As with any financial product isn't it obvious that you should be "careful"? Financial planning is a detailed, mindful process and one that should not be ignored. I recommend having a team of advisers where each are independent of each other, but work together for your benefit. If you are working with a reputable company, I feel that there are no bad or good financial products. You need to buy financial products that solve a problem you may have and meet your plans and goals. Current & future plans need to be Considered and discussed. Start the planning, start the conversation.
In the past I have considered a reverse mortgage on my home. My nephew explained to me the pros and cons of doing such a thing. I am grateful that I did not get involved in such a risky transaction after hearing numerous horror stories.
Hollywood, Fl. May 2009 This HECM loan devastated this little family. My Mom was solicited by mail with what she thought was a to good to be true government loan. She was in her mid 70s, with some health issues. She was behind on her property taxes, overdrawn in her bank account, and paid the fees for counseling and appraisal. The appraisal early 2009 was inflated, many problems were overlooked. A missing structural beam, exposed electrical wires, exposed bare deteriorating wood, active wood pests, an open roof permit from 2006 was still waiting for repair as the rain leaked in... The concrete cabana roof was ready to fall in, the electric wasn't working from rain and other issues, so the pool system couldn't work. They called a tree service to fill in the pool with no permit. They sent an electrician from as far away as Indian River to make a few repairs and a drywall guy to install new drywall on the ceiling to cover water damage, the cost for this was also inflated. They never covered the leaking pipes where the drywall had fallen rotted off the walls in the pantry. There was no set aside money to make any repairs, and the living conditions worsened, the cabana roof fell in, the septic tank that is inside the house never sealed, the rain comes in, windows don't work, are broken and no screens, the back door rotted out, animals she couldn't keep out, May termites swarm inside. I could go on... Her safety or protection to the property even on the banks behalf, even the tax payers. She got only $992. SS income. The lender paid off the $80,000. mortgage from 30 yrs ago, and showed the house as valued at $270,000. The actual value was closer to $50,000. It was over $20,000 in closing up front. 2008 taxes that were not paid when she entered into this loan, should have been added to closing. The certificate was later sold to the highest bidder, again in 2010 and 2014. She had no money to pay her bills, spent her entire SS check to pay off the tax certificate for one year, leaving her no money for the final past due notice for her electric. It was shut off, as was the water to the house. Christmas 2013, she had no food in the house when she was found dead on my bed in my room with burnt candles, prayer cards and bills she couldn't pay on my desk. Her heart gave out. At 77 yrs old, 4 yrs into this loan, this should never have happened. The elderly are prayed on and not in condition to be taken advantage of in this way.
A Reverse Mortgage can provide easy access to home equity that has been built up over time. In turn, these funds can be used to pay for in-home care and enable the homeowner to stay in their home. The key element when considering a Reverse Mortgage is how it stands up to the alternatives.
Good post. Many people are looking into a reverse mortgage as a source of income later in life. This can be a fantastic way to pay for unforeseen medical expenses, help make life easier, or just get a little extra income coming in. While a reverse mortgage can be a great option for all of these circumstances, that doesn’t mean it is right for everybody. There are a lot of things to consider when it comes to a reverse mortgage.
As good as a reverse mortgage may initially sound, it’s crucial that you fully understand the potential downsides involved. It’s so important in fact, that government-backed reverse mortgage programs actually require you to go through a counseling process to ensure you make an informed decision.
A reverse mortgage is a complex financial instrument with lifelong consequences for the borrower and their entire family. Every potential borrower needs to determine if this type of loan is suitable for your circumstances. It is not a good idea to get a reverse mortgage for a specific purpose such as long term care unless you know that it will pay for long term care in your home and all your other expenses for the rest of you life. When the loan matures if the heirs want to keep the home they do need to repay the loan or pay 95% of the appraised value whichever is less. These loans have compounded interest so in general there is no remaining equity in the property to go to heirs (if that is the borrowers wishes). The bank will not own the home (be the title holder) at maturity but they do have 1st beneficiary interest before the heirs.
Awesome! The Consumer Financial Protection Bureau has organized a study for Congress over the state of reverse mortgages in the country. The CFPB is worried about reverse mortgages having a damaging effect on seniors who borrow them against the equity in their homes throughout retirement. Source: personalmoneynetwork
Great post. In order to qualify for a reverse mortgage, all owners and co-owners of the home must be age 62 or older and at least one homeowner must reside in the home as their primary residence at least six months out of the year.
I think you have to be VERY careful with the reverse mortgage and very realistic as to what it means to take on debt later on in life. The mortgage has to be repaid eventually.The entire principal, interest and fees must be paid in order for the heirs can take possession of the home. If the heirs cannot pay off the debt, the house will have to be sold. The one good thing is that if the house is sold for below the debt, FHA will pay the difference if it is a federally backed RM. Please go over the agreement to see what the policy reads and your responsibility is.
If you do a RM there are 4 things that can be a problem for compliance and cause the RM to be due and payable in full:
- FAILURE TO PAY - property taxes, homeowners /flood/ wind insurance. One issue with RM is that often the homeowner - since the house is paid off - has let their insurance slide or is too low. So instead of the homeowner paying $ 300 a year for insurance, they now have to pay significantly higher rates because there is now a mortgage on the property. Or instead of selecting their own insurer, the insurance is folded into the RM and uses insurers that the RM selects which can drive up the fees and costs. If you don't pay the taxes & insurance, etc., your mortgage can go into default. - MOVING TO A NEW RESIDENCE- if reverse mortgage property stops being your primary, you are out of compliance with loan. So if you move into a NH, you are required to pay your loan.
