Can someone explain what a 'reverse mortgage' is.

[Bobbieo]

Is it a good thing or a bad thing in relationship to today's market?

[KitchenWitch]

1. It is a slimy way for the bank to get the house back from the elderly

who have paid off their mortgages.

[Bobbieo]

2. How - In what way???

[KitchenWitch]

25. The "Reverse Mortgage" brokers prey on the elderly

telling them they can have the equity in their homes, in most cases, the mortgages are paid off. When the the person with the reverse mortgage passes away, the bank takes ownership of the home.

[MercutioATC]

29. Better they eat cat food in their paid-off house?

If they don't have the cash flow to support themselves, how is offering them a way to convert an asset into cash predatory?

[troubleinwinter]

32. You are right! It's made all the difference to my M-I-L! She no longer struggles with living hand-

to-mouth, and fearing losing her home. She got rid of her monthly mortgage payments and will never lose her home.

Her son and daughter will inherit less, but sooooo???!!!!! It's her house and should be used for her own comfort and well-being.

[troubleinwinter]

31. Bullshit

Legitimate reverse mortgages, which are only offered by a few institutions are closely regulated and the terms are defined. They don't just take the whole home. If, after the owner passes away, there is remaining equity, it still goes to the estate. You have not read carefully about them. I HAVE. My mother-in-law got one, my dad has taken the required course (just to learn and hold it as an option), and a friend is in the process of one.

I have spent untold hours researching it. There used to be 'fly-by-nights', but it it closely regulated now, and WELL WORTH LOOKING INTO for some elder people.

It can be a serious boon to some, and looking into it is worthwhile.

[Gormy Cuss]

58. Right. The key is to obtain one from a reputable institution and to be sure you understand the terms

even if that means hiring a real estate attorney to review it.

When done properly it can mean the difference between affording to stay in your home and being forced to sell before you're ready because you don't have the cash coming in.

[XboxWarrior]

5. I'll bet........

if you walk into the bank/lender's office smelling of cigars, they approve your reverse even faster!

[question everything]

46. Not necessarily

Many seniors are house rich and cash poor.

Reverse mortgage can help them stay in their house while getting a stream of payment each month.

Of course, this means that the kids will not get it upon their death, even though I've heard there are new, hybrid reverse mortgages that allow for the kids to inherit whatever is left over. Not sure of the details.

[sam sarrha]

3. you get paid monthly on your equity.. you bet you'll die before your homeless, they bet you'll die

they pay for the house.. or something like that

[NMDemDist2]

6. that actually sums it up pretty well

:rofl:

[Bobbieo]

9. Okay - the reason I am asking is because someone is trying to tell me what

a great thing a reverse mortgage is. He is trying to tell me I am stupid for not getting into one. I was thinking he is the stupid one and now I know I am right!!!

[Lex]

12. It really only works for people who are real estate rich

but cash poor.

You have to own your house outright and meet certain age requirements.

[Kingshakabobo]

34. You don't have to own your house outright.

You have to have substantial equity and be over 62 years old. I'm a mortgage banker. I've taken the classes but I have never done a reverse mortgage.

[Lex]

38. HUD says you have to

or have a "low balance" still owing on the mortgage . . .

2. Can I qualify for a HUD reverse mortgage?

To be eligible for a HUD reverse mortgage, HUD's Federal Housing Administration (FHA) requires that the borrower is a homeowner, 62 years of age or older; own your home outright, or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan;

[Kingshakabobo]

42. What's a low balance??

:shrug:

If you have a balance, it gets added to your initial draw - along with other upfront fees and set asides thereby reducing your net total lifetime payout.

BTW, there are other non-HUD programs available. The rate is a little higher but you don't pay 2 points upfront in FHA/HUD mortgage insurance premium. Also, the loan amounts are not capped - these work for higher end homes OR someone only planning on using the money for a couple years (don't want to pay 2% non-refundable insurance for short term money).

[troubleinwinter]

47. "low balance"

I would assume that, say you had an original mortgage of $50k, with a $45k balance, but the home appraised at $300k, the mortage balance is kinda moot in regard to market value?

