Help:My Inlaws Are About To Sign For A Reverse Mortgage

[HayGan]

It might be a good option for the right person: the person who has a nice home, but little retirement savings. It could be a better choice than being forced to live in poverty during retirement, or better than being forced to sell the house and go live with one's children (key word being forced -- I know some families would welcome this arrangement).

Personally, I can't understand why if there is enough value to receive a nice monthly payment why some people don't sell the home on their own and buy a more affordable place and have money in the bank. My in-laws have done this and are quite happy. They control their money and are actually growing their savings by investing rather than losing it.

 

[allison443]

And it's a risk for both parties. If the homeowner lives only two years, the bank wins! They made only a few payments to the homeowner, then they get to sell the house and make a big profit. On the other hand, if the homeowner lives 30 years, the bank's going to lose big time.

My parents are considering a reverse morgage because they have lived in the same community for their whole lives, their paid-off house is worth about $500,000, they have looked into moving, etc. but have decided to stay where they are, the house fits their needs, etc. They would get what is essentially a HELOC (not getting monthly payments, but only withdrawing when and how much they need). This would be used for something like a replacement vehicle, home improvements, travel, etc. If they both die in two years, like in your example, their estate sells the house, pay back only whatever was borrowed (of course with interest!) and the rest of the equity goes to their estate. Their house is not going to the bank. In any event, I would rather my parents have the benefit of this asset during their lifetime for their own benefit.

 

[disneysteve]

Personally, I can't understand why if there is enough value to receive a nice monthly payment why some people don't sell the home on their own and buy a more affordable place and have money in the bank.

There are many reasons. An elderly person may not want the physical and emotional strain of leaving a home they've lived in for many years. My mom is 75 and has been in her home since 1955. She would hate to have to pick up and start over somewhere new at this point in her life.

Where would she go? As the value of her home has increased, so has the value of everything around her. Without moving far out of the region and leaving everything and everyone she knows, where would she find that "affordable place" that would still leave her enough left over from the sale of the home to live comfortably? She can't sell her house and buy one around the corner for 25% of the price. A RM would allow her to stay in her home and live off the equity she has.

This is just a hypothetical as my mom isn't in this situation, but you get the point.

 

[allison443]

There are many reasons. An elderly person may not want the physical and emotional strain of leaving a home they've lived in for many years. My mom is 75 and has been in her home since 1955. She would hate to have to pick up and start over somewhere new at this point in her life.

Where would she go? As the value of her home has increased, so has the value of everything around her. Without moving far out of the region and leaving everything and everyone she knows, where would she find that "affordable place" that would still leave her enough left over from the sale of the home to live comfortably? She can't sell her house and buy one around the corner for 25% of the price. A RM would allow her to stay in her home and live off the equity she has.
This is just a hypothetical as my mom isn't in this situation, but you get the point.

Steve, Thank you for posting this. I was starting to get worried from reading all the negative posts! The hypothetical you describe is basically my parents situation as I posted above (they are in a borough of NYC, a very high-cost area). Our whole family is still in the metro area. I think in their case the RM (equity line of credit) actually makes some sense. They have pensions and social security so they don't really need a monthly payment, rather they can have it available for larger expenditures. I would rather they enjoy their retirement and not have to worry about whether they can afford things. They are certainly not extravagant at all but I think having this cushion available gives them peace of mind.

 

[dvcgirl]

I think that a reverse mortgage can be a solution, but in many cases, it's not a good one. The fees are very high for one. Secondly, the lender in most cases only goes as high as 80% of the value of your home, and well, since they're sending the appraiser, I'm wondering if most people are getting true market value.

Also, you need to be 62 years old to get one, and the younger you are, the less money you get for your home. And, because we're dealing with seniors, and a lot of emotion for many of them as they don't want to move from their life-long home.....predatory lenders come out of the woodwork. There are lots of insurance companies getting in on the act here trying to get folks to do the reverse mortgage and then take the proceeds to sell them a variable annuity...*the* two investment products out there with the highest fees. Put that together and we're talking about tens of thousands of dollars in fees, even for a modest home.

I think that the key is to *really* do your homework. And if your parents are getting up there....help them to understand what they are getting into.....

I threw some numbers in a reverse mortgage calculator for this house in Orlando at its current market value 550K, and put my DH and my ages at 62 years old. We'd get a lump sum of $109K, or a monthly payment of $671. No thanks.....

 

[Chicago526]

And it doesn't have to be the very old that get attached to a home. My MIL really, really needs to move. She's only 60, but the house is just too much for her to handle all by herself (MIL lives 12 hours from us so we can't help her). But she will not move because of all the memories of her late husband. He died 18 years ago but still can't let go. Meanwhile, the house is starting to have a lot of problems and she can't keep up with it all (It's on an acre of land, just lawn care can take up all of her time). She needs to move to a townhome, or something where she doesn't need to do any maintenance. The house is worth more than enough to cover the cost of the new home, plus she'd have a ton of money left over. She could use it, too. She just lives off of her late DH's pension and the SS check. She supliments her income by sewing custom window treatments (which she doesn't charge enough for, but that's a vent for a differant day). She lives cheap, but whenever a major repair or expense comes up, it's a scramble for money to pay for it (and she'd rather be dead in a ditch than take money from us!). We're worried, we just don't know what to do about all of this.

DH has tried several times to get her to move. But she just won't budge.

 

[mickeyfan2]

Personally, I can't understand why if there is enough value to receive a nice monthly payment why some people don't sell the home on their own and buy a more affordable place and have money in the bank