- BEING OUT OF THE HOME FOR MORE THAN 1 YEAR - the loan will come due. Most policies have this.
- ALLOWING THE PROPERTY TO DETERIORATE - being away for a while, like a trip or cruise is allowed but if the property gets run down while you are away, the loan could be called in. After Hurricane Katrina, some homeowners who had RM, got letters w/detailed questionnaire as to the status of the home, how it was being secured, status of repairs, utility information, how long until they were back in the house full-time.....this was all about calling in loans that were in areas with uncertainty. And Katrina was in 2005 before the real estate market tanked.
I think that RM can work for young 62-70 year olds that are in good health, have a home that they own outright, with a property value of 300K or more; do the RM as a line of credit with a variable interest rate; and that the property is in a neighborhood that will likely increase significantly in value over the next 10 - 20 years and they are committed to living in the home for those 10 - 20 years. So that the $$ owed for the RM & fees can be paid off in full from the sale of the house & perhaps the value has increased so that there is even money left.
Excellent - very objective - and a good plan I believe for use of funds - The reverse mortgage program is now enjoying some positive feedback in the news/media and I believe more will have this heart to heart with their parents and come to the same conclusion. Equity is the largest part of one wealth (usually) and most are not fully prepared for retirement - thus accessing this equity is crucial and the how is with a reverse mortgage.
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Understanding the Pros and Cons of Reverse Mortgages for Seniors
My Mom was solicited by mail with what she thought was a to good to be true government loan. She was in her mid 70s, with some health issues. She was behind on her property taxes, overdrawn in her bank account, and paid the fees for counseling and appraisal. The appraisal early 2009 was inflated, many problems were overlooked. A missing structural beam, exposed electrical wires, exposed bare deteriorating wood, active wood pests, an open roof permit from 2006 was still waiting for repair as the rain leaked in... The concrete cabana roof was ready to fall in, the electric wasn't working from rain and other issues, so the pool system couldn't work. They called a tree service to fill in the pool with no permit. They sent an electrician from as far away as Indian River to make a few repairs and a drywall guy to install new drywall on the ceiling to cover water damage, the cost for this was also inflated. They never covered the leaking pipes where the drywall had fallen rotted off the walls in the pantry. There was no set aside money to make any repairs, and the living conditions worsened, the cabana roof fell in, the septic tank that is inside the house never sealed, the rain comes in, windows don't work, are broken and no screens, the back door rotted out, animals she couldn't keep out, May termites swarm inside. I could go on... Her safety or protection to the property even on the banks behalf, even the tax payers. She got only $992. SS income. The lender paid off the $80,000. mortgage from 30 yrs ago, and showed the house as valued at $270,000. The actual value was closer to $50,000. It was over $20,000 in closing up front. 2008 taxes that were not paid when she entered into this loan, should have been added to closing. The certificate was later sold to the highest bidder, again in 2010 and 2014.
She had no money to pay her bills, spent her entire SS check to pay off the tax certificate for one year, leaving her no money for the final past due notice for her electric. It was shut off, as was the water to the house. Christmas 2013, she had no food in the house when she was found dead on my bed in my room with burnt candles, prayer cards and bills she couldn't pay on my desk. Her heart gave out. At 77 yrs old, 4 yrs into this loan, this should never have happened. The elderly are prayed on and not in condition to be taken advantage of in this way.
If you do a RM there are 4 things that can be a problem for compliance and cause the RM to be due and payable in full:
- FAILURE TO PAY - property taxes, homeowners /flood/ wind insurance. One issue with RM is that often the homeowner - since the house is paid off - has let their insurance slide or is too low. So instead of the homeowner paying $ 300 a year for insurance, they now have to pay significantly higher rates because there is now a mortgage on the property. Or instead of selecting their own insurer, the insurance is folded into the RM and uses insurers that the RM selects which can drive up the fees and costs. If you don't pay the taxes & insurance, etc., your mortgage can go into default.
- MOVING TO A NEW RESIDENCE- if reverse mortgage property stops being your primary, you are out of compliance with loan. So if you move into a NH, you are required to pay your loan.
- BEING OUT OF THE HOME FOR MORE THAN 1 YEAR - the loan will come due. Most policies have this.
- ALLOWING THE PROPERTY TO DETERIORATE - being away for a while, like a trip or cruise is allowed but if the property gets run down while you are away, the loan could be called in. After Hurricane Katrina, some homeowners who had RM, got letters w/detailed questionnaire as to the status of the home, how it was being secured, status of repairs, utility information, how long until they were back in the house full-time.....this was all about calling in loans that were in areas with uncertainty. And Katrina was in 2005 before the real estate market tanked.
I think that RM can work for young 62-70 year olds that are in good health, have a home that they own outright, with a property value of 300K or more; do the RM as a line of credit with a variable interest rate; and that the property is in a neighborhood that will likely increase significantly in value over the next 10 - 20 years and they are committed to living in the home for those 10 - 20 years. So that the $$ owed for the RM & fees can be paid off in full from the sale of the house & perhaps the value has increased so that there is even money left.