[Kingshakabobo]

53. That's similar to a couple scenarios I've seen in the office.

I was just pointing out the house DOESN'T have to be free and clear to qualify.

[NMDemDist2]

14. if you are very old and own your house and need cash to pay for medical

expenses then it may be a good option

but I'd be very very cautious

[troubleinwinter]

33. I think it's the greatest thing since sliced bread. I think you have a good friend...

if you are of an age to qualify and want to get rid of your mortgage payment or want to recieve monthly income, and don't want to live and stuggle only to leave equity to your heirs.

Depends on your situation.

[aint_no_life_nowhere]

10. Does capital gains tax figure in?

If you are transferring your percentage of equitable interest in the property to the bank in exchange for income, does the government tax you on that?

[XboxWarrior]

13. Not Sure.....

But I tried to get one......I'm 43

RULE #1: You must be 62 years old. (knockin' on heaven's door)

[TahitiNut]

20. Yes... and the interest is interest income. But it's better than tax on EARNED income ...

... since, these days people pay doouble the tax rate on earned income. The capital gains taxes are amortized on the payment schedule (afaik) and only apply to part of the principal portion of the payment collected.

[Kingshakabobo]

40. It's not taxed because it's a loan and no title or ownership changes hands.

It doesn't affect social security benefits either.

[hfojvt]

28. no, thanks to Clinton, there is no tax on the gain from a home sale

In one way I think that sucks, giving people tax free income, but in another way under the old system, it was not taxed anyway, because most people bought another home within a year, in which case, the income was not taxable.

[Lex]

11. Actually they can't force you to move from your home

as long as you are living there.

6. Can the lender take my home away if I outlive the loan?

No! You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. You can never owe more than your home's value.

[begin_within]

43. What happens, then, if you do outlive the reverse mortgage?

Do you still keep the title to your home as long as you are alive, even if you have gotten all the money out of the mortgage? What does the bank do? Just sit and wait for you to die, then take title to the house? Does the bank charge you rent, if you have already gotten all the money from the RM and you're still alive and kicking, in what should be (in theory) the bank's house?

[Kingshakabobo]

45. If you took the lifetime monthly payment they keep paying you.....

....untill you die or no longer occupy the home. So, yes, if you live a long healthy life, you can get over on the bank. If you leave the home for a nursing home the loan has to be paid off.

There is an option to take a monthly payment, a lump-sum payment or an open equity line for your use at your discretion. OR, you can take a combination.

Take this for what it's worth because it came from a salesperson selling these to my mortgage office: The rep that came to our office spelled out a scenario where the bank can supposedly get gamed and lose a substantial amount. I'm a little fuzzy on my recollection but involved a customer taking the up-front lump-sum AND an available equity line. The gimmick involved writing a check on your deathbed for the remaining equity line. IIRC, the available equity line is increased yearly for anticipated appreciation.

[troubleinwinter]

52. I guess it's a gamble on both sides.

My view is that monthly payouts are best. They go on forever. A lump-sum or equity line is limited.

Perhaps if you're 94 yrs old and want a fishing boat, a lump-sum is a good choice.

In most cases, I'd think monthlies might be wise.

[begin_within]

54. Thank you for the info. Are you prevented from ever selling your home, if you

agree to one of these reverse mortgages?

[troubleinwinter]

57. No. But you'd have to pay off the RM loan.

RMs have high costs if you should sell.

Which illustrates that these loans are best for people who wish to remain in their homes. They are specifically designed to allow elders to stay in their homes for their lifetime.

[Kingshakabobo]

59. Nope. YOU own the home so you can do with it what you please.

You just have to consider the loan payoff.

It's probably not a good idea to take one out for a short term because the upfront fees are high - 2% to the bank and 2% to HUD/FHA plus title fees, appraisal etc.

For shorter term, you might consider a home equity loan - if you qualify for one.

You might look in to a non-HUD/FHA reverse mortgage. The rate is a little higher but you don't pay the 2% non refundable insurance premium to HUD. Either way, before you do anything, you can attend the counseling session that is required prior to opening a HUD insured reverse mortgage.

