Reverse Mortgage, any experiences?

[jangirl]

I keep seeing the ads for reverse mortgages and wondering if they are really as good as they sound. In our case, neither of our children nor the grands would be able to afford to live here, nor would they be able to commute to their jobs from here.  In 8 years we'll have it paid off.  It would have to be sold if both of us died anyway, which I understand is the case when you have to pay off the mortgage when the last owner dies or is no longer living in the home.  It would be nice not to have that payment going out every month so we could do other things with that money.  But...I'm sure there is a down side to them.  Any REAL experiences with them or have family that has?  

[horseyrider]

Here's the biggest thing that worries me about these instruments.

You take a reverse mortgage out on your home. They do an appraisal to find out the value. Over time, your equity in the home diminishes, and it becomes more and more theirs. Then the housing market drops like it did in 2008, your house is worth dramatically less, and suddenly you're upside down in your reverse mortgage. You've outlived it. You have no equity to buy another place and can get no more out of what you have.

I wouldn't do it unless I was reduced to food stamps and searching along the highway for aluminum cans.

[wolfmom]

A reverse mortgage is like you sold them your house for peanuts on the dollar and they are making payments to you or you can take what they give you in one lump sum, but it's never the true value of your home.

If you owe money, see if you can refinance what is owed for a longer term, that would lessen your monthly payments. The other thing you could do is refinance taking a lump sum out, but that would make the mortgage amount higher and depending upon your interest rate, may not be worth it, although you'd have that cash you want. You'd have to run the numbers.

Ramsey says to pay off your home, but I disagree. Yes, you have more money monthly as you have no mortgage payment. But then you are sitting on a bundle of  money (equity) with few ways of getting it out. On a fixed income, (social security) many times it's harder to get a loan against the equity. That means the only way to access the equity money is to sell the home.

[mollymckee]

My understanding is that most of them are a rip off, high interest, lots of fees and the house is essentially sold for a fraction of its value. My sister-in-law's father did it and got less than a quarter of what the house was worth. He didn't tell the kids and when he died they had to either repay the mortgage in a limited time or let the bank sell. The bank made out real well, the estate not so well..

[Deleted]

FILs lady friend he lived with until he died took a reverse mortgage. She outlived it. Recently moved into a subsidized senior apartment after watching a lot of her lifetime of stuff go into dumpsters and had to rehome 2 old dogs. Her granddaughter was under the impression she would get the house. Now its tense between them. So I would say, don't do it.

[countrymom22]

My FIL took out a reverse mortgage when his mother died because he and his sister inherited the property and she wanted out. Couldn't blame her, he has lost everything he ever had numerous times.

Anyway, he takes a lump sum, to buy her out. Now about ten years later he is behind on his taxes, so the mortgage company started to pay them, and he is being evicted. The bottom line was he really couldn't afford to live in that house on his income. Bottom line, mortgage company will recoup their money and FIL is out on his ear with no money to show for his efforts.

Don't do it. Anything that sounds too good to be true .. is!

[LauraD]

My grandma lived by herself until she was 100 years old - there's no doubt that she would have outlived a reverse mortgage if she had taken one out.

[Maura]

Too good to be true. Don’t do it.

[Mr DAVID In Wisconsin]

I helped some elderly friends look into a reverse mortgage 10 years ago. I look at them as a last resort. They have very high fees. But if it's the only way possible to stay in your home maybe it's for you. My friends chose a different option at the time.

[farmchix]

May 11, 2016 22:34:42 GMT mollymckee said:

My understanding is that most of them are a rip off, high interest, lots of fees and the house is essentially sold for a fraction of its value. My sister-in-law's father did it and got less than a quarter of what the house was worth. He didn't tell the kids and when he died they had to either repay the mortgage in a limited time or let the bank sell. The bank made out real well, the estate not so well..

This is exactly what happened to my ex and his sibs.  My son was executor of estate.  He had the choice to pay THEM money or let it go at a bank sale.  

[stickinthemud]

To add insult to injury, the "Government Insured" reverse mortgages advertised on TV are yet another bailout for the banksters. That insurance covers the Bank (not the homeowner) if the estate doesn't cough up the cash and the property sells for less than the mortgage.

[momo]

DH and I were going to get one until I found out that the appraiser/inspector had to be FHA certifed/approved. I decided to forget it since I have dealt with FHA before and it is not a pleasant experience. We just closed last week on a HELOC loan with NO closing costs at our credit union. It was less money paid out(than the Reverse mortgage) but enough to do the repairs and improvements we wanted to do right now.

[jangirl]

Thanks for all the info! As it turns out, we DID know someone who has a reverse mortgage. They're the parents of a friend of ours. They gave us a chest freezer as they are moving to the woman's elderly mother's house after putting her in an assisted living place. Anyway, they LOVE their RM! Said they didn't take any equity out, just got enough to cover the balance owed. Their experience was that they had one year to sell the house after they were out of it (they weren't actually out before it sold). They said the interest was higher than their mortgage interest, the closing costs were included in the 'loan', so no out of pocked costs for them. Such a relief to the woman who wouldn't have been able to stay in the home if her husband had passed first. They used the money they would have paid monthly to do other things. You do accrue interest on the loan over the years, and it isn't a set amount of time, just until the last person on the loan is no longer living in the house. Supposedly your heirs are not responsible for the difference if the housing market changes and you are 'upside down' at that time and the home doesn't sell for enough to pay off the loan. I can see where it could be a problem under some circumstances, however. If it is for a set amount of years and you outlived it, for instance. I think the rules have changed as to that.

