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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76420  
Subject: Reverse Mortgage .. Date: 5/3/2011 5:36 PM
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what's the catch?

i must be missing something because "if it seems too good to be true, it probably IS"


just got a flyer in the mail ..

they 'say' --they pay off my current mortgage ($X), and give me $2X ($3X is roughly what my house appraised for when i re-fi'd two years ago)

then ..no mortgage payments for the rest of my life (and $2X to invest and live on!)

my heir(s) then get the house with a mortgage ($3X +interest(?)), and can either pay the mortgage, sell the house, or even just walk away (says it's FHA, non-recourse)

i must be missing something because i don't see the down-side...

????
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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68957 of 76420
Subject: Re: Reverse Mortgage .. Date: 5/3/2011 5:50 PM
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What's the catch?

Very high fees and costs.

If you rank the potential sources of retirement funding by fees and costs, a Reverse Mortgage would be a step below taking out a loan from one of those storefront "Pay-Day Lenders".

intercst

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68958 of 76420
Subject: Re: Reverse Mortgage .. Date: 5/3/2011 6:35 PM
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i must be missing something because i don't see the down-side...

The fees for reverse mortgages are based on the value of the home, not the value of the mortgage. So if your home is $3X and they are loaning you $2X, the points you will pay will be 1.5 times the points you would pay for a 'forward' (normal) mortgage.

In addition to interest charges each month, your account will be charged a servicing fee - probably around $20 - $30 each month. That will be added to the principal balance, along with the interest, so your principal balance that the interest is based on will increase every month.

If you have to leave your home for 6 months or more (go into nursing home, assisted living, etc.) you must either sell your home or pay the loan off, or the bank can foreclose.

For those retirees who have most of their net worth tied up in their home, and don't want to move, it can be a way to access the equity without having to commit to payments on a HELOC or regular mortgage, but it's at a cost.

AJ

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Author: ResNullius Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68959 of 76420
Subject: Re: Reverse Mortgage .. Date: 5/3/2011 7:03 PM
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As others have said, you need to beware of the fees and limitations. The longer you can wait the better, because as each year goes by the fees seem to be dropping as more banks and lenders enter the market. Good luck.

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68960 of 76420
Subject: Re: Reverse Mortgage .. Date: 5/3/2011 7:40 PM
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thanks....


i must be missing something because i don't see the down-side...
=============
The fees for reverse mortgages are based on the value of the home, not the value of the mortgage. So if your home is $3X and they are loaning you $2X, the points you will pay will be 1.5 times the points you would pay for a 'forward' (normal) mortgage.


but they're loaning me 3X ,so they must think the house is worth 4X?

points are added to the mortgage?
and then how ever many years of interest on the points?



In addition to interest charges each month, your account will be charged a servicing fee - probably around $20 - $30 each month. That will be added to the principal balance, along with the interest, so your principal balance that the interest is based on will increase every month.


but who pays those fees? me or my heirs?

if the latter and i don't care whether they get the house clear and free (they will be getting the cash), it could work



If you have to leave your home for 6 months or more (go into nursing home, assisted living, etc.) you must either sell your home or pay the loan off, or the bank can foreclose.


ack. that would be a serious risk/concern


For those retirees who have most of their net worth tied up in their home, and don't want to move, it can be a way to access the equity without having to commit to payments on a HELOC or regular mortgage, but it's at a cost.


a lot of my net is in the house (and don't expect to move), but don't really need it (near as i can tell), but it sounded too close to free-to-me money..



... hmmm... if i'm reading this right, if interest just accrues, in 14 yrs, house would have to more than double in value for heirs to 'break even'

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68961 of 76420
Subject: Re: Reverse Mortgage .. Date: 5/3/2011 7:41 PM
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The longer you can wait the better, because as each year goes by the fees seem to be dropping as more banks and lenders enter the market. Good luck.


thanks.

good idea to wait -- for better terms and real need for the cash.


=

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Author: CABob Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68962 of 76420
Subject: Re: Reverse Mortgage .. Date: 5/3/2011 8:55 PM
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... hmmm... if i'm reading this right, if interest just accrues, in 14 yrs, house would have to more than double in value for heirs to 'break even'


If you get a reverse mortgage I think you should assume that your heirs will not get the house when you pass. If values do increase significantly in the future this might not be true, but, I don't think you should consider as a high probability in your plans.

Bob

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Author: DrTarr Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68963 of 76420
Subject: Re: Reverse Mortgage .. Date: 5/3/2011 9:44 PM
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Had actually checked on reverse mortgage for my dad. He is on a fixed income muni pension - not that I think the pension is in jeopardy but, both my brother and I are doing ok financially and could really care less about getting his house.. Would rather see him enjoy his money. There are risks such as if he has to move, but in the end game he retired and should enjoy it. Fees and such are coming down as the has been an increase in the competitive turbulence, not sure they will get much lower. Whether or not it makes sense for you depends on many factors - age, health, assets, liabilities, risk tolerance but in some cases IMHO, they make sense!

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68964 of 76420
Subject: Re: Reverse Mortgage .. Date: 5/3/2011 10:44 PM
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but they're loaning me 3X ,so they must think the house is worth 4X?

Yes. There are lower limits on the LTV for reverse mortgages than for forward mortgages because of the negative amortization caused by the 'no payments' feature.

