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The main reason they are such a bad deal is that the bank/lending institution lends you so little of the equity, maybe 40-50%--just enough to make it impossible for you to pay off the accrued interest if you want to buy the home back but not enough to actually live on if you need emergency funds in your retirement. Then you cannot take out anymore loans because nobody will lend further on the house with a reverse on it. Maybe better to take in a few boarders if you have extra bedrooms and you need the income.
I agree that they seem on face value to be a bad deal. However let me put in a circumstance where it is a good deal. Okay they give 40% of your home in monthly increments with a 2% rate. The house is worth $500k and you have no mortgage. You also are only living on SS and you are single. You have no heirs or the heirs do not want the house. They are house rich and cash poor so the reverse mortgage allows for an income of about $1200 a month or more. That could mean the difference of a lot of issues. There are other options but if the said person wants to stay in the house well this is one way to do that.
Sad scenario I alluded to on one of the LTCI threads.
An aging couple who live near Apple HQ. I remember a specific convo with them where I mentioned I got LTCI and asked them about theirs. They said they had none, thought it was a rip off. Were convinced of their ability to self insure. To be fair, I can see why. They did very very well in Silicon Valley, throughout the heyday of 1970 - 2000. So were are talking multi millions.
Well, then the unimaginable health crisis hit, one of the ones where SNFs and lots of 24x7 home care was needed. Now, they are doing a reverse mortgage. All the other money with the exception of a survival fund for the healthier spouse was burned off.
In retrospect they should have downsized once retired (still live in the same way too big house as they raised family in, in spite of no longer knowing many in the neighborhood, hood is now mostly Chinese and Indian recent arrivals working in tech). And they should have done LTCI.
Update. Home's value continued to increase since they started. So, they are refi'ing into a new reverse mortgage. Just in time. One of the "survival" IRAs was going to start being liquidated.
<exerpt> The main reason they are such a bad deal is that the bank/lending institution lends you so little of the equity, maybe 40-50%--
this is not true. according to current principle limit factors:
if the youngest borrower is 62, you receive 52.4% of appraised value.
if the youngest borrower is 75, you receive 61.4% of appraised value.
if the youngest borrower is 85, you receive 69.9% of appraised value.
if the youngest borrower is 90+, you receive 75% of appraised value.
*Home value is capped at $625,500. This is also prior to any fees.
Additionally, if you elect credit line option, available proceeds grow by 4-15+% per year compounding. (depending on lender margin, program cap, and libor index). So you can end up with a LOT more than you were originally approved for.
Quote:
Originally Posted by mathjak107
<exerpt>
the lender can and does periodic inspections .
please source where you got this information. specifically the "does" part.
As far as I know, there is no reverse mortgage police. at most they mail you a yearly letter asking if you're still alive and live in the home. I know hundreds of seniors with reverse mortgages. not one has ever told me they had a periodic inspection.
Last edited by anicon; 11-19-2016 at 09:53 AM..
Reason: content
your agreement requires you to repair and maintain the home . whether they decide to inspect the home and when is something you agree to whether they do it or not .
"Your reverse mortgage loan will be secured by your home. If you default on your reverse mortgage loan by: Allowing the property to deteriorate beyond reasonable wear and tear; or Failing to pay property taxes or insurance; or Failing to live in the house for 12 consecutive months; or Failing to meet any other obligation …then we may take any or all of the following actions: Foreclose On Your Home We could foreclose on your property and require that you leave the home.
Stop Giving You Money We may stop making payments to you and not allow you to borrow any more money from your line of credit, even if you have borrowed less than your credit limit. Terminate Your Loan We may terminate your loan, make you pay the outstanding loan balance in one payment, and charge you fees on termination
your agreement requires you to repair and maintain the home . whether they decide to inspect the home and when is something you agree to whether they do it or not .
"Your reverse mortgage loan will be secured by your home. If you default on your reverse mortgage loan by: Allowing the property to deteriorate beyond reasonable wear and tear; or Failing to pay property taxes or insurance; or Failing to live in the house for 12 consecutive months; or Failing to meet any other obligation …then we may take any or all of the following actions: Foreclose On Your Home We could foreclose on your property and require that you leave the home.
Stop Giving You Money We may stop making payments to you and not allow you to borrow any more money from your line of credit, even if you have borrowed less than your credit limit. Terminate Your Loan We may terminate your loan, make you pay the outstanding loan balance in one payment, and charge you fees on termination
Pretty much the same that could happen with a conventional mortgage. If you have payments and you cannot afford to maintain the home, it begins to deteriorate to the point that the equity is gone. Then what? Wait for the Health department to make you leave for your own safety?
Anyone naysaying reverse mortgages without considering that, for some, it can be a good option, may be hurting those that should be looking at the solution.
Don't do a reverse mortgage. I've never talked to anyone who didn't regret doing one.
We had a lady who lost recently her own on a reverse mortgage.
Really sad story.
The short end of the story is a bad storm blew over an older than dirt huge Spanish moss tree that totally destroyed her garage. The insurance check didn't go to her it was sent to the reverse mortgage company and they weren't about to fix anything. From her it went downhill.
We had a lady who lost recently her own on a reverse mortgage.
Really sad story.
The short end of the story is a bad storm blew over an older than dirt huge Spanish moss tree that totally destroyed her garage. The insurance check didn't go to her it was sent to the reverse mortgage company and they weren't about to fix anything. From her it went downhill.
how did the insurance check go to the mortgage company? Who was paying for homeowners? Who filed the claim? I am not doubting what you say. It just struck me pretty funny that unless the mortgage company was paying the homeowner's insurance then the check for the damage should have gone to the homeowner.
I do not say that reverse mortgages are great. I think that with any product you need to know the rules and play the game. They do work for some. Most people would not benefit from it though.
Pretty much the same that could happen with a conventional mortgage. If you have payments and you cannot afford to maintain the home, it begins to deteriorate to the point that the equity is gone. Then what? Wait for the Health department to make you leave for your own safety?
Anyone naysaying reverse mortgages without considering that, for some, it can be a good option, may be hurting those that should be looking at the solution.
Apparently they are a good choice for some people.
However older people tend to think they will age in place and never have to move. But life happens, and they have to be moved because of infirmities or accident. If you have little income, you might need the equity in the house for your expenses. But you will not be able to recover that equity, because you don't own the house any longer.
I would like to hear of cases where a reverse mortgage would be beneficial. The only one I can come up with would be someone facing death shortly, who can still live at home, and who needs money for medical care.
The mere mention of a parent mentioning the words "reverse mortgage" generally gets their children to take an interest in the well-being of the parents when nothing else seems to.
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