[troubleinwinter]

61. I hope we have LOTS more discussions about Reverse Mortgages!

So that people are aware of them and what they mean.

[AlCzervik]

4. here is a link from HUD fwiw.

http://www.hud.gov/offices/hsg/sfh/hecm/rmtopten.cfm

[Lex]

8. delete

wrong place

[TahitiNut]

16. Correct. For many retirees, it actually makes good sense.

The resident/homeowner cannot be evicted as long as they pay the property taxes - like anyone. It CAN be set up to preserve a (smaller) estate and it can improve the quality of life for the retiree enormously.

[sendero]

27. Exactly..

... like anything involving the financing of a house, you need to understand fully what you are getting in to.

For older folks who own their homes and are having financial difficulties and don't care about leaving an inheritance, a reverse mortgage might well be a good idea.

On the other hand, this is all done actuarially, and there is no doubt the bank is setting this up to get the best deal. In some cases folks would be better off selling and then renting.

Without a crystal ball (how long will I live, how much will my house be worth when I die) one can only take an educated guess at the future facts.

[Lex]

7. Some people have most of their wealth tied up in their house

which they may own outright. So they are house rich, but cash poor.

What happens is the bank, over time, pays you in monthly installments on the house while you live there.

If it's used in the right way under the right circumstances, it can be very helpful. Many times people don't need to die with a $200,000 house in their name, but could've used the $200,000 paid out to them over time.

[NMDemDist2]

15. agreed, for some folks it's a life saver (literally) and allows them

to stay in their lifelong home

[Bobbieo]

18. But when I die, the house goes to the bank, Right?????

[Lex]

19. The bank paid you for it, so yes of course it does.

When you are dead, you don't need a house. But when you were alive, you might've needed the money tied up in the house.

[Kingshakabobo]

36. no, it doesn't go to the bank. It goes to your heirs -along with a pay-off due.

[Lex]

37. But of course the house serves as collateral for the loan

so the house is sold to make the loan payoff, unless of course your heirs would rather keep the house and pay the loan off out of other funds available (in which case those would've probably been used already and a reverse mortgage not needed).

[Kingshakabobo]

41. Correct. That's probably what happens in most cases.

....Or the heirs can refinance the loan as they will be the new owner(s). Either way, it will be handled by the heirs.

I just wanted to point out the bank DOESN'T take the house.

[progressivebydesign]

51. I think it's more like a lien or a traditional mortgage in that sense.

You owe what you owe when the house is sold or transferred, but not the entire house unless you borrowed the entire value of it. Someone would want to consult an attorney or do lots of research before getting one of those... and get references from friends on reputable lenders.

[troubleinwinter]

35. No and Yes.

The terms and interest will be written out. Depending on when you die, if you don't live long, there may be equity remaining that would go to your estate. But if you live a mighty long time, the bank can NEVER toss you from your home.

[progressivebydesign]

49. No... but the money you owe is deducted from the house value..

I'm not sure of the mechanics, but I'm pretty sure the only way your house would go entirely to the bank would be if you drew every last cent from the house value.

[L. Coyote]

17. It is essentially a monthly payment to you, a loan, guaranteed by a property.

After you die, typically, the loan is paid off by the house you lived in.

Like any business transaction, get good independent advice and read AND UNDERSTAND the fine print first.

Many people are very happy with this arrangement, especially if they have no heirs. You get to keep your home and spend your assets too, more or less.

[Bobbieo]

24. Thank you for your responses!!!!

[judaspriestess]

21. Reverse Mortgage has many of the same guidelines

of an FHA mortgage. For example you can only get whatever the FHA limit in your area as a reverse mortgage, if you want to max it out that high. Lets say you're home is worth 250K but FHA limits are 150K that is as high as the reverse mortgage can go.

