Factoid on Retirement

Are you saying that the homeowner's estate might be *required* to come up with cash? It is my understanding that this is not the case. In a worst case scenario, the estate would get nothing from the sale of the house, but would have no further financial obligation to the lender. In any other scenario, the estate would *receive* some additional cash from the sale of the house. Is that correct?

I confirmed my understanding of how this works, from the same website:

"The monthly advances continue for as long as you live in your home, even if the total amount you receive exceeds the value of your home. Despite this, you will never owe more than what the home is worth."

I don't understand your objection to this type of transaction - it seems ideal for an older retired person of limited means. Can you please go into more detail...

Ok, I'm back. Say I'm 62, penniless, I own a $300K home. I would sell the home and get myself a seniors apartment in a seniors building for $600 month around here. I party with my buddies, go on bus tours, put our loose change together to hire a hooker now and then ... don't laugh, it's been done :-)

At even 5%, the $300K would get me $15K/year ... $1250/month ... enough to pay my way ... and below the taxmans radar. As a matter of fact, there is a minimum payment to seniors up here of $1200 or $1400 month or so, that would in fact pay my way. So instead of someone making that lets say 5% reverse mortgage off of me, I'd be the one making he 5%. Last time I looked into this which was maybe 6 year s ago ... I was curious ... that reverse mortgage was at 8%. Highway robbery I say!!!

So why is it called a reverse mortgage ... because you turn around and bend over? It's a loan with your home up as collateral.

I for one would not enter into one, even backwards, but it really is of no concern to me what others do with their property.

Wonder if I can get a reverse lease on my ''96 jeep :-)

When making a financial decision, it pays to look at the worst case scenarios.

A person may have to move out of their home before they die. The market value of the house may be low when they move out of their home. And, their financial net worth will decline because of the high interest rates a reverse mortgage lender may charge.

-- Ron

Has anyone considered this to be a spin of an immediate annuity, but with a house tied into the picture? In your case, 62, male, an immediate annuity costing $300K will give you over $1950/mo, by the way.

In the case of the reverse mortgage, the bank is taking on the risk that the owner will live there well past their break-even point on the money. I don't know what the contract says about repairs (who replaces the leaky roof?) but I'd imagine the house the bank gets is not in the best shape. Seems to me, the reverse mortgage is a solution to a specific set of problems, certainly not for everyone. JOE

Well, if you stayed in the house you wouldn't be paying that $600 a month, so to compare apples to apples, you should reduce that $15k income to $7800, or 2.6%. But that $600 doesn't buy the same size living quarters, does it? So we still can't really compare apples to apples because the standard of living has changed. Would you, having gotten used to the large house, really be comfortable in the $600 rabbit hutch?

And, Joe, to answer your question in another post, the homeowner is still responsible for taxes, repairs, etc. on the house.

But then, I can agree with Bowgus, that it might be better to downsize first. The reverse mortgage is often a godsend for couples who want to stay in their own home, especially if they've already downsized.

Elizabeth Richardson

"bo peep" wrote

I went googling using {"reverse mortgage" pros cons} and came up with similar sites, though perhaps presenting a tad less bias, since "reversemortgage.com" is a front for "Indymac Bank." Like the newsgroup posts here on this, the sites present many pros but really just as many cons. As some here have pointed out, it apparently often depends on each person's situation as to whether RMs are a good idea. One thing that caught my eye is that fees on reverse mortgages are high.

to compare apples to apples, you should reduce that $15k income to $7800,

My home currently costs me about $1100/month ... taxes, hydro, gas, water, ... (I track my expenses) ... which is a bit more than that $600 rent would be. And then there's that new roof I'll need in two or three years ... $20K? So if I were penniless, I'd put that $300K in the bank (that annuity someone mentioned is an idea ,,, but I prefer to have that cash in hand should something come up like a speedy get away) and go for that $600 rental.

That penniless example was just a what if. In my own case, I am counting on an 8% or so yearly appreciation in house value which will continue here for a few more years, and when I retire in a few years I'm upping my income by renting out 2 more rooms at the going rate. I expect an income of about $24K/year to supplement my pension. That first year of retirement will be spent patching and painting, putting in an additional bathroom kind of stuff ,,, which I enjoy doing.

My house is roughly 3000 ft sq. Of that space, I use roughly 600 ft sq ... a bedroom, bathroom, kitchen and this space in the basement (finished) where my computer and home gym are set up. I am not emotionally attached to this house. It is a fully paid for tax free investment (I'm in Canada and don't benefit from mortgage tax deductions) that is currently valued at about $550K and as mentioned growing at about 8%. My wife and I would have no problem moving into a small apartment if finances so dictated ... we simply just don't need much space. BUT ... this house being set up the way it is ... well ok, I designed it that way ... was designed to provide us private living quarters (1200 ft sq) and an source of income when I retire (up to 10 years before my wife) until we're off to that Lazy Daze retirement community ... Southern Australia? ... with let's say $800K of the cash in our pockets from the sale of the house.

