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Anyone know about Reverse Mortgages

Old 01-06-2013, 12:24 PM
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Default Anyone know about Reverse Mortgages

I have done some reading on these but not too sure, I have had some clients ask me what I thought about them and from what I have seen not too bad of a deal for someone to supplement their retirement

In fact my In Laws in their late 60's and like a lot did not plan as much as they should for retirement but their home has been paid for 15+ years and they have quite of bit of out of pocket medical expenses . Father in law thinks he "needs to leave something for his daughters" and told him BS to look out for himself and MIL and girls will be fine.

I am sure they are basically like regular mortgages in that their are commissions and fees and from what I have read they can be set up many ways like either a monthly income or credit line or just a lump sum(they have no other debt at all) and seem pretty secure in that from what I have read you can not loose your house and if you do not use all the equity then house is sold after death and anything left above amount received and fees then it goes to heirs

Anyone had any real life experience with this, starting to have some of my older clients ask me about it but really not a tax situation for most part(can be some rare instances where there is but RARE)
Old 01-06-2013, 12:44 PM
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T.

I got a reverse mortgage for my Mom and Dad about 5 years ago. They can be a good product but it depends on the situation.

The basics are this:

Home must be the PRIMARY residence and the loan holder must live in the home
A basic full appraisal is done on the property
A broker writes the mortgage, his/her fee is in the mortgage, no cash out of pocket, but paid for in the end
A percentage rate is guaranteed for the term of the mortgage (pretty competitive)
All leans/mortgages on property must be paid before closing the mortgage,
No second mortgages allowed
After the loan closes, the funds can be used at the discretion of the owner of the property.
The owner of the property is still the deed holder, responsible for taxes, insurance, etc...
As the funds are used, the interest begins accruing, interest and principle, however no payments are required.
Customer will get a monthly statement of amount due, including interest and principle, but no payment required
The loan becomes payable to the bank when the mortgage holder no longer can live in the home, or if the home is sold, obviously.
If the mortgage holder can no longer live in the home for any reason, there is a six month period that the loan becomes due.

Here is the tricky part depending on the mortgage holders family. There could be up to 90% of the homes value due on the mortgage that the family has to pay, in the event of catastrophic sickness or death. If the family would like to keep the home for any reason, typically sentimental reasons, they must pay the loan in full, via cash, home equity, etc...Doesn't matter, they must pay it or the bank could begin foreclosure on the property.

For my family it was the perfect deal. Dad had accrued debt in the amount of the entire reverse mortgage, so he was faced with about a $1200 a month payment with no income. We secured the reverse mortgage, paid the debt off and he could then use his SS for things that helped him enjoy his last stage of life.

Now that Mom lives with me, the house must be sold, but since the house holds no sentimental value to any of us three sons, we will sell it and pay the mortgage. If the house sale does not cover the mortgage, the estate (ME) is responsible, but in our case a few thousand either way was no reason to not allow Mom and Dad a little more financial sanity in their waning years.

These details are 5 years old in my brain, so I may be off just a little, you know, guys our age aren't quite as sharp as 30 years ago!!

PM me or Email me if you need any more info, be glad to help.

Mike
Old 01-06-2013, 02:10 PM
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For what it's worth....

I am a "Clark Howard & Dave Ramsey follower and they have never steered me wrong over the last 20 years or so. Both of these financial conservatives do not suggest them for any reason. That's all I need to know!

Just my 2-cents!
Old 01-06-2013, 02:37 PM
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I get all the reasons why these guys don't like the mortgages.

When my parents turned about 72, they completely lost perspective of money, maybe they thought they wouldn't live another month, I don't know, but my Dad did everything he could to make sure he left my Mom with nothing but a stack of bills and my Mom went along for the ride.

Ramsey offers this for a solution for people that are in my Dad's situation:

If you or anyone you know is considering a reverse mortgage—stop now! If money is short, cut back on your lifestyle. Sell your house and get something more affordable to free up money for your needs.