[CC]

22. Depends on your situation and

needs. My uncle has a reverse mortgage. He paid for the house decades ago. He is single and was in his 70's went he went that route. He had supported his mother and a sister until their deaths so didn't have tons of savings though he did have some and others in the family did help. It has been the difference between being able to stay in his own house and not living in an apartment. Property values had risen so much that the taxes were killing him. They not only can not kick him out, they have to keep paying the agreed on amount as long as he lives. He is now in his 80's and though things are a bit tight with the rise in heating and electric he is still doing ok and living independently. He also has the finds to play golf which was important to him.

[Jim Lane]

23. More detail available here

http://en.wikipedia.org/wiki/Reverse_mortgage

Whether it's a good thing would depend on the particular homeowner's circumstances.

[jedr]

26. basic ly , if you don't want to pass your house to;

Your family, you can sell it back to the bank and they will pay you the value of the house over a given period of time and give you some interest on the money. ( monthly installments). If you are the "last of your line" or your kids don't need or want the house, or if you need the money worse than them, it works out to be a good deal. Looks like you have a lot of links to get info., check it out close.

[troubleinwinter]

30. It saved my mother-in-law's home. I encouraged my father (79) to look into it.

He does not need it at this time, but did take the one-day course that explains it, and he understands the program, should he ever decide he wants/needs it.

I am an adamant proponent of people looking into the program. My M-I-L simply no longer had the money to make her mortgage payments + her monthly bills. She was looking at losing her home. She took a reverse mortgage and knows she can NEVER lose her home as long as she cares to live in it, plus has money for her bills. Her children will inherit significantly less or none off the home when she dies... so?

ABSOLUTELY read everything you can about the programs. There are better options and less better ones. When the program was new, there were some bad programs, but it is strictly regulated now.

Any bank gov't certified for the program is NOT a rip-off. Reverse mortgage can be a real boon to elders who need income, or get rid or mortgage payments. The payoff comes only whatever equity is left in the home AFTER the person dies or decides to move. If there is still excess equity remaining, it still goes to the estate.

I saw it work for MIL, my dad took the course and understands it and has the option.

If you are considering it, I HIGHLY recommend the certified one-day course (usually one in each city once or so a month, and it is required for anyone taking a RV) any bank offering RMs can direct you to one in your town. You may find RM to be a good option for you. You may get rid of mortgage payments, or get additional monthly income. It is especially good for someone without children or who don't care about living poor so the 'children' can inherit.

My friend has no children and has been living hand-to-mouth, struggling to meet her bills. I told her to get a damned RV. She is in the process, and a huge weight is lifting from her. Her mortgage payment will disappear.

The terms will be shown upfront. If equity remains after moneys are paid out to you, your estate gets that money. Yes, the interest is high, but it doesn't matter when you know you can remain in your home forever, even if the bank loses. You can never be removed from your home.

You do need some equity, but MIL didn't have a lot, but the sale value was there. These days, value is a dicier question, but still worth looking into.

I think you must be 62.

I vote YES look into it. Only certain certified institutions are permitted now to offer them (to prevent fly-by-nights).

[Kingshakabobo]

39. Thanks for your responses on this thread.

It drives me nuts when people adamantly toss out bogus information. I'm a mortgage banker - I've taken the training classes on the reverse mortgages but I haven't closed any yet. They DO make sense for some people......and, no, the bank doesn't take the house.

My only beef with theses loans is the high up-front fees. FHA charges 2 points upfront for mortgage insurance and the bank typically charges 2 points for their profit (this is negotiable). The banks aren't compensated by the secondary market or by servicing fees so they have to charge upfront points. In other words, everything is raw or above board.

Even the monthly servicing fees, charged to the customer, are expressed as a lumps-sum fee and set aside from the net total lifetime benefit. The monthly service fee is a "pay as you go" fee but it gets calculated/estimated and set aside from the total equity available the monthly service fee might be $30 dollars but you will see it expressed as a lump sum set aside of, say, $5,000 dollars. Everyone who has a mortgage pays a monthly servicing fee but most people don't see it as it's part of the interest payment.

[troubleinwinter]

44. Yes, I think the banks get some 'sugar' for doing these loans, for sure.

I think interest is high. But for some elder people they are a great option, and can make a real difference.

