A better option if she only had $15K left in her account would be to sell the home and adjust life. Reverse mortgages sound like such a great solution until the reality of them hit home.
Reed - regarding your 3 examples of folks you have helped in getting RMs.... So there's a 82 yr old with an outstanding mortgage, an 81 yr old also with an oustanding mortgage and another no age given but l'm going to venture a guess is also her 80's and too has a mortgage.
Just wtf type of bad financial planning or lack of understanding of borrowing basics places one in their 80's to still have a mortgage? Just what lender underwrote a mortgage that places them still owing on a home at 80 or 90 or possibly 100??? These are folks probably gullible & likely taken advantage of by predatory lenders. And the pattern then continues imho by the latest band-aid to fix their finances which is a RM.
Your statement as to the old issue with RMs was about the "non-borrowing spouses" not being protected when the older RM signature spouse died is just not accurate to the whole story as to why the exit of many lenders for RMs. Yes that was and still is an issue. But the bigger reason why Wells, BoA type of RM players got out of the market was that the houses were going negative equity. All that paper underwritten on RM at values on the go-go years of Real estate till maybe 2008 - 2011 were overall appraised...over valued. And unlike newer builds which can be foreclosed on with ability to sell, those elderly owners homes are older housing stock; often without current codes for utilities; filled with old people stuff; likely with years if not decades of delayed maintenance; if the borrower has dementia or are related decline add that for extra Fun.
If $$$ were to be made from RMs, the big players would still be doing them. Their not. What I see is guys who worked once sub-prime lending and since that's grounded out, now have moved onto RMs.
So Reed on a 100k appraised house what's the highest HECM RM payout? 50%? Less like maybe 43%? $ 43,000. What insurance increases will be needed and for what coverages? The RMs you do, I'm going to guess that the lenders you represent all can provide whatever insurance (homeowners, Wind, flood, earthquake) needed through affiliates? What would that add onto the RM for a home in Dade county or Orleans parish? Also now needing newly placed Mortgage insurance? & what cost? What's your commission on the RM? and all add-on's? What % of the initial RMs get sold to a secondary & do you get a fee on that paper too?
I took a brief look at reverse mortgages a few years ago and decided that the only ones who really benefited, except the mortgagee temporarily, were the ones holding the mortgage. My house would have been theirs in too few years, and then where would I have been? If I ever needed to enter a full-time care facility, the loan would become due if I left my home for a year or more, which means they would have my home and I would have no more income from it nor likely any equity in it.
As GA writes, there is a circumstance where a mortgagee might benefit, but even then no one can predict their future.
Consumer Reports puts it bluntly: "Reverse mortgage should only be a last resort for seniors who want to stay in their homes and have no other alternatives.
There s an alternative called a caregiver mortgage. "A caregiver mortgage (aka intra-family loan) is basically comparable to a private reverse mortgage with much more favorable terms, according to The New York Times. For $2,500, National Family Mortgage does all the legal work, including recording the promissory note, the joint lender agreement and the mortgage. No appraisal or inspection required. Interest rates are set at arm's length, and the Times reports most are under 3%.
Too many people don't think far enough ahead... there will be a time when they need 24 hour care, and that can cost $15k-$25k per month, yes per month.
It would be better to downsize... sell the house... put the equity into investments that will grow... and move into a smaller home or senior living.
My boss had a Reverse Mortgage, he wished it he had never signed up. When his wife passed many years later, he had to either refinance or sell. And that call was within 30 days of his wife passing, he thought he had one year to do this. Nope. Turned out the house value went up so high that he was unable to refinance the house he and wife had owned for 40 years. He had to sell the house, quickly find a new place to live, and have an auction house take more than half his household goods as he had no room for all the cherished things he and his wife bought. All within 60 days, while he was still grieving.
Ah, inevitably someone who supports the RM concept comes along and blasts those of us who are legitimately trying the help the poster. And of course that support happens to be someone in the industry, who profits from RMs.
So, tell me, Reed, do YOU have an RM on your real estate?
And are you saying that the concept of adding interest to an advance and compounding the interest is an "absurd" interpretation? Please, enlighten me. If I've made a mistake in reading the terms, I'd like to know.
