I am a Financial Planner in Canada. Here a reverse mortgage is rarely an appropriate financial planning tool. There are rare instances where they may be a reasonable option, but those are the exception to the rule.
I know there are slick ads for them, that make them to be the perfect solution, but they rarely are the right solution.
Before considering one, it is important to get impartial financial planning advice, preferably from a fee for service planner who is not trying to sell you anything beyond their expertise. Some work on a sliding scale or prepare a certain number of Pro Bono plans each year, otherwise expect to pay around $5000 for a comprehensive plan.
No I am looking for clients, this is not a ad for my services.
A comprehensive financial plan will look at your income, expenses, expected longevity, upcoming expenses and longevity. It will find where the shortfalls are, and include research into government programs that may be available to you. It will run different scenarios to see how long your funds will last depending on which advice your follow.
When one spouse insists my way or the highway, that is a sign of financial abuse.
Not a scam. But definitely not a great choice either. We have one because dh refused to sell and banks would not give us a loan (because we were borrowing the money to live on, therefore would not be able to make payments on it, our income is so low). I explored all options and it came down to sell or get a reverse mortgage.
There is a lot of prelimary stuff you have to go through to get a reverse mortgage, including a several-hours-long counseling session mandated by the federal government with an approved counselor who then will provide you with an approved list of lenders.
Am I happy that we have a reverse mortgage? Nope! If I win the lottery or get an inheritance, it will be paid back first -- but I will not close it. If I leave it open and suddenly need a large amount of cash, I can always go back and tap into it.
Looking back, I would have chosen to walk away from everything than get a reverse mortage (if I'd had that option but dh calls the shots). At the rate we are spending it, in three years the reverse mortgage funds will be gone. We'd still be in the house until death or until we sell, but we would not have the income to be able to sustain living in this house.
Start by researching reverse mortgages IN AN INCOGNITO BROWSER at hud.gov. DO NOT CLICK ON THE ADS. Scroll down the search page until you reach a hud.gov link. HECM (Home Equity Conversion Mortgage) is what you want to read about.
No, they are NOT a scam, they are reverse loans, BUT there are restrictions and you need good guidance. I would not get one without seeing an elder law attorney and discussing your expectations of a reverse mortgage. Also there are some particular situations where it can actually be DANGEROUS to have one. For instance you are aged and near needing care and you get one to stay in home, but then you have to leave home for care after all. Some reverse mortgages state that the reverse mortgage loan is due upon your leaving your home. That would mean the home would be sold. So you would have to lose that home, and you would be left with the profits on the home after the reverse mortgage is paid, and could not qualify for medicaid, would be forced into spending down to nothing. For my partner's Mom it was great. Big house in the desert of AZ--carefree. Got a reverse mortgage that with her SS and savings allowed her to stay in her home with in home help until her death. For others, it doesn't work well. Take a list of your assets, your home, its value, and speak with an elder law attorney. The 350.00 for one hour of time to discuss what would be best for YOU individually would be very well spent. Do not speak with reverse mortgage people. Do not sign one without running it past your attorney for another hour. Some people get one, need care, and are told "You get 1,500 from SS and another 700.00 from your reverse mortgage; you make too much to qualify for any help with your LTC facility BUT your LTC facility now wants 5,000 a month from you." So it can hurt such a person if you see what I mean.
Never use a reverse mortgage. They are a rip off. If the property is paid for, take out an equity loan. A second mortgage. It will put money in the hand, and the interest rate on such a loan is far less than the fees that will be paid out every month to the reverse mortgage company to access the money. No way. I know several seniors who did reverse mortgage loans and they are a joke. Sometimes up to $300 a month service charges. Reverse mortgages are as bad as student loans. Don't take one.
We have no monthly charges. In fact, if there are monthly charges, then that reverse mortgage is not a HUD-approved lender, as I understand it. We have EARNED interest each month on our balance of available funds.
A bank will not give you a home equity loan for money to live on. We tried that and we tried for a second mortgage and were denied both.