This is pretty typical fiscal conservative thinking. Forget about what has been done, just don't do it. His solution is boarder line idiotic for grown children of aging parents that don't mind taking on their parents debt, but can't tell them because the parents need to preserve any shred of dignity with their days diminishing on this earth.

Dad wouldn't think of taking 100K from his kids, it would have killed him long ago.

My financial planner steered me in this direction as well as my banker. Neither of them made a dime on the mortgage. They both had a Rolodex of clients that almost ruined any chance of a surviving spouse have anything left but taking handouts.
Old 01-06-2013, 02:47 PM
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Fonzie say's "there cool" so they must be
Old 01-06-2013, 03:00 PM
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Originally Posted by spraynet 1 View Post
For what it's worth....

I am a "Clark Howard & Dave Ramsey follower and they have never steered me wrong over the last 20 years or so. Both of these financial conservatives do not suggest them for any reason. That's all I need to know!

Just my 2-cents!
I have heard them say that but never understood why. To me you have to ALL things into consideration but if someone that age has nothing else why not is my question


Thans Mike for the info.

I honestly see where in smoe cases it woud really help some older couples with finances.

In all honesty i can see them handy in situations where one spouse dies ans SS is basically cut to one check but household expenses remain close to the same
Old 01-06-2013, 03:11 PM
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Originally Posted by tprice View Post
I have heard them say that but never understood why. To me you have to ALL things into consideration but if someone that age has nothing else why not is my question


Thans Mike for the info.

I honestly see where in smoe cases it woud really help some older couples with finances.

In all honesty i can see them handy in situations where one spouse dies ans SS is basically cut to one check but household expenses remain close to the same
I think the single reason people don't like them is that the fee's are higher than a typical home equity LOC., and a distant second may be the lack of understanding.

DO NOT let old people deal with this alone. My Dad thought he was signing his house over to the lady that came to his kitchen.

There has to be someone responsible to act in elderly people's behalf.
Old 01-06-2013, 03:12 PM
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Let me add this. I have seen some self employed folks basically wiped out in the last 2-4 years, mainly those in the construction business. I have seen them, against my advice, drain IRA's, credit lines, and savings dumping cash into their busineese's to keep them going.

While not unusal to put $$$ into a business but there has not been a rebound to replinish and still does not look like one anytime soon in our area.

Got one client with a house that probably close to $1,000,000.00 with zero debt on it but does not have much cash at all in bank and hs business is barely staying afloat and he is in mid to late 60's and is considering this. However i think he is gonna try the market first to see if it will sell in next couple years
Old 01-06-2013, 03:31 PM
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Originally Posted by Mike Boehler View Post
I think the single reason people don't like them is that the fee's are higher than a typical home equity LOC., and a distant second may be the lack of understanding.

DO NOT let old people deal with this alone. My Dad thought he was signing his house over to the lady that came to his kitchen.

There has to be someone responsible to act in elderly people's behalf.

Good point
Old 01-06-2013, 04:07 PM
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Watch out because they are loaded with bank fees as you take the money along with the interest accruing and the banks make out this way also.
Old 01-06-2013, 04:16 PM
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[quote=tprice;5240703]Let me add this. I have seen some self employed folks basically wiped out in the last 2-4 years, mainly those in the construction business. I have seen them, against my advice, drain IRA's, credit lines, and savings dumping cash into their busineese's to keep them going.

