Reverse Mortgages?

Can anyone tell me the pros/cons of a reverse mortgage? I have an older family member inquiring about this & I'm afraid it's not beneficial for them. Tell me , anyone......

if the house is paid for, it works like this. The mortgage company will pay them a fixed amount every month (instead of them paying). but when they die, usually the mortgage company gets to keep the house a that point, unless a beneficiary is named.

If you are going to get a reverse mortgage, you first must know, and be comfortable with, the disadvantages of a reverse mortgage. With a traditional mortgage the borrower pays down the debt over a set term, usually 30 years. Conversely, with a reverse mortgage, the borrower builds up debt while they live in the home.

In addition to building up debt, there can be significant up front costs when brokering a reverse mortgage. If you plan on only taking out a small portion of money or plan on living in your home for only a short time then these costs can push the effective rate on the home up considerably.

The last significant disadvantage of a reverse mortgage is that you leave your heirs with a noticeably smaller legacy. It might be something you should discuss with your heirs. When you take out a reverse mortgage, you will have less equity in the home and likewise, the heirs will inherit a smaller portion of the homeâ€™s value. Also, the longer you live in the home, the more the interest builds up, which further lessens the equity you have in the home.

What are my current financial needs?

Everyone, no matter the age, needs to assess their budget and the best ways to effectively manage their financial needs. The easiest way to do so is by going through last monthâ€™s (or any average monthâ€™s) bills. You should include everything you regularly spend money on. Where are the bulk of your expenses? Do you need to adjust your budget?

CAN I adjust my budget?

This will vary from person to person and household to household. There are many ways to cut down your expenses such as different grocery stores, paring down unused or unnecessary things, going out to eat, having premium cable, club memberships, etcâ€¦ If you are unwilling to sacrifice some of those things that youâ€™ve become accustomed to, how much more money will you need?

It would be wise to consider for how long the equity in your home can satisfy your budget.

Am I willing to move?

Importantly, there are other options for increasing cash flow other than a reverse mortgage. Moving is the most common of those options. It can be very hard to think of leaving the home you worked so hard for or raised your children in, but sometimes moving is inevitable. With the proceeds, you can decide to rent a home or purchase a smaller home. Maybe a condo or townhouse is appropriate. Many seniors need to evaluate whether their current home is a suitable living environment. Getting around can be difficult as you age and a large home may not be the right choice for you. Selling your home is an excellent option if assisted living is a near-term possibility.

No matter what the decision is, those interested in reverse mortgages need to gage their current home situation and decide whether moving is a better option for them.

What do I plan to gain from a Reverse Mortgage and is this realistic?

This is an important question to ask yourself. You need to find your own motives for wanting a significant influx of cash. There are significant advantages and disadvantages of reverse mortgages. You have probably already decided how you would want to spend the money, whether itâ€™s to pay bills, meet monthly expenses, or remodel the kitchen, but it is very important to realize the interest you will be accruing. When you ask yourself this question, you should find your true motives and whether other options should be examined.
http://www.reversemortgagepage.com/topic.php?topID=85

Reverse mortgages are very interesting. Anybody over 65, with enough equity in the property can qualify regardless of credit or income.
Cons:
Takes at least 45 days to set up/close.
Draws against equity.
Variable rate.
Pros:
Elimination of debt/mortgage payment.
House will not go through probate-the loan can be refinanced and title taken by heirs.
Can never borrow more than house is worth.

Basically what happens is the current loan is refinanced and all liens on the property are paid through a new government backed loan. credit cards and other debts can be paid at this point. The borrower has four options: a lump sum payment, annuity style payments, payments until they die or refinance out, or some combination of the three.
This loan can be ideal for older folks on a fixed income. These days hardly anyone pays their mtg off and a payment can be a huge burden. So instead, the house pays them. I recommend you call a bank like Wells Fargo (they have a rev mtg program)--get informed before you make a decision.

I think a reverse mortgage is when elderly people borrow money against their home which is already paid for. They don't have to pay the money back but when they die the mortgage company or whomever keeps the home. This is okay for elderly who don't have any children and don't have anybody to leave the home to but if there are children or even grandchildren involved, this is not a good thing. They will be left with nothing. Also beware of mortgage companies who don't tell the truth. Before they sign anything, let a lawyer check the contract....good luck

I usually tell anyone in the market for a reverse mortgage, to get an option Arm. This option is much better. You can draw a large amount of money out initially and put it into an account. Then when the monthly bill comes, have it automatically with drawn from said account. They can pay the minimum which is generally negative amortization, and a very small amount. The equity decreases as you pay less than the interest only payment. But you have all the money you desire in the bank, gaining interest that you get to keep. In my opinion, the negative am, or option arm, or pay option arm, is much better then the reverse mortgage.

Please know that the house does NOT go to the mortgage company. Usually lending is not done up to 100% of the value so some equity likely will remain. Transfer of title upon death is like a normal mortgage - if you owe something, then that has to be paid off when the home is sold or refinanced by the inheriting party

Really, a reverse mortgage is similar to an annuity with the principle source being the equity in the home. The pros are this:
(1) It provides a steady source of income in your twighlight years, (2) Generally you do not give up your home until you pass on, when you don't need it anyway. (3) The reverse mortgage payments you get aren't taxed, since they're loan proceeds, not income. Cons: (1) Closing costs (this is a loan to you) and other fees can easily run thousands of dollars (2) you or your heirs do have to repay the loan, plus interest and fees, but that usually doesn't happen until you die, sell your home or stop living there permanently, perhaps to live in a nursing home.

You should have your family member look at the Reverse Mortgage section of the AARP Web site. There, you'll find tons of useful info, including a 52-page downloadable booklet that describes in detail how reverse mortgages work. Good Luck.

pro extra money while you are alive to travel etc

neg you might live to be 100 years old

Reverse mortgages can be a major rip off. Let me explain.
If you owe nothing on a home and own it outright or only owe a little it has loads of equity in it. Essentially the lender is loaning you a percentage of what that home is worth and you dont have to pay it back. You dont pay it back because at the end of the specified term, they own the home and you vacate. This works well for older people who need money now and have no family or anyone to leave their home to upon their death. You cant take it with you right.
The problem is that if you arent dead at the end of it all you have to go find somewhere to live and in the interim youve spent the money they gave you and you are back into a hardship situation.
The best way to go would be to get an equity line of credit or refinance and get the equity out. Yes you still owe payments but then you still have legal ownership of that home and can leave it to your heirs upon your death or incapacity. Your heirs then become responsible for meeting the payments or they can sell it and get out of it what they can.
As the heir to the property, even if you sell it for only a little over what is owed or break even its better than letting the mortgage company put it to you by lending you less than its worth then taking it from you at the end just to sell it themselves and make a profit.
I say no to reverse mortgages. The only one it benefits is the lender.

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