The loan balance (principal + accumulated interest + PMI payments) must be repaid if you sell your house for whatever reason. The balance due is never more than the value of the house at the time of closing. That's what the PMI is for.
That is correct.
The interest and consumption expenses are to your estate.
Correct but never more than the appraised value of the house at the time of closing of the reverse mortgage.
An annuity would be on the wrong side of current rates. Should your estate be taxable, the accumulated debt reduces it. (Thanks for the clarifications about total amounts of debt and PMI.)
If LTC is adequately covered by insurance then you don't need to get into Medicaid planning questions. Still...these loans have repayment triggers that could force a sale of the home after leaving it for long-term care. She would probably have a year's grace period but that would be the limit as the loan would be canceled then (verify the details). Depending on if/when that happened, it could end up being a wealth-eater because of the timing.
Just on averages, it seems the planning need is roughly 10 years of additional income, based on your difference in ages and gender differences in life expectancy. At the moment, there's no urgency as your income is adequate. And it's too early to know what the real need (if any) will be. Given the unknowns do you want to commit to the costs now?
The $20k in investment income...is that from say a $400k portfolio, or something illiquid? If liquid, then tapping principal would be another way to fund that income shortfall, perhaps as long as needed - buying time to sell the home, or get a reverse mortgage then.
-Tad
Why would somebody in their late 70s or greater need to leave anything to their heirs?
Perhaps it is a matter of personal choice, or even love.
A sale is required 12 months after she leaves the house. I don't know the specifics, ie. do you put it for sale after 12 months or do you have to put it up for sale and close in 12 months. I'll have to find out.
Good question. A second alternative would to get just enough to pay off a current 45k home equity loan plus enough for repairs and improvements to make the house more salable some time in the future. Around 75k to to
100k should take care of all of that.It is a liquid portfolio and could be sold off as you suggest Another possibility is to take a lump sum now, say 100k and also, at the same time, establish a line of credit of 250k. When I die, my kids can then help my wife decide whether to sell the portfolio or use the line of credit if she wants to stay in the house. If I had my druthers, it would be better for her to sell the house and a) buy something smaller or b) move in with one of my kids or c) move to a retirement community. She does not drive so I think b. or c. would be preferable.
That is true in many cases, but often not. A lot of people think of leaving an inheritance to the kids as something of high priority. Of course, if you have no relatives to be heirs, it is a moot point. But then again a lot of people would like to leave substantial money to their favorite charity, church, school, etc. Then, there is still another more selfish motive: Some people like to use the eventual promise of an inheritance, or the threat of not getting one, as an incentive to keep the children in touch and coming around to visit a lot and acting nice.
Another way to frame this is that you're considering taking out a margin loan alongside a large investment portfolio, using a somewhat quirky and expensive type of home equity debt. And you don't have a current need for the proceeds, and might never need them.
That's an atypical situation - these are usually considered when there isn't a large investment portfolio and you're figuring out ways to tap home equity for cash. It seems a RM will limit your flexibility down the line...e.g. that potential for a forced sale after 12 months in LTC, or for a change of plans relatively soon that results in a home sale, and the relatively large fixed cost to absorb from terminating the reverse mortgage early in its life. Making sure that portfolio is invested conservatively enough, and being willing to tap principal, could go a long way (it could help to project out a balance sheet, and see the effect of the ever-growing RM).
-Tad
I currently have a $45,000 HELOC which requires a monthly payment of $115 but the draw period ends in 2017. It would be nice to (1) pay that off and eliminate the $115 a month and (2) extend the draw period indefinitely.
I'm not sure what you consider "relatively large fixed cost". Under the new HECM Saver plan effective 10/4, I've been quoted a cost of $4200 for $300,000 either as Line of Credit or a fixed loan. This is substantially lower then the HECM Standard plan that has been in effect for a number of years.
I need to create a spreadsheet to satisfy myself as to what happens under various scenarios. Many thanks for sharing your views.
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