigate it thoroughly.

My wife's aunt has one. We are so glad she did it. Granted, I expect that there will be little or nothing left when she goes (she is over 80 and still in her house), but why should a senior live poor just to leave an estate?? In most cases the state takes the home to pay for nursing home care anyway, so in that case, the estate would be broke anyway. As has been mentined there are a lot of slippery people in the business, and terms ,rates, fees and closing costs can be different by tens of thousands of dollars over a 10 yr loan. She needs your support and help on this.

There's actually a new wrinkle on this (again, I'll abridge the article to minimize copywrite infringement but It's from the Pay WSJ site so I can't just link it):

quote:

Product Taps Home Equity Without Taking Out Loan
By JAMES R. HAGERTY
May 8, 2007; Page D3

A small San Francisco investment company, backed by a subsidiary of insurer American International Group Inc., is rolling out a product that lets homeowners tap into their home equity without moving or taking out a loan.

The company, REX & Co., offers to pay homeowners cash now in exchange for a right to part of the proceeds when the home eventually is sold.

The owner of a home valued at $750,000 might obtain $100,000 in cash by giving REX a 50% share of the change in the home's value. If the home sold for $850,000, REX would receive $150,000 -- the original $100,000 invested plus half of the increase in value. If the home sold for $650,000, REX's share would be $50,000, half of what it had invested.

Thomas Sponholtz, a former executive at the investment arm of London's Barclays PLC who founded REX in 2004, describes the product as an alternative to debt-based methods of extracting cash from a home, such as home-equity loans or reverse mortgages.

REX has completed only "a handful" of transactions, he said. AIG's AIG Financial Products unit acquired a minority stake in REX in December, but hasn't disclosed the terms. Other investors include Mr. Sponholtz and several institutions. REX said its product is available in nine states -- California, New Jersey, Virginia, Florida, Illinois, Washington, Colorado, New York and North Carolina -- but the company aims to offer it nationwide within a couple of years.

{{SNIP}}

REX aims to reach consumers through mortgage brokers, real-estate agents and financial planners, as well as through its Web site. Brokers and other intermediaries could charge fees as high as 2% of the cash obtained by the homeowner. People who sell the home in less than five years face an "early exit" fee ranging from 5% to 25% of Rex's initial payment.

{{SNIP}}

URL for this article: http://online.wsj.com/article/SB117858692080995261.html

HEADS UP!
I called a few reverse mortgage companies and irregardless of closing cost fees , ETC. You will usually only get 40% of what your home is currently assessed at!!!

Real estate usually appreciates, so again the banker makes out. In most cases, the home owner would be doubly ahead to just sell their home!
Just my 2 cents....

Good info here, and I'm sure the system has changed since I last reserched it. I do recall that the federally-insured program has (had?) a maximum loan cap (kind of like the cap on Fannie Mae mortgages). The result, at the time anyway, was that people with lower-valued homes could draw most of the current value, those over the cap couldn't, or had to go to more expensive private loans. At that time, there was some competition among banks offering the Fed loans, so you could shop around and get some of closing costs/fees shaved off.

Maybe another wrinkle to look into.

Good luck!

quote:

Originally posted by Zman

HEADS UP!
I called a few reverse mortgage companies and irregardless of closing cost fees , ETC. You will usually only get 40% of what your home is currently assessed at!!!

Real estate usually appreciates, so again the banker makes out. In most cases, the home owner would be doubly ahead to just sell their home!
Just my 2 cents....

Be clear about this: You only owe what you borrow (plus interest at the contract rate), so if you are only allowed to borrow 40% of the home's value, you (or your heirs) still have 60% equity plus any subsequent appreciation and minus accumulated interest. Upon the death of the borrower, the heirs could, of course, just let the lender take the home but that would be foolish. Far wiser would be for them to either refinance the house and pay off the "reverse" mortgage (with its accumulated interest) or just sell it at that time, pay off the loan and keep the proceedings from their large equity.

Writing this, I realized, of course, why they limit borrowers to borrowing 40% or so. If the borrower lives a long time, with the unpaid interest compounding, that could eat up a large chunk of the remaining 60% equity and, if that were a lesser percentage, the debt could eventually exceed the value of the home.