Generally, the cons outweigh any pros. High fees, only on average up to 60% of the home value and too many ways they can foreclose if they decide you aren't doing enough maintenance or fail to keep taxes/insurance current. Some people could possibly make it work, but its just too risky in my opinion. It's better to downsize like millions of seniors do every year. Sell the house, buy something smaller with some equity left to bank, or don't buy at all depending on your age. Check with your local housing authority to see if your income might qualify you for reasonable rent. Some base it only on income, some base it on income AND assets and you will have to find that out where you live. But in spite of what Tom Selleck says, don't take your financial advice from an actor. He's still acting and being paid VERY well for that commercial. Do you think Selleck would ever need to consider a reverse mortgage? Good actor, loved his westerns, but come on. He's paid to do those commercials and could have received $500,000 or more for a couple hours of acting on his back lawn. If ten people were interested in a reverse mortgage, just about all ten should avoid a reverse mortgage, in my opinion.
Many years ago, they were a fabulous idea. Times have changed, and the requirements/regulations have tightened immensely. The fees are outrageous, and qualifying is even more difficult now unless you have a large income. I checked them out when I turned 62 and was shocked to realize that I needed to earn more monthly income than I've ever earned in my life to even qualify for one. That wasn't the case before the regulations changed.
This does not sound at all like our reverse mortgage. The only "outrageous fee" was the settlement costs. We qualified with a very low income. In fact we were sent out the door of the counseling session with a list of agencies to contact for assistance -- we qualify for food stamps, energy assistance, and other programs -- but my husband refuses to discuss it.
They are not a scam; but they are generally not a wise financial decision. the fees are very high and there are some upfront fees. Consult an elder law attorney. he/she may be able to offer better suggestions.
It depends. First it depends on the quality of disclosure and honesty in describing the costs before the paperwork is signed. In the case of my MIL, she signed to easily and lost a lot of money in unexpected and truly outrageous charges. (Sort of her fault: she didn't read all the fine print. On the other hand, after her death I found the papers and read the fine print. Probably only one in a thousand would have understood it. This one was about 80% scam.)
Second it depends on whether the reverse mortgage meets the needs of the LO. In some cases an elderly person(s) can get the cash needed to remain in their own home by using the equity in their house to fund the payments of a housekeeper, landscape maintenance, and possibly others. If the rates and fees are fully disclosed and the health of the LO(s) are in line with remaining in the home for at least 10 to 15 years this may be a valid option, even if the fees are just a bit higher than a conventional mortgage. There will usually be little or no equity left to pass on to the next generation in this case, but if the contract is studied by a contract specialist and the doctor(s) agree that the health of the individuals are realistic for the plan, this is OK. Again, this is NOT a low risk, low cost option, but it can be right for some people. Probably not for most.
As for how they really work, that is a bit complicated, and varies between companies offering the reverse mortgages. Basically, the house is appraised, and a loan is granted to the owner/resident that will be paid to the owner/resident for their lifetime (or a more limited time). The amounts that have been loaned are debited against the value of the house as well as interest on the loan. Usually monthly statements are sent out. When the owner/resident dies or must move into a NH there is a settlement. The amount of equity that has no debits against it will be paid to the estate of the owner or to their accounts, if they are still living. Normally the interest rates are a bit high and there may be other fees, depending on whether the owner has continued to pay the insurance, taxes, and maintenance or whether there is a holding account set up for these expenses. As long as everything works as described and understood at the beginning this is fine and not a scam. It is only a scam when there are hidden fees, exorbitant interest rates that were not made clear in the presentation, or other lack of honesty or clear dealing. As with any business transaction, it is the duty of the customer/buyer to check the honesty and trustworthiness of the seller. These things become scams when there are huge unexpected expenses and/or the presentation and advertising do not fairly describe what actually happens. Mostly, expect a scam. But read carefully and engage the services of someone who understands the legal and financial implications of all that paperwork.
I know there are slick ads for them, that make them to be the perfect solution, but they rarely are the right solution.
Before considering one, it is important to get impartial financial planning advice, preferably from a fee for service planner who is not trying to sell you anything beyond their expertise. Some work on a sliding scale or prepare a certain number of Pro Bono plans each year, otherwise expect to pay around $5000 for a comprehensive plan.
No I am looking for clients, this is not a ad for my services.
