Reverse Mortgage - What are your objections?

[pianoman9701]

Good point. By county, there is relief available for property taxes for seniors and disabled on low income. I believe it's a sliding scale depending on your income. I know mine have been increasing by 10-15% per year, which is completely unsustainable.

[Magnum_Willys]

If your kids are well off and don’t need an inheritance at a certain age it seems like a no-brainer?   Basically a home-equity loan with no payments. 

My Mother-in-law took a couple hundred thou out for bills and medical and then when she sold the home that got deducted from proceeds.  Was a real help. 

[Magnum_Willys]

Oregon limits annual property tax increases to like 1% which is a godsend.  Unfortunately Oregon has the highest Income taxes in the country which if you own a business it takes half your income.

[pianoman9701]

If your kids are well off and don’t need an inheritance at a certain age it seems like a no-brainer?   Basically a home-equity loan with no payments. 

My Mother-in-law took a couple hundred thou out for bills and medical and then when she sold the home that got deducted from proceeds.  Was a real help.

I always include the heirs and ask the borrowers if they intend to pass the home on as part of their estate. There are as many reasons why someone shouldn't get a reverse as should. I try to iron that out in the initial conversation. I spoke with a couple yesterday who has a daughter in her 30s, single mom working an administration position, not making great money. They want to pass the home onto her and they're both receiving pensions which afford them a comfortable life in retirement. Lots of equity in their home and a small mortgage remaining. They were just looking at getting some more cash on hand. We had a nice talk for about an hour and I told them reverse isn't right for their situation. They decided they'd just liquidate some stocks for the cash. I will never do any mortgage that's not right for the borrower(s). I've done that quite a few times for HuntWA people. I sleep well.

[CP]

Dave has an opinion, and he’s not shy about sharing it. 

He may use a bit of hyperbole, but he brings up some good points to consider.

[Magnum_Willys]

Any financial instrument could be a godsend or a scam depending on terms of the deal. 

[pianoman9701]

I'll watch this tomorrow. It's fight night. Thanks for posting.

[Wetwoodshunter]

 

Dave has an opinion, and he’s not shy about sharing it. 

He may use a bit of hyperbole, but he brings up some good points to consider.

[pianoman9701]

A few points. Ramsey was correct about a few things. Closing costs are higher. One reason is that the brokerage commission is not included in the rate as with most forward loans. Another is the Life Expectancy Set Asides (LESA). This is the amount of money taken from the proceeds to pay the taxes and insurance up to the maturity event for those who don't show the ability with their present financial situation to pay these on their own. If you can, imagine the cost of taxes and insurance for 15-20 years. It's a big amount. Remember that if you don't pay your taxes and insurance on ANY kind of mortgage, the mortgage will eventually go into default. It's no different with a reverse. You must also maintain your home up to FHA health & safety standards. With that woman's equity (the one calling in), she wouldn't be able to get a reverse mortgage. Remember that she stated that they wanted to stay in their home and they had no heirs. The rates are higher, as with any specialty loan - rental, fix&flip, second home, hard money, asset depletion - all have higher rates.

For those who are financially short in retirement, have no heirs or have heirs who don't need their home after their passing, a reverse can mean a better quality of life with no mortgage payment every month, staying in the house they want to spend the rest of their lives in. Depending on the equity they have, they can get a cash disbursement and with an ARM, a line of credit after the first year which grows and never has to be paid back and/or monthly cash payments for term (usually 5 or 10 years), or tenure. Keep in mind, if they can't afford their cost of living now, and their income is too low to qualify for a refinance, they're going to have to either sell their home for something cheaper, or default on their present mortgage without outside assistance.

Look, not every situation is right for a reverse. And if it isn't, I won't do it.

[scotsman]

My mom took out a reverse mortgage. 20 years later when she had to leave the house to live in assisted care I had to sell the house. It sold for 1.5 million….. I then paid off the 1 million owed to the reverse mortgage company, 200,000 in capital gains taxes, 150,000 in realtors fees then more to escrow etc. By the time I finished paying everything there was just over $150,000 left, most of which which went for high quality assisted care at $6,000  / month. So it worked ok for her but not much left for heirs. Your mileage may vary.

[pianoman9701]

My mom took out a reverse mortgage. 20 years later when she had to leave the house to live in assisted care I had to sell the house. It sold for 1.5 million….. I then paid off the 1 million owed to the reverse mortgage company, 200,000 in capital gains taxes, 150,000 in realtors fees then more to escrow etc. By the time I finished paying everything there was just over $150,000 left, most of which which went for high quality assisted care at $6,000  / month. So it worked ok for her but not much left for heirs. Your mileage may vary.

Heirs are always an important consideration with reverse. If there are any, I want them at the table - no surprises!

[Twispriver]

As a requirement, I would like to see a consumer advocate assigned to represent anyone contemplating a reverse mortgage. People that find themselves in this situation are often the very definition of a population vulnerable to predatory lenders and may not fully comprehend the details of the process. A good rule of thumb is to never trust anyone who takes a commission based on the amount of the transaction to be acting in your best interest. 

[pianoman9701]

As a requirement, I would like to see a consumer advocate assigned to represent anyone contemplating a reverse mortgage. People that find themselves in this situation are often the very definition of a population vulnerable to predatory lenders and may not fully comprehend the details of the process. A good rule of thumb is to never trust anyone who takes a commission based on the amount of the transaction to be acting in your best interest. 

It's a requirement. The FHA requires an independent counselor who is required to confirm that they know what they're getting into. They ask questions regarding the details of the transaction and if they can't answer them, on their own, they fail the counseling and are unable to proceed. This is to ensure that not only do the borrowers understand the product, but that they're of clear and complete cognizance.

[Stein]

I deal with a fair amount of reverse mortgages at the point of foreclosure. That means the maturity event has happened: typically, the owner has died or moved to a care facility. Those foreclosures would likely have happened while the borrower still wanted to live in the house, but for the benefits and restrictions of the reverse mortgage. IME, reverse mortgages keep people living in their homes longer than they could without the reverse mortgage.

Would it keep them in the house longer than if they either refinanced or took out a new mortgage?  Borrow at 7% or whatever current rates are, stick the lump sum in an Apple account paying 4.1% and pull enough out monthly to make the payment and whatever extra you need to live.  You could even do interest only.  A simple spreadsheet could run all the calculations.

I would bet that is substantially cheaper than a reverse.

Either way you need a bunch of equity.

Reverse mortgages are similar to an auto lease in that it's very difficult to determine exactly what effective rate you are paying to use someone's money.  In my mind, when a bank creates a product that is difficult to understand and explain, it usually isn't in the best interest of the person signing the contract.

[pianoman9701]

Many of the people utilizing reverse can't qualify with income for a refi AND the refi increases their payment, making it more difficult to meet their obligations.