" It turns out that we were able to pay off her mortgage which freed up $1,800 per month in cash flow for her, got her the funds for the much needed repairs (new roof and remodel her bathroom to make it handicap accessible) and she was still able to put away $90,000 in a line of credit that has a guaranteed 6.2% growth rate (also compounded interest). "
How was money freed up from payoff of the first mortgage? Was this b/c of a higher credit line?
I've never heard of a credit line that increases in availability of funds. More information on this would be helpful, especially the guaranteed growth rate. Is this availability of funds to drawn on, or growth rate of the outstanding balance?
You wrote also that you credited 100% of the closing costs. Was this done by crediting them at closing and adding them to the outstanding principal balance?
I have some limited experience in reviewing the mortgage and some ancillary documents for someone who wanted to get one. I was shocked at the amortization schedules and the terms, much more stringent than conventional mortgages.
I assume you're aware that they're unlike traditional mortgages which are amortized and eventually paid down and paid off. Based on what I read when I reviewed the documents, with an RM, it's the reverse.
Every draw, every advance begins collecting interest which is added to the principal and thus compounded. The following month's payments are principal plus interest, and the interest is continually recalculated monthly to include not only the principal, but interest from the preceding months. Thus the balance is continuingly increasing.
So you can see that the compounding keeps increasing the outstanding (combined) principal balance, raising the amount of the indebtedness.
Over time, the interest is significant, as is the balance, and paying off the RM becomes very difficult w/o a financial windfall - unlikely for someone who needed an RM in the first place.
If you need cash, you might want to consider a HELOC, a mortgage on the equity in the home. You can draw down on it for a period of years (sometimes 10 years) during which interest is paid on the amount outstanding, but is NOT compounded as with an RM. After 10 years, you may need to pay down the balance, but that depends on the specific bank.
You pay interest with either kind of mortgage but with a HELOC, the interest is NOT compounded. That's a significant difference.
There are other terms too, such as that the owner must continue to live in the house. If someone moves to a long term care facility, the mortgage becomes due and payable.
Would you mind sharing what your concerns are, and why you might want an RM? I'm not prying, just wondering what alternative solutions might be appropriate for you and/or your family.
The only situation I can think of that would lend itself to an RM is if the individuals are elderly, need money for care, couldn't possibly pay it back, have no heirs to inherit the house and have no objection if the RM mortgagee acquires the house after their death. If the house needs a lot of work, it's also a way of avoiding expenditures to repair a house when funds might be needed more urgently for care out of the home.
Most banks will not handle reverse mortgages anymore because of the problems associated with them. I have only one thought about reverse mortgages -- the only people who need them are the people who cannot afford them. They are high cost and high interest. They can be full of surprises. There is no way I would ever consider one.
FreqFlyer, what you wrote reminded me of the caregiver who came onto the group. She stayed with her mother for a long time and had no money of her own. She was to inherit the house, which she would have been able to do under the rules of Medicaid. But the house had a RM that she couldn't afford to pay off. So the house was going to be lost to this woman who had dedicated years of her life to caregiving. Stories like this are what make me dread RMs.
I wish I would have been more stern with my mom regarding reverse mortgages. My advice would be not to do it. Sell the house and put the money away for long term care. Downsize. I know its hard to move but look into a long term solution. My mom didnt and now I am in a pickle.
Just wtf type of bad financial planning or lack of understanding of borrowing basics places one in their 80's to still have a mortgage? Just what lender underwrote a mortgage that places them still owing on a home at 80 or 90 or possibly 100??? These are folks probably gullible & likely taken advantage of by predatory lenders. And the pattern then continues imho by the latest band-aid to fix their finances which is a RM.
Your statement as to the old issue with RMs was about the "non-borrowing spouses" not being protected when the older RM signature spouse died is just not accurate to the whole story as to why the exit of many lenders for RMs. Yes that was and still is an issue. But the bigger reason why Wells, BoA type of RM players got out of the market was that the houses were going negative equity. All that paper underwritten on RM at values on the go-go years of Real estate till maybe 2008 - 2011 were overall appraised...over valued. And unlike newer builds which can be foreclosed on with ability to sell, those elderly owners homes are older housing stock; often without current codes for utilities; filled with old people stuff; likely with years if not decades of delayed maintenance; if the borrower has dementia or are related decline add that for extra Fun.
If $$$ were to be made from RMs, the big players would still be doing them. Their not. What I see is guys who worked once sub-prime lending and since that's grounded out, now have moved onto RMs.