Also, are you SURE they will loan you 3X? Or is it possible that the total amount loaned will be 2X, with X going to pay off your current mortgage, and another X going in your pocket? Typically, the initial LTV on reverse mortgages is closer to 60% (in same cases, it could be less) than the 80% that is allowed on a forward mortgage without PMI.

but who pays those fees? me or my heirs?

if the latter and i don't care whether they get the house clear and free (they will be getting the cash), it could work


The fees will be added to the mortgage balance, so your heirs will, in effect, pay the fees, plus any accrued interest

if i'm reading this right, if interest just accrues, in 14 yrs, house would have to more than double in value for heirs to 'break even'

Again, it depends on how much the bank will lend vs. the value of the home. But for the heirs, it's a non-recourse loan, so they can do no worse than 'break even' - if the house isn't worth what is owed on it, then they can just tell the bank they don't want it, and they don't owe any extra to the bank. It shouldn't affect their credit because they weren't the ones who committed to the mortgage. And you won't care, because you can't take it with you. :-)

AJ

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68965 of 76420
Subject: Re: Reverse Mortgage .. Date: 5/4/2011 1:57 AM
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Whether or not it makes sense for you depends on many factors - age, health, assets, liabilities, risk tolerance but in some cases IMHO, they make sense!



yup.

i just have to figure out how to balance all those variables <g>



(age 65, not good health, i think sufficient assets, no liabilities, LOW risk tolerance ... think i should keep it in the back of my mind if i run into cash-flow problems)

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Author: TwoCybers Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68967 of 76420
Subject: Re: Reverse Mortgage .. Date: 5/4/2011 5:35 PM
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what's the catch?
The short version of the catch is many (maybe most) people who take these out and do not have a sudden death, run the risk of significant financial and/or residence issues.

It is a loan. It must be repaid when you sell your house. For most retired people their house is over half their financial wealth. The reverse mortgage is great while they can live in the house. But what happens when they become infirm or debilitated to the point they cannot take care of themselves? Under those conditions they may think of Assisted Living, Nursing Homes, moving to a single floor/smaller residence. But that move, unless they have sufficient liquid wealth beyond there house has consequences. Sell the house and pay off the mortgage - you are left only with the difference between the mortgage and the sale amount. That might well mean Medicaid which is welfare when all is said and done. Medicaid is a grim existence for those who are aware of their situation.

Gordon
Atlanta

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Author: Donna405 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68968 of 76420
Subject: Re: Reverse Mortgage .. Date: 5/4/2011 10:21 PM
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Please remember, the upfront costs are steep and are the first withdrawal on the mortgage. In addition, the amount withdrawn collects interest at a variable rate.

If you were to become infirm and were to have to go to assisted or nursing home care, if the property is not jointly owned by you and your wife, the property would have to be sold. This has already occurred, where the spouse was forced to move.

Donna

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68971 of 76420
Subject: Re: Reverse Mortgage .. Date: 5/5/2011 1:21 AM
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Yes. There are lower limits on the LTV for reverse mortgages than for forward mortgages because of the negative amortization caused by the 'no payments' feature.

Also, are you SURE they will loan you 3X?



heh.

they're not clear ('GET $2X CASH NOW!! ..or $z per month')

and ..how could they know my mortgage balance?
and ..2X is about 60% of appraised value..

so i think they must pay-off the current mortgage fromthe 2X

which makes the number look much less impressive.


think i'lll wait

(thanks to all for the info)

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68972 of 76420
Subject: Re: Reverse Mortgage .. Date: 5/5/2011 1:28 AM
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Sell the house and pay off the mortgage - you are left only with the difference between the mortgage and the sale amount. That might well mean Medicaid which is welfare when all is said and done. Medicaid is a grim existence for those who are aware of their situation.



thanks ..i am planning on sudden death, but that is a very scary scenario



but is it much different if most of one's wealth is in the house and you don't take the loan?

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68973 of 76420
Subject: Re: Reverse Mortgage .. Date: 5/5/2011 6:19 AM
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In addition, the amount withdrawn collects interest at a variable rate.

Not necesarily - there are fixed rate options available. The fixed rate options generally require all money that is to be withdrawn be withdrawn initially in a lump sum. In order to get monthly ongoing payments, or have a Line of Credit feature that allows additional withdrawals, it is generally required to get a variable rate loan.

AJ

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Author: TwoCybers Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68974 of 76420
Subject: Re: Reverse Mortgage .. Date: 5/5/2011 12:34 PM
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Sure there is a difference. The amount of equity in the house will be less if you take a Reverse Mortgage.

The cost for Nursing Homes and Assisted Living I have found in Tennessee and Georgia are in the range of $60 to $90K per year for Skill Nursing. Assisted Living depends greatly on what services you need - i.e. how much assistance, Medicine management ($500/month), etc. Cost for insulin management is another increment. But unless a person chooses assisted living for social reasons i.e. have people/neighbors of a similar age - I cannot envision costs under $35K per year.

You can answer your own question, take the equity in your house today and divid by whatever number you think a year will cost. Than subtract the cash you take out as a mortgage plus say 7% of house value for fees and divide again.

Lastly -- It has been my personal observation that as people become less able to care for themselves, one of the first things they stop taking care of is their home. I am talking about everything form ignoring roof leaks and rotten door trim to mold in bathrooms. Somebody will have to pay to clean all that up before the house can be sold or else the sale price will take a significant hit.

In a very real sense, being in a rental unit you can walk (or be carried) away from is not an option to be discarded without consideration. If you imagine a person with mild dementia trying to deal with a leaking water heater you can get a picture. Calling the landlord is much easier do than get one replaced.

Gordon
Atlanta

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