Reverse Mortgage (loan, interest rate, real estate, heloc)

[redwhiteblue]

I'm not sure if I should post this in the real estate section or finance but here goes...

My Dad is thinking about getting a reverse mortgage, I know there are pros and cons but I would like to know if any of you have personal experiences with this type of mortgage?

Thanks!

[Boomerang]

I am interested in knowing more about these too. Hope some knowledgeble folks can chime in with their experiences.

[olecapt]

I am unable to think of the circumstances where a reverse might work well. We took a good look at my mother's case and decided to use a HELOC (home equity line of credit)

We reached the conclusion that such a mortgage was superior to a reverse. Basically we can pull more money off a HELOC than a reverse and have virtually no front end costs versus the very high load on a reverse.

Note that in our situation the property is worth over 550K and she has another property worth more than that. If we get done mortgaging stuff and still she is kicking around we can always shake her kids down who can carry her if needed.

I would note that the big turnoff was the up front load. This vehicle might be OK but the load is so high that we think it unlikely to ever make much sense.

[christina0001]

From my work as a social worker, I have been told the advantage of a reverse mortgage is that it gives the borrower access to cash, without having to make payments, as you would with a home equity loan. This is helpful to someone who is on a limited income and could not afford to make loan payments. The reverse mortgage loan is paid off when the borrower no longer lives in the home (generally, that's upon death), upon sale of the house. A reverse mortgage can be useful for someone who say, needs money to cover home health care expenses, or medically necessary modifications to the home. They can borrow the money, spend the money however they need to, and not have to make payments on the loan.

[olecapt]

It sounds good then you look at the up front costs. How long would they alone pay the mortgage?

I have a basic distrust of banks when they get high front end costs. My suspicions are that it will reguire the mortgagees to last a long time to break even. Take a 250K home with a 100,000 HELOC. It will probably take ten years pulling out 1000 a month before the payment reaches half the amount withdrawn. So how long is the money likely to be needed?

There may be a niche for this product. Maybe low end not too old. But for a well off 85 year old it made no sense.

[PghREA]

Originally Posted by christina0001

From my work as a social worker, I have been told the advantage of a reverse mortgage is that it gives the borrower access to cash, without having to make payments, as you would with a home equity loan. This is helpful to someone who is on a limited income and could not afford to make loan payments. The reverse mortgage loan is paid off when the borrower no longer lives in the home (generally, that's upon death), upon sale of the house. A reverse mortgage can be useful for someone who say, needs money to cover home health care expenses, or medically necessary modifications to the home. They can borrow the money, spend the money however they need to, and not have to make payments on the loan.

The repayment of the reverse mortgage comes from the sale of the home.
It's not free money, people.

[redwhiteblue]

I know there are a lot of fees involved which is why I am hesitant about my parents doing it. And from what I believe you have to have your home mostly paid off and they are in a brand new home that they only put $100k down, it just doesn't sound like they are the right candidates.
I think if you were in real trouble financially it might be worth it but it's sure is pricey.

[DMenscha]

You don't have to make regular payments on a HELOC. The interest will accrue to the principal balance. It's a line of credit, not an amortized loan.

[Reverse Mortgage Man]

Originally Posted by olecapt

I am unable to think of the circumstances where a reverse might work well. We took a good look at my mother's case and decided to use a HELOC (home equity line of credit)

We reached the conclusion that such a mortgage was superior to a reverse. Basically we can pull more money off a HELOC than a reverse and have virtually no front end costs versus the very high load on a reverse.

Note that in our situation the property is worth over 550K and she has another property worth more than that. If we get done mortgaging stuff and still she is kicking around we can always shake her kids down who can carry her if needed.

I would note that the big turnoff was the up front load. This vehicle might be OK but the load is so high that we think it unlikely to ever make much sense.

A HELOC is fine -IF you want to make payments and are ok with a 5-9% interest rate. The interest rate of a Reverse Mortgage today (2/9/08) is 3.7%. As for the costs - no money is out-of-pocket and you are protected from ever losing your home. The closing costs are paid at the end of the loan and result in about 1 or 1.5 years of appreciation in the home. A Reverse Mortgage is not a "short-term" product - it is for people who want to live in their home and have cash to enjoy thier golden years without having to make payments. Also, if you you don't have a great income and great credit - will a bank lend at a favorable rate? A lot of different factors need to be looked at when making financial decisions. If you are not at least looking at your options are you sure you are making the right decision. A RM may not be the best option for you- but for many it is. Check with a professional before ruling it out. Midwest Reverse Mortgage Experts Reverse Mortgage Man

[bentlebee]

A heloc rate will go up and up and up, or you have to lock it in which my bank told me I can do 2 times over the whole period that I have the heloc (best to do when you need a big amount), otherwise the rates are going up almost like sub prime, so basicly it is more for a short time use or you have to lock it.