People should look carefully into them, but that's what the class (required one day, I think... it's what my dad took) is for.

I am truly glad this option is there to permit elders to remain in their own homes.

[Kingshakabobo]

50. The rates ARE high compared to a conventional fannie/freddie loan.... but guess what....

...Just about any rate is high compared to those loans because conventional loans are the best game in town.

Like I said, I'm no fan of charging upfront points but there really is no compensation on the back-end from the secondary market so the originator has to make it somewhere........and the HUD insures most loans so the government gets their pound of flesh.

Someone in my office had an elder lady inquiring about a reverse mortgage a couple weeks ago. She mentioned to the loan officer that her no-good son makes $200k per year but doesn't help her at all - in the same breath, she balked at the fees. :banghead:
I was like, screw him - spend his inheritance and live it up. Why eat cat food so the punk kid can get your house free and clear?

IIRC, the statistics say most people take these loans to pay medical bills and property taxes........

[troubleinwinter]

55. I'm WITH ya!

My dad does OK on his retirement, and has a bit set aside. But sometimes he wants something groovy, like a new MAC, and struggles to figure out how to have it along with paying property taxes, etc.

I said "Well, look at a reverse mortgage and enjoy YOUR OWN money!!" After all, it isn't my money... it's his. He worked for it and it's his home, not mine. He should USE what he built for his own enjoyment!

He took the class, and now knows his options, should he decide to use it.

Good news, he squeeked out his new MAC and he's happy til the next OS comes out.

[Kingshakabobo]

56. Another thing to consider is the cost to sell your home......

........when you really don't want to move. In the most recent scenario I saw, the woman wanted to remain in her home and in her neighborhood. The alternative was to pay a 6% realtor commission plus other fees to downsize to a neighborhood she didn't want. That made the 4% fees more palatable.

[progressivebydesign]

48. it allows the elderly to draw from their equity.

the money is paid back when they either pass away or sell the home. It's a good way for the elderly to tap into that money if they need to. They stay in the house, according to what I've read, so there shouldn't be a danger of losing their home. the only people that usually object are the hiers, who are pissed that there's less money for them. I'm sure there are unscrupulous people offering those mortgages, but they seem to be basically sound.

[troubleinwinter]

60. Precisely. They were designed to keep elders from losing their homes.

I actually don't think these loans can be offered any longer by unscrupulous lenders, as only certain institutions can offer them. Kingshakabobo can probably tell us about that.

(As an aside, I don't ever use the word "elderly", as I worked with the Gray Panthers for some time and learned that we don't use the word "youngerly". It has long-standing connotations and 'elder' works just fine, and shows some regard. Not pickin' on ya at all.)

[Kingshakabobo]

62. I edited to "elder."

:)

I'm not sure about the "unscrupulous" part as these are becoming more common and more lenders are offering them. Countrywide now offers them. The HUD insured loans offer more protection as they are more regulated. Honestly, I don't know how much protection you lose by taking a non-insured loan and forgoing the 2% HUD insurance premium. I'm sitting here racking my brain and I can't remember if you are still required to take counseling if you take a non-insured loan.

[troubleinwinter]

63. A story

I grew up in Berkeley. The Berkeley hills. A teen in the 60s. We had a bunch of riots and the National Guard rolled into town and occupied the town for a week. We had demonstrations with all the downtown shop windows broken & whatnot. The town's insurance went through the roof to the point that it was a serious problem. Property taxes went over the moon.

Many homes in the hills occupied by retirees (a lot of old professors & such) all went up for sale at the same time, because the retirees who thought they'd stay in their homes forever, could not stay purely because of the taxes. Real estate values TANKED because so many houses went on the market. Old folks who expected to see out their days in their homes moved in with their kids. This is largely what brought on Javis/Gann, which is still controversial in the state and though it put a bandaid on the problem, also has fucked over the subsequent generations and new buyers.

Reverse Mortgages can help elder homeowners remain in their homes and handle rising property taxes, inflation, medical bills, or simply use the equity in their homes for repairs or whatever.