Sounds like me (almost, but close).
Insofar as 'reverse mortgage' you have to know in your heart its a friggin scam.
for what it's worth, I own own 2 homes fee simple, no debt, one in the mountains and one on the coast.
Looked into RM as potential way to subsidize fixed income, and didn't 'qualify' as I had zero mortgage on the properties.
Say What?
More than likely would not have exercised the option anyway.
Look very closely at the 'fine print'.
Old 01-06-2013, 04:21 PM
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Thanks. The "fine print" is always what concerns me
Old 01-06-2013, 04:40 PM
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You guys that know about this help me out if you can. I have not looked into it but heard you could do this.
I don't have anyone to leave anything to. Except TPrice my collection of 1/24 scale corvettes.(I have 2) He deserves at least one before he goes.
I'm secure but I heard you could get so much (maybe 50 to 75%, money out as to value on the home, not sure of the percentage) then just let them have the place once your passed. My thoughts , just stick that money in the bank, let it draw interest and if frees you up from house payments more power to it. If you don't have payments you could just enjoy the interest to pay the other cost?
Are there several different plans or just one.
Old 01-06-2013, 04:45 PM
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From my point of view, they will work for some people who are not looking at leaving anything for the kids/beneficiaries. They are not for someone who is looking to pass the family house on. I am in the financial planning/tax business and have looked at them from a high level point of view and have not picked apart the contracts, so take it for what it's worth. From my understanding, as said above, you still own the home and are responsible for all the taxes, maintenance, insurance. etc....you are just getting the equity out of the home over time. The process to get one is not easy or quick as the bank will put you through a full health physical as they use your life expectancy as one of the determining factors for the terms/rate of the reverse mortgage. Unlike Mike stated, it was my understanding that the kids/beneficiaries are not responsible for any shortfalls if the parent outlives the terms of the reverse mortgage.

For example, when the parent dies or goes into a nursing home, the home is worth $125k and the total of payments made to the parent plus accrued interest equals $90k....then the child/beneficiary has the option of paying the $90k and taking possession of the home or telling the bank to sell the home and give them what is left after the bank note has been satisfied. On the flip side, if the parent lived longer than the bank calculated and the house has a value of $125k and the total of payments made to the parent plus accrued interest equals $150k, the child/beneficiary has two options......pay the $150k and take possession of a house worth $125k or tell the bank to pound sand and the bank sells the home and eats the shortfall. For the second scenario, that is why the bank is so diligent in getting a full physical done on the home owner plus getting a full valuation of the home. Because of the possibility of the second scenario, it does not make the reverse mortgage a good option for someone wanting to leave the house to the children.

I don't believe the homeowner or their children are on the hook and the bank has no recourse if the owner occupies the home longer than the bank anticipates and the bank becomes "upside down" in the house.
Old 01-06-2013, 05:08 PM
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sound like it might be the cats meow for me. Thanks runabout.
Here is another strange question. Will they allow you to put your GF or wife in the thing. I would think the wife could be written into it but how would a GF stand if you passed first?
Have a very good friend thats a lawyer and he's always telling me to check into it since I could care less what happens to the point later on but covering the GF's back would be something I would want to look into.
The physical thing makes it sound like a catch 22 but I suppose they have their own ways of covering their back.
Old 01-06-2013, 05:16 PM
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Originally Posted by runabout View Post
. Unlike Mike stated, it was my understanding that the kids/beneficiaries are not responsible for any shortfalls if the parent outlives the terms of the reverse mortgage.

.
You could very well be spot on. In my case, my Mom has moved out of her house and into my house. When I said I would be on the hook, basically tongue and cheek for "I'm not letting my mom go in the tank while she's alive". So if the house sells upside down of the reverse, us kids will chip in for the difference and let mom live out her life.

Another thing I may have gotten wrong, after second thought, I think we have 1 year to sell, at that point the bank tries to sell it for us at a cost.

Either way, we are not upside down so it doesn't matter. We can fire sale the house and still be pretty safe.

Its not for everyone for sure, actually, not for most people. But it was right for my Mom and Dad. We make our own money, I don't need theirs. We certainly don't want the house. If we did, it would be a problem if we couldn't scrape up $100K+...So that's something to think about well ahead of securing the paperwork.