Sure, but I would recommend retaining a lawyer before signing up. A person might think hmmm .. the house will appreciate at 8%, the loan's at 5%, so I can cash in on that appreciation at any time, pay off the loan, and head off to sunny California with cash in hand ... when the fine print might say the lender gets the appreciation, stuff like that.

I've looked at

and made the assumption: 70 year old woman (gender matters for my analysis) in a $500K valued home. The result varies depending on terms, but the higher lump sum option is $200K, or a monthly $1272, and as was pointed out to me, all the expenses of the house remain. The loan rate is just under 7%, and fees bring he gross total borrowed to $223K so nearly 10% costs up front. tells me that the same $500K will provide $3533/ month as a fixed annuity. If I were advising a client or relative on this matter, I'd first be very concerned as to what the annual cost was to maintain the home. Taxes would likely be close to $5000/yr, and along with repairs, maintenance, lawn, snow, etc, how much of that $1272 is really available for other spending? Meanwhile, the amount owed can outpace the growth in home value if this woman lives beyond 90.

(BTW, I chose woman to not totally stack my deck. The immediate annuity for a man age 70 would be $3860)

After looking at this option vs the annuity, I'd have to ask the home owner if she/he couldn't find a comfortable rental situation for the money. The extra $2000/mo goes a long way in most parts of the country.

JOE

Hi Joe ... since I track my operational expenses at about $1100/month, I'd be left with a whopping $272/month. Gimme that $500K :-)

"joetaxpayer" wrote

Ya, my take is a reverse mortgage is for those who are in love with their house, do not want to vacate, yet need money, either in lump sum form or via monthly payments. I really can't knock someone not wanting to leave their home. Even though my own is pretty darn humble, it's really grown on me. I'd hate to have to sell it and go rent an apartment in the same town where I live now or elsewhere. But I hate the apparent high fees of a reverse mortgage, too. That 10+% figure for fees with which you came up did not go by me. (Not that I am age-eligible for an RM. I am not.)

I liked this article from bankrate.com:

's pretty negative on reverse mortgages and points out that homeowners in need of cash often are better off with a home equity loan or refinancing. I think the home equity loan is for what I'd aim in an emergency, weighing this against taking out my Roth IRA contributions.

Actually, the US law requires that the homeowner receive formal counseling before they can enter into a reverse mortgage, so that they definitely understand the pros and cons.

That seems to contradict the descriptions of the reverse mortgage rules that I have seen - can you cite an actual example of a reverse mortgage where the lender gets the appreciation?

I still don't understand this type of logic - for example: I obtain a reverse mortgage on say a $300k house, and after a few years I move out, and the value of the house has declined to say $150k. Lets say the amount owed is $200k. The lender sells the house for $150k and "eats" the $50k loss. How does this cause my financial net worth to decline?

There are fees on the reverse mortgage and the interest rate may be

1-2 % higher than the going rate.

You would be better off in getting a home equiity line of credit.

-- Ron

Why would the house be worth only $150 K? thumper

That would be fraud ... what I'm saying is, make certain that the borrower, is a) signing up with a legitimate lender, and b) understand the loan conditions. You may find this hard to believe, but there are persons out there who do not play by those rules tyat you have seen.

No, that is how reverse mortgages work, as per the HUD rules. I think I noticed that you are located in Canada. Could it be that you are just not familiar with the USA's HUD rules for reverse mortgages?

You seem to be under the impression that reverse mortgages are actually loans that always have to be repaid at some point by the homeowner. This is not the case... they are more like immediate fixed annuities.

Please give a specific CITE of an example, and not just an unfounded assertion. I'm trying to extract some objective information here - that is what this newsgroup is supposed to be for.

Here for example is an instance of middlemen charging up to $10,000 on a $100,000 loan for information that is free ...

"reverse mortgage scams".

...

Google "reverse mortgage scams". So to sum up ... it appears that those 3rd parties (that the rules require be there), and in which you (bo peep) place your trust, may not be so trustworthy after all. Now, I currently work in an oversight role. I oversee 3rd parties and I also participate in the development of the standards that those 3rd parties work to. And, I also know that vulnerabilities (bad apples in this case) can be introduced into systems all the way from the standards level down to the implementation level. So I may live in Canada, and not understand your reverse mortgage rules (we have exactly the same set up here), but If I were setting up say a $200K, or even $100K reverse mortgage in order to survive, and that would eventually result in the loss of all the equity in my home, I would be looking for due diligence, and I would go to my lawyer for that. Rant ... Not to some unknown 3rd party ... with that picture of a family on their desk ... maybe their family, maybe not ... facing me and not them. Went to a financial advisor about two months ago, saw that pic, listened politely for anything useful, and left ... those outward facing family pics are just one of those things that I have no time for. Ok, that's it for me.