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Author
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Topic: Reverse mortgage advice for my folks
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Locohead
World Famous Smoke Dancer
Member # 15
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posted November 16, 2017 06:41 PM
Dad is 72 and Mom's 74. They would like to downsize to a condo that will be less expensive for them in not have the stairs they give them trouble now. Their home is worth about $440,000 and they owe about a $160,000. They will need money to live and a down payment, I suppose to buy a condo. They're meeting tomorrow with some folks that will likely tell them a reverse mortgage is what they should do when they buy their condo. A reverse market make sense to me if they own a house that they plan on living him and want to access their equity. However. It doesn't quite make sense to me that they get in to that kind of mortgage when they buy their condo. They both have social security and dad has 2 small pensions...oh yeah, and medical bills.
Does it make more sense for them to have a new condo with a reverse mortgage or a small regular mortgage with some cash in the bank?
[ November 16, 2017, 06:46 PM: Message edited by: Locohead ]
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I love my critters and chick!!!! :)
Posts: 2219 | From: CO | Registered: Jan 2003
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booger
TOO BIG TO FAIL
Member # 3602
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posted November 17, 2017 07:46 AM
Loco,
I would not recommend using a reverse mortgage to fund a property until they sell their home…it is just too expensive a proposition to do that for what could be a short term.
I would not recommend the RM for this, and any lender worth his/her salt will not either.
If they plan on using the equity in their home, which should be around $280,000 give or take after fees, I would recommend to them they put their home on the market, go condo shopping, and when they find what they want, put a contract on the condo, with a contingency they close when their home sells. That is assuming they can find a condo for less than the equity in their home.
They can use the equity in their current home to buy the condo, and they have a one-time exemption on the sale of their personal residence in order to put whatever is left in the bank for their living expenses. I believe the exemption should be around $250,000, so they should be OK.
At their age, I would make sure they DIDN'T have a mortgage payment unless necessary. They need to have enough cash flow to cover insurance and taxes, but they need to enjoy retirement without the worry of a house payment.
My wife and I don’t have kids, and I don’t care if I leave my heirs anything when my wife and I are gone. A RM will work good for us, as I plan to have my house paid off before I retire here at the bank. I will use the RM as a vehicle to take up the slack if we hit a market downturn and my IRA’s are impacted.
It works when it needs to, but it is not for everyone. Let me know if you have further questions!
Tim
[ November 17, 2017, 07:50 AM: Message edited by: booger ]
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If we ever forget we are one Nation Under God, then we will be a nation gone under--Ronald Reagan
Posts: 911 | From: Bob Dole Country | Registered: Apr 2010
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Leonard
HMFIC
Member # 2
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posted November 17, 2017 07:57 AM
I have been looking at the question for quite a while, now.
There are a couple options. First, they can get a refi on their existing home depending on the interest rate they currently pay. They can also pull funds based on their equity, probably $100,000 or so? Just a wild ass guess?
But, of course they might want to use that cash for a down payment on another house?
As far as the reverse mortgage, the thing that bothers me is the high fees. Seems that they charge two or three times as much as a straight conventional loan?
But, the first thing that happens is the buy you existing loan pay it of and they cease making payments. Also they will get (guess) $20,000 available, like a credit. After a year, they should be entitled to quite a bit more? So, they drop their monthly mortgage payments and get a lump sum. After a year they get more money, but I have no idea how much? This money can be used to buy a second home, but they must continue to live in their original home, at least most of the time.
If they decide to move into the other house, they can sell the first house and repay the advance money.
The third option is to just sell their condo, pay 6% commission and walk away with the cash. Maybe they could yield about $300,000 and but another house outright; one without stairs to the bedroom.
I've been kicking around the various options myself because I want to get the hell out of California. However, I have not decided which direction is best for me, and that's the dilemma.
Good hunting. El Bee
PS on the reverse option, it's very important to shop around, the range in fees is scandalous! Like that one on TV, AIG Direct, they charge the absolute maximum allowed by law. Somebody should look into the fee arrangement on reverse mortgages, they are unreasonably high!
edit: in reading boogers excellent advise, above, the only question I would have is the exemption. I thought it was $250,000 per person, which would be $500,000, for a married couple? Has that situation changed?
[ November 17, 2017, 08:04 AM: Message edited by: Leonard ]
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EL BEE Knows It All and Done It All.
Don't piss me off!
Posts: 31450 | From: Upland, CA | Registered: Jan 2003
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Locohead
World Famous Smoke Dancer
Member # 15
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posted November 17, 2017 09:36 PM
That is super great information guys. I do think I wasn't very clear. And I learned more about the program today. This is not the kind of reverse mortgage that pays you money. It is a reverse mortgage on a NEW buy. I had never heard of such a thing.
Indeed, they would sell their home first. They lend you 50% loan to value, so a $400000 home would cost them a $200000 down payment. Then they would never have a mortgage payment. They do not get a monthly check from the RM company. Their mortgage is just simply paid for every month. My parents would be responsible for their own taxes and insurance payments every year.
Let's say 3 years from now the home is worth 500000. Then you can sell the house and keep the equity but the $200000 they borrowed might be 250000 or whatever based on what the RM company paid to cover your mortgage for the 3 years. But if the market tanks, you will not be responsible to pay back anything.
God forbid, the folks should both die, for instance on the same day 10 years from now, the heirs would just sell the house, take the equity and pay back the balance on the loan (original 200,000 plus whatever the company paid each month for the mortgage payments.
So in short, the big benefit is not having a mortgage each month which should give them an additional $1000 or so of usable cash each month
[ November 17, 2017, 09:43 PM: Message edited by: Locohead ]
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I love my critters and chick!!!! :)
Posts: 2219 | From: CO | Registered: Jan 2003
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Leonard
HMFIC
Member # 2
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posted November 18, 2017 06:27 AM
I've never heard of this? I'd be very cautious. LB
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EL BEE Knows It All and Done It All.
Don't piss me off!
Posts: 31450 | From: Upland, CA | Registered: Jan 2003
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