| Question |
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Why does it seem "reverse mortgages" are becoming more popular?
What are the implications to the consumer and bank?
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| By
NJ Gold |
Posted on
01/17/08 Total Answers
7 |
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| Answers- |
| Because the economy is in the shit-er and people need the money to pay other bills. |
| Answer by :
Megan5564 On Date
2008-01-17 12:55:53 |
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| Because people are getting more desperate/dumb/silly.
To me this fit beside those interest-only loans! Anyway, your question is why now? I believe the real answer is that seniors feel entitled to a retirement. Not sure where that idea came from since my grandparents worked until they died, but hey, you can see why people like the concept.
So, everybody does it. Yet, studies show only 10-20% are financially prepared. Reversed mortgage to the rescue. You can expect to see many more new ideas like this come up in future years as the world continues its downward spiral towards entitlement and away from individual responsibility.
The consumer benefits in that you get a monthly check for the price of your home (generally it is based on how much you would pay for the home if you were buying it). You get to live in the house while getting a check.
So where is the catch? The bank owns the whole value of the house upon death. If you die younger than average, the bank wins big time. If you live past the average, the bank actually could start to lose on the deal.
But consider that banks have all the averages figured out and you would have to live way past average to make the bank overpay you. Of course, the bank has the advantage of the fact that home prices generally rise at a nice clip...yet the reverse mortgage was agreed upon in today's dollars. If the housing market grows by 4%, the bank is ahead financially even if you do make it past the average life expectency.
Don't get me wrong, you do get a cash flow. But who else is involved in this deal? The family. Many people die and the only inheritance was the house. Well, even that won't happen any more. It's all about me, me, me.
Sad, but true. |
| Answer by :
dm_dragons On Date
2008-01-17 12:57:18 |
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| Great marketing is what is driving the market. Like a great salesperson who can sell refrigerators to Eskimos. Lenders have exhausted all the other scams (sub prime etc) they used to lure homeowners in. Now it is the Reverse mortgage phenomenon. It is not really a scam but just another way of you giving up the equity on your home but at a much higher price than a conventional equity loan. If people would look at the extensive closing cost etc and really took the time to balance the cost vs. benefit of reverse mortgages they would probably run away. Closing cost have exceeded $16,000 in some cases. Buyer Beware
From the attached website
The costs of obtaining a reverse mortgage can be very high. You may have to pay some of these costs in cash. However, most lenders allow a portion of these costs to be financed as part of the loan balance. In addition, interest, insurance and service charges will be added monthly to the loan balance. Thus, the amount you owe the lender increases over time. |
| Answer by :
Charlotte On Date
2008-01-17 13:05:41 |
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| Because old folks don't really care about whether or not they leave an inheritance.
Reverse Mortgage = get money now, give the house to the bank after you die. |
| Answer by :
Jeff On Date
2008-01-17 13:05:45 |
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| i liked dm drago response--from what i get out of it-mortgage companies are making money big time--so much for leaving inheritance to the kids |
| Answer by :
southarkansas On Date
2008-01-17 13:06:13 |
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| because people didn't plan/save/invest wisely enough, and the only thing they have left of value, if even, is their house. this is not to blame them, but rather something in consumer culture that indoctrinated them (and us) into the kind of thinking that has also produced the effect of the current crisis of people using their houses as one huge ATM.
ideally, your home should be just a minor part (let's say, 10% perhaps...) of your net worth, not most or all of it. most people had not considered that one could or should make investments in things other than your home. so now there seem to be many older people who are so strapped for cash that the only way to get by is to "reverse mortgage" their house. (btw, there is a *lot* to say for *renting*...)
the problem i see is that the house is no longer yours, and if you had some sort of crisis that would drain you financially you'd then be destitute, unless you had some sort of insurance or other asset.
and the bank or the finance company frequently wins, because in all likelihood they will never have to pay out as much as the house is worth, since their payments stop when the former owner(s) die. |
| Answer by :
farfel On Date
2008-01-17 13:28:34 |
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| They may more popular bc:: If you have to go to a nursing home & your social security does not pay for your expense & you have no heirs then the state can take your homw when you die to help settle your nursing home expenses..BUT if anyone is thinking about this make damn sure you get all the info you can b4 signing on to it,make sure you have everthing in writting/nortrized |
| Answer by :
msbrook3 On Date
2008-01-17 15:27:02 |
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