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 What is a reverse mortgage........? |
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icsowesmemoney | Does anyone know how a "REVERSE MORTGAGE works? |
My mohter in law wants to take out a reverse mortgage on their house. They own it free and clear and they are both retired. They want the money to travel, vacation etc.
someone told me that it is not very cost effective and that they should just re-fi.
Any info on this subject would be helpful. |
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jgmeier93592001
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First of all, you have to meet a certain age limit to be qualified for a reverse mortgage. Depending on the program or lender would determine the age limit, however I do believe it starts at retirement age.
Secondly, the lender will only payout to a certain percentage of the value of the home. Again, this depends on the lender and the program. Most will perform to 50% of the value of the home. I have seen some as low as 40% with some being as high as 60%.
Third, the monthly income would determine the life expectancy of the individual. If the person is 66 years of age with a life expediency of 85, then there is 19 years that they will receive payment (as long as they do not exceed the value threshold).
So the example would be this:
Example 1
500,000 value owned free and clear
250,000 dollars allowed to be drawn on
1,094.49 dollars in income(19yrx12m=228m/250,000 dollars)
Example 2
500,000 value w/ 100K lien
150,000 dollars allowed to be drawn on (100K-250K (50%))
657.89 dollars in income (same formula as above).
Each time a payment is conducted, you will incur interest on that payment that will be compounded monthly. Hence the reason for the low LTV (loan to value) ratio.
Once the borrower passes away, you will have a certain amount of time to repay the lender back. In most cases it will be 90 days once it has gone through probate. Repaying back the loan with in 90 days either through selling the property or refinancing the property if you decide to retain the property.
Another item that you will want to consider will be the closing cost of the reverse mortgage. Closing costs are typically much higher than your traditional mortgages. In some cases it might be double to triple the normal cost. Again, that depends on the lender that you work with.
I have worked with a few people that where looking into the reverse mortgage program, that ultimately decided to finance using another program that is not a reverse mortgage. Ultimately it coomes down to cash control. You need to find a program that allowes the freedom of cash control to obtain your goals (traveling and enjoying the remaining years of your life). However, you do have a lot of home work to do in researching your options.
Contact me directly if you have any questions. Hope this helps... |
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just_the_facts_ma'am
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You may want to check out the advice from AARP, linked below. Many people think it's usually not a good idea, but everyone's situation is different. |
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bradhartel
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It can be cost effective, and refinancing makes THEM pay a payment. A reverse mortgage is the bank paying THEM every month, and owning a little bit of their house each month, just like when you pay you mortgage. It may not give them the same amount of money as a refi, but if they pass away or sell, they only have to pay the bank what they have paid them plus a little more.
Do more research, I am no expert. |
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iwaann60640
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It is more than a notion, getting involved with reverse mortgage...frist of all, when you are dealing with the government, there is so-o much paperwork and all type of clauses you will need a lawyer to help you understand...secondly, the older you are the better you will fare...more than likely, if you can re-finance, do it-you will have more money than with reverse mortgage...there are such fees and costs that take away from the money you would get if you were to re-fi... |
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goober_head_13
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xxcain149xx is pretty much right, but you normally will have the option to pay back the mortgage plus interest & retain ownership. |
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Untamed Rose
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the bank pays you a set amount per month for your home, up to the value of the house. it can help out older folks who need more monthly income
how ever when they die it must be paid back or the bank gets the house. they need enough life insurance to cover debt |
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Mudisfun
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These loans are heavily regulated by the goverment. Check out www.hud.gov and click on info for seniors. There is a link about reverse mortgages which has a pretty good outline of the program, good and bad.
Good luck |
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xxcain149xx
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The bank basically buys your house back from you over time, and then when you die they get to take it.
Edit: I think it would be a great idea for an older couple who wanted some extra spending money but wanted to still live in the house they have had for so long. As long as they do not have any children who they are planning on leaving the house to. Its great for people who are old and dont care if the bank owns their house after they die. |
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bburns31
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I'm sorry ICS but many answers are just not right. My company specializes in reverse mortgages and it is 99% of my business. I also do purchases and refis but if a person needs/wants money and qualifies for a reverse mortgage it is the best and safest way to go. The bank IS NOT buying their house. They are merely giving a loan just like a convention home equity loan the only difference is the lender is willing to wait until your m-i-l moves out of the house or passes away to get paid back. She still retains total ownership on title.
The biggest advantage is that she does not have a monthly payment she HAS to make unlike a refi. Many of my clients come to me who have taken out a refi and now for some reason are way behind in payment and are now in foreclosure. With a Reverse there is no chance of ever being in foreclosure.
The fees are similar to any FHA loan and in some cases a little cheaper. Most of the fees are mandated by FHA and can not be changed in order to protect seniors from being gouged. Yes many banks will push you towards a home equity loan but it's either because the are not licensed to do reverses (which is difficult) or they make a LOT more money off of your mother in law if they get her to do a refi.
I would love to send you a free information packet or give you a quote on how much she can get back. Our company is the largest originator of reverse mortgages in the Southwest for the past three years and we are licensed just about nationwide. Please feel free to email me at bburns@griffinloans.com and I will give you toll free number to talk to me directly. We can discuss if a reverse would be right for her.
In the mean time a great place to do research is here..
http://www.aarp.org/money/revmort/ |
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Hank w
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Don't ever do it, I work in real estate and I tell all my clients never to choose that option. If you can't afford to own a house then don't live in one. If you want to sell your house then don't sell it too the bank... |
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