I'm of the school that feels we don't need to leave an estate to our children. Family items if they want them, yes, but I didn't expect my parents or hubby's to leave us anything and as it turned out, they didn't have much to leave anyway, except his parents had a house that wasn't paid off. The four children split the profit from that which wasn't much, maybe 1000 each. I wanted my parents to use their money to support their living expenses, not struggle to leave us something. Gramma's sugar bowl is a treasure to pass on, not the money you saved by eating beenie weenies so your grown children can have a big pay off when you die. Just my personal opinion, of course. I don't want to leave them a lot of debt or problems, however!

[Mr DAVID In Wisconsin]

There are RM with no set amount of years so you can't be forced out except if you neglect taxes or insurance just like with any other loan. If the bank sells it after you vacate, they will sell it for whatever the market brings. Might be more than you owe, might be less. If it brings more than the total of fees, costs and interest your estate would be given the difference. The bank cannot keep it. If it brings less you heirs are not responsible. Good luck!

[richnc]

I guess I don't understand, you said you only have eight more years to pay off your mortgage, right? Are you that hard up for $$ right now that you would think about doing something that only one person in real life told you was a good idea when several here have told you it is a bad idea?

Wait it out, pay the house off, sell it when you need to go to a nursing home, or you die at home and our kids can sell it an split the $$.

[jangirl]

richnc , Thanks for the input. Not hard up for money NOW, just thinking ahead to the day when and if my husband might die and then I'd have a difficult time, OR our son would have to pay for the house until it was sold. We are saving cash to help him in that instance, but no one knows what might happen in the future. We were just checking out the idea. Our credit union loan rep told me the loans are no longer for set number of years so you can't 'out live' them any longer and lose your house when you are elderly and unable to pay back the loan. I don't know. It just was an idea we wondered about. Thanks to all who responded! I love this board and the different views that are presented!

[willowgirl]

I don't know anything about reverse mortgages, but another possibility in the situation you describe would be to buy a term life insurance policy for your husband that would be sufficient to pay off the mortgage in the event of his demise.

[vosey]

My understanding of reverse mortgages is that they are all in the banks favor, huge amount of fees and interest over time. I have had several elderly patients do them and then when they wanted or needed to move could not without losing huge amounts of money, they really didn't understand what they had gotten into. This was a few years ago, so things may have changed a bit.

If you have any extra money to throw at your current mortgage the best security would be paying it off as fast as you can, owning your house outright with no house payment. Then you have the flexibility to sell it when/if you want to or have to.

[mary]

My sister-in-law's parents did this. Took cruises, had a good time. I don't know the financial details, but SIL tells me that when her parents die she will have a short period of time (like a couple of weeks or something) to get all their stuff out of the house, and will have no interest in the house.

Meanwhile she has a sister who is mentally impaired and needs constantly cared for, but there will be no inheritance to help my dear SIL with that.

They are super sweet people but in my mind should have been more responsible in providing for their daughters instead of cruising it all away.

[manygoatsnmore]

Personally, I wouldn't do it. The fees are very high and you do not get the value of your home, but maybe 60%. Would you willingly sell your home today for .60 on the dollar?

The suggestion of a term life policy on your dh (and perhaps one on you, for his benefit) to cover the amount of the mortgage and provide a replacement for his income is going to cost you much less in the long run. I'm not a fan of life insurance beyond the point of needing income to pay off debt and replace income, though, and I sure wouldn't buy one of those whole life policies Alex Trebek is always hawking. Those policies are a rip off.

If you are ever put in a position where you need to leave your home for a new living situation, you would not have much to put into another place if you have taken out a RM. If you wait, pay off your mortgage, and own your home, you can sell and have ALL the equity to put into a new living situation. That can be a huge difference in the amount of $$ you have to live on when you are 90...and knowing your mama is in her 90's, the odds are in your favor of living that long, too.

Finally, although there are fluctuations in the housing market, traditionally, over time, homes become more valuable. If you take out a RM now, you are essentially selling your home, not only for a bargain price now (there is a reason the banks want to offer RMs), but you are giving up the potential increase in value. Sure, they tell you that if the home sells for more than the amount of the mortgage, your heirs will get the surplus, but in reality, they will sell your home for what they can legally get out of it, just to get it off their books. There isn't going to be any money for your heirs. I know you stated you didn't feel it was necessary to leave money to your heirs (and to a large extent,I agree), but to just throw that money away, when it could pay for college for the ggds, would be a shame.

[jangirl]

manygoatsnmore, You're so right. We thought seriously about it, especially since our friend's parents had one, and just sold their house for full value and paid off the RM, but we might not be that lucky. With our gd's situation, she might always need some type of help, too. We can just keep putting extra cash on the balance and pay it off sooner.

[aoconnor]

I am of the mind set that I want to leave my kids a nice inheritance, including our ranch, cattle, horses, etc. I would not want to jeapardize that by doing a reverse mortgage that gives my home to someone else when I die. I have life insurance to cover the cost of the entire mortgage that we owe, as well as all property taxes for a very long time. There is also a cash amount for my daughter and my grand children so they can operate the ranch.

I would be pretty cautious about taking out a mortgage that will force my kids to get everything out of my home and get it sold within a few weeks of my death. No matter what, those first few weeks after losing a loved one are very stressful and difficult as is, I would not intentionally add more stress and pressure to anyone during that time, especially something as huge as cleaning out my home and then trying to get it sold. How selfish I would feel to leave them in that kind of mess.

[jangirl]

aoconnor, Sounds like a good plan for your family. For mine, neither of my children, nor my grands could afford to live here, this is far from where they can work, and expensive, so not an option for them, and would have to be sold within a few months at best. Non have the interest in continuing what we've done here, either. It would actually be a burden for any of them to take it on and try to keep things done and paid until it sold. We were just trying to eliminate that stress on them.