A comprehensive financial plan will look at your income, expenses, expected longevity, upcoming expenses and longevity. It will find where the shortfalls are, and include research into government programs that may be available to you. It will run different scenarios to see how long your funds will last depending on which advice your follow.
When one spouse insists my way or the highway, that is a sign of financial abuse.
There is a lot of prelimary stuff you have to go through to get a reverse mortgage, including a several-hours-long counseling session mandated by the federal government with an approved counselor who then will provide you with an approved list of lenders.
Am I happy that we have a reverse mortgage? Nope! If I win the lottery or get an inheritance, it will be paid back first -- but I will not close it. If I leave it open and suddenly need a large amount of cash, I can always go back and tap into it.
Looking back, I would have chosen to walk away from everything than get a reverse mortage (if I'd had that option but dh calls the shots). At the rate we are spending it, in three years the reverse mortgage funds will be gone. We'd still be in the house until death or until we sell, but we would not have the income to be able to sustain living in this house.
Start by researching reverse mortgages IN AN INCOGNITO BROWSER at hud.gov. DO NOT CLICK ON THE ADS. Scroll down the search page until you reach a hud.gov link. HECM (Home Equity Conversion Mortgage) is what you want to read about.
For my partner's Mom it was great. Big house in the desert of AZ--carefree. Got a reverse mortgage that with her SS and savings allowed her to stay in her home with in home help until her death.
For others, it doesn't work well. Take a list of your assets, your home, its value, and speak with an elder law attorney. The 350.00 for one hour of time to discuss what would be best for YOU individually would be very well spent.
Do not speak with reverse mortgage people. Do not sign one without running it past your attorney for another hour.
Some people get one, need care, and are told "You get 1,500 from SS and another 700.00 from your reverse mortgage; you make too much to qualify for any help with your LTC facility BUT your LTC facility now wants 5,000 a month from you."
So it can hurt such a person if you see what I mean.
It will put money in the hand, and the interest rate on such a loan is far less than the fees that will be paid out every month to the reverse mortgage company to access the money. No way. I know several seniors who did reverse mortgage loans and they are a joke. Sometimes up to $300 a month service charges. Reverse mortgages are as bad as student loans. Don't take one.
A bank will not give you a home equity loan for money to live on. We tried that and we tried for a second mortgage and were denied both.
I checked them out when I turned 62 and was shocked to realize that I needed to earn more monthly income than I've ever earned in my life to even qualify for one. That wasn't the case before the regulations changed.
Second it depends on whether the reverse mortgage meets the needs of the LO. In some cases an elderly person(s) can get the cash needed to remain in their own home by using the equity in their house to fund the payments of a housekeeper, landscape maintenance, and possibly others. If the rates and fees are fully disclosed and the health of the LO(s) are in line with remaining in the home for at least 10 to 15 years this may be a valid option, even if the fees are just a bit higher than a conventional mortgage. There will usually be little or no equity left to pass on to the next generation in this case, but if the contract is studied by a contract specialist and the doctor(s) agree that the health of the individuals are realistic for the plan, this is OK. Again, this is NOT a low risk, low cost option, but it can be right for some people. Probably not for most.
As for how they really work, that is a bit complicated, and varies between companies offering the reverse mortgages. Basically, the house is appraised, and a loan is granted to the owner/resident that will be paid to the owner/resident for their lifetime (or a more limited time). The amounts that have been loaned are debited against the value of the house as well as interest on the loan. Usually monthly statements are sent out. When the owner/resident dies or must move into a NH there is a settlement. The amount of equity that has no debits against it will be paid to the estate of the owner or to their accounts, if they are still living. Normally the interest rates are a bit high and there may be other fees, depending on whether the owner has continued to pay the insurance, taxes, and maintenance or whether there is a holding account set up for these expenses. As long as everything works as described and understood at the beginning this is fine and not a scam. It is only a scam when there are hidden fees, exorbitant interest rates that were not made clear in the presentation, or other lack of honesty or clear dealing. As with any business transaction, it is the duty of the customer/buyer to check the honesty and trustworthiness of the seller. These things become scams when there are huge unexpected expenses and/or the presentation and advertising do not fairly describe what actually happens. Mostly, expect a scam. But read carefully and engage the services of someone who understands the legal and financial implications of all that paperwork.