So Reed on a 100k appraised house what's the highest HECM RM payout?
50%? Less like maybe 43%? $ 43,000.
What insurance increases will be needed and for what coverages?
The RMs you do, I'm going to guess that the lenders you represent all can provide whatever insurance (homeowners, Wind, flood, earthquake) needed through affiliates? What would that add onto the RM for a home in Dade county or Orleans parish? Also now needing newly placed Mortgage insurance? & what cost? What's your commission on the RM? and all add-on's? What % of the initial RMs get sold to a secondary & do you get a fee on that paper too?
As GA writes, there is a circumstance where a mortgagee might benefit, but even then no one can predict their future.
Consumer Reports puts it bluntly: "Reverse mortgage should only be a last resort for seniors who want to stay in their homes and have no other alternatives.
There s an alternative called a caregiver mortgage. "A caregiver mortgage (aka intra-family loan) is basically comparable to a private reverse mortgage with much more favorable terms, according to The New York Times. For $2,500, National Family Mortgage does all the legal work, including recording the promissory note, the joint lender agreement and the mortgage. No appraisal or inspection required. Interest rates are set at arm's length, and the Times reports most are under 3%.
It would be better to downsize... sell the house... put the equity into investments that will grow... and move into a smaller home or senior living.
My boss had a Reverse Mortgage, he wished it he had never signed up. When his wife passed many years later, he had to either refinance or sell. And that call was within 30 days of his wife passing, he thought he had one year to do this. Nope. Turned out the house value went up so high that he was unable to refinance the house he and wife had owned for 40 years. He had to sell the house, quickly find a new place to live, and have an auction house take more than half his household goods as he had no room for all the cherished things he and his wife bought. All within 60 days, while he was still grieving.
So, tell me, Reed, do YOU have an RM on your real estate?
And are you saying that the concept of adding interest to an advance and compounding the interest is an "absurd" interpretation? Please, enlighten me. If I've made a mistake in reading the terms, I'd like to know.
Reed wrote:
" It turns out that we were able to pay off her mortgage which freed up $1,800 per month in cash flow for her, got her the funds for the much needed repairs (new roof and remodel her bathroom to make it handicap accessible) and she was still able to put away $90,000 in a line of credit that has a guaranteed 6.2% growth rate (also compounded interest). "
How was money freed up from payoff of the first mortgage? Was this b/c of a higher credit line?
I've never heard of a credit line that increases in availability of funds. More information on this would be helpful, especially the guaranteed growth rate. Is this availability of funds to drawn on, or growth rate of the outstanding balance?
You wrote also that you credited 100% of the closing costs. Was this done by crediting them at closing and adding them to the outstanding principal balance?
I assume you're aware that they're unlike traditional mortgages which are amortized and eventually paid down and paid off. Based on what I read when I reviewed the documents, with an RM, it's the reverse.
Every draw, every advance begins collecting interest which is added to the principal and thus compounded. The following month's payments are principal plus interest, and the interest is continually recalculated monthly to include not only the principal, but interest from the preceding months.
Thus the balance is continuingly increasing.
So you can see that the compounding keeps increasing the outstanding (combined) principal balance, raising the amount of the indebtedness.
Over time, the interest is significant, as is the balance, and paying off the RM becomes very difficult w/o a financial windfall - unlikely for someone who needed an RM in the first place.
If you need cash, you might want to consider a HELOC, a mortgage on the equity in the home. You can draw down on it for a period of years (sometimes 10 years) during which interest is paid on the amount outstanding, but is NOT compounded as with an RM. After 10 years, you may need to pay down the balance, but that depends on the specific bank.
You pay interest with either kind of mortgage but with a HELOC, the interest is NOT compounded. That's a significant difference.
There are other terms too, such as that the owner must continue to live in the house. If someone moves to a long term care facility, the mortgage becomes due and payable.
Would you mind sharing what your concerns are, and why you might want an RM? I'm not prying, just wondering what alternative solutions might be appropriate for you and/or your family.
The only situation I can think of that would lend itself to an RM is if the individuals are elderly, need money for care, couldn't possibly pay it back, have no heirs to inherit the house and have no objection if the RM mortgagee acquires the house after their death. If the house needs a lot of work, it's also a way of avoiding expenditures to repair a house when funds might be needed more urgently for care out of the home.
Otherwise, this is a bad deal for homeowners.
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