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| Question |
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My Parents are looking into Reverse Mortgages are they a good choice ?
They both are retired and only getting social security which is not enough to get by these days, what are the bad and good things about them ?
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| By
tlfranklin61 |
Posted on
04/16/07 Total Answers
3 |
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| Answers- |
| These are kinda like a home equity loan except you don't have to repay the loan until you (and your spouse) both die or move out of the home. The problems include:
You can only borrow (about) 65% of the home's value. The rest is to cover the lender's interest and other fees should you live in the house a long time. But the odds are that you will not. In many cases, because of health problems, you'll move out within perhaps 10 years. Even if you don't have a health issue, real estate taxes and just doing the general upkeep of a home overwhelms many of us as we age. At that point the home is sold and if there is anything left after paying all the back interest and fees, you get it. The only thing nice is that if the home does not sell for enough (very rare) you don't owe anything.
They may require you to escrow your real estate taxes and home insurance payments with the lender.
Beware of excessive fees. I've heard of cases where thousands of dollars in fees are charged to the homeowner or where the interest rate is too high.
This whole system depends on senior citizens who fear going into a nursing home. Staying in their home or going to a nursing home are not the only options.
First is independent living. It is kinda like living in any other apartment except that your neighbors are all seniors and the group activities are geared towards that age group. Usually, meal, maid, and laundry services are optional. This frees you have almost all housing released tasks and worries. This is sometimes cheaper than staying in your old home when you include not only taxes and upkeep but also the value of money tied up in the home. For example, if the house is worth $200K, its value could be in a 6% CD returning $1,000 a month.
Next is assisted living. As above, but the above services are not optional. Likely are nurse (or at least an orderly) will check on your well being at least daily. More costly but you are still very independent and don't have to worry with even more day to day tasks.
Then there is nursing home care. The privately-paid ones tend to be quite nice. You are likely not going to be happy with a Medicaid-paid nursing home.
If you waste your home equity by trying to stay in your current home, you will likely end up in a bad Medicaid nursing home. On the other hand, if you simply sell your home you'll get immediate cash with which you can buy into any number of wonderful senior independent living arrangements that can convert, when the need occurs, to assisted living and finally to nursing home living. |
| Answer by :
Michael V On Date
2007-04-16 06:40:07 |
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| Depending on their financial situation and future plans reverse mortgage might be a good thing or a bad thing. You need to do your research and then talk with their financial planner to get the total picture for their specific case.
http://www.reversemortgage.org/ , http://www.aarp.org/money/revmort/ , http://www.ftc.gov/bcp/conline/pubs/homes/rms.shtm will help you get started. |
| Answer by :
sporregar On Date
2007-04-16 08:38:23 |
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| Reverse mortgages are great products for the right people. Your Parents may be prefect candidates for a reverse mortgage.
Reverse mortgages are the most misunderstood and most regulated loan in the country. The problem is the myths keep getting repeated and repeated. Make sure you get the facts.
Mistakes in other posts - There is no LTV for reverse mortgages nor are the borrowers required to escrow for taxes and insurance. The fees on the HECM, Home Keeper, and Cash Account are limited by law. The fees are no higher than traditional mortgages. People believe the fees are higher with a reverse mortgage as with a traditional forward mortgage all the money is borrowed at closing. With a Reverse Mortgage, the money is borrowed over time, so the fees seem high at the time closing, but become less and less as a percent of the loan over time.
Reverse mortgages are not a “whole system” that “preys” on Seniors, nor a “waste of home equity” versus selling and going into assisted living. You didn’t mention that your parents had any issues that they would need to go into assisted living? Even if they did, they would be required to use up all their savings and assets before Medicaid would kick in. A reverse mortgage will allow them to stay in their home and on average seniors that stay at home life 4 years longer then those that do not.
A Reverse Mortgage is a special loan designed for Seniors, aged 62 and older, that allows eligible homeowners to borrow money without having to make any payments until they sell or pass the home onto their estate.
With a Reverse Mortgage, the Bank pays your Parents versus your Parents paying the Bank.
AARP, National Council on Aging, etc., lobbied the government to come up with a loan program to help Seniors stay in their homes as long as possible.
Basically, a reverse mortgage allows your parents to use their home to stay in their home and have a better life.
Pros:
- Remain independent - A Reverse Mortgage allows Seniors to have the money to stay in their homes without relying on others for support.
-Stay in their home - A Reverse Mortgage allows Seniors to remain in your their homes and retain homeownership.
-No monthly mortgage payments - They do not pay back the Reverse Mortgage loan nor make any monthly mortgage payments until you permanently move out of the home.
-Tax-free money - Because the money they receive from a Reverse Mortgage is not considered income, it is tax free and will should not affect their Social Security or Medicare benefits.
-Freedom and flexibility - The money they get from a reverse mortgage is theirs to use in any way they choose.
Cons:
– You don’t get anything for nothing. Just like a regular mortgage, there are fees and interest. But they would not pay anything until they permanently left the home.
Go to http://www.mtgmortgages.com/reverse_mortgages/reverse_mortgage_resources.htm for information on reverse mortgages.
Go to http://www.mtgmortgages.com/reverse_mortgages/reverse_mortgage_additional.htm for links to other reverse mortgage publications.
I would also see an Elder Law attorney and get a Life Estate to protect their home equity from the State should they require Medicaid. The look back period is now 5 years on real property transfers.
If you email me their birth dates, address, and the amount of any mortgage/liens they have on the house, I am happy to send you some figures. |
| Answer by :
Norman R On Date
2007-04-16 09:25:43 |
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