There is "Fine Print" with everything we do, and there is no free lunch in life. It's a decent product for what they needed, which means it cost a few bucks more, but "Fine Print" is not insurmountable, even for a thick headed, stubborn bastard like me.
Old 01-06-2013, 05:20 PM
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Originally Posted by liveaboard74 View Post
sound like it might be the cats meow for me. Thanks runabout.
Here is another strange question. Will they allow you to put your GF or wife in the thing. I would think the wife could be written into it but how would a GF stand if you passed first?
Have a very good friend thats a lawyer and he's always telling me to check into it since I could care less what happens to the point later on but covering the GF's back would be something I would want to look into.
The physical thing makes it sound like a catch 22 but I suppose they have their own ways of covering their back.
I can't answer your wife/gf question, but Mom and Dad endured not even a phone call requesting physical information. Definitely not a full blown physical.

Here is where the US Govt. comes in. If Mom lived in the house until she was 110 years old. The bank could never recoup the interest she would have owed them, so the govt. guarantees the banks, or however a lawyer would phrase that. They are 100% protected. Which we paid for in the closing costs (insurance)
Old 01-06-2013, 05:32 PM
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Originally Posted by Mike Boehler View Post
You could very well be spot on. In my case, my Mom has moved out of her house and into my house. When I said I would be on the hook, basically tongue and cheek for "I'm not letting my mom go in the tank while she's alive". So if the house sells upside down of the reverse, us kids will chip in for the difference and let mom live out her life.

Another thing I may have gotten wrong, after second thought, I think we have 1 year to sell, at that point the bank tries to sell it for us at a cost.

Either way, we are not upside down so it doesn't matter. We can fire sale the house and still be pretty safe.

Its not for everyone for sure, actually, not for most people. But it was right for my Mom and Dad. We make our own money, I don't need theirs. We certainly don't want the house. If we did, it would be a problem if we couldn't scrape up $100K+...So that's something to think about well ahead of securing the paperwork.

There is "Fine Print" with everything we do, and there is no free lunch in life. It's a decent product for what they needed, which means it cost a few bucks more, but "Fine Print" is not insurmountable, even for a thick headed, stubborn bastard like me.
Taking care of Mom and Dad is almost a lost art in today's society.
Glad to hear you love your parents.
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Old 01-06-2013, 06:21 PM
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Please keep in mind that I said I looked at them from a high level point of view and did NOT pick apart the contract, so I may be wrong. As with all contracts, some are better than others. Some may have a clause/provision in there that deals with a health physical....ie, if you have a health physical, kids are not on the hook and another contract or rider may give you an option of no health physical with the caveat that the estate/kids/beneficiaries would be on the hook for any shortfalls. Do you due diligence and pay a few bucks to have a qualified professional comb through and pick apart the contract, especially the fine print.

Liveaboard, as far as the GF goes, she would have to be on the deed to be part of the deal and then her life expectancy would be figured into the terms and monthly amount you received. Another option, if you didn't want her on the deed would be to take out a life insurance policy on yourself, payable to her, for the amount you calculate will satisfy the reverse mortgage at your death.
Old 01-06-2013, 06:34 PM
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Originally Posted by runabout View Post
Please keep in mind that I said I looked at them from a high level point of view and did NOT pick apart the contract, so I may be wrong. As with all contracts, some are better than others. Some may have a clause/provision in there that deals with a health physical....ie, if you have a health physical, kids are not on the hook and another contract or rider may give you an option of no health physical with the caveat that the estate/kids/beneficiaries would be on the hook for any shortfalls. Do you due diligence and pay a few bucks to have a qualified professional comb through and pick apart the contract, especially the fine print.

Liveaboard, as far as the GF goes, she would have to be on the deed to be part of the deal and then her life expectancy would be figured into the terms and monthly amount you received. Another option, if you didn't want her on the deed would be to take out a life insurance policy on yourself, payable to her, for the amount you calculate will satisfy the reverse mortgage at your death.
Makes since. I'm going to look into these things. 6 years to 62 and keep putting it off but liking what I see here. Still not sure I fully understand it but if it can allow me to live in the home with only paying insurance, taxes and other fees then allowing them to keep the place after i'm gone, I am really interested in looking more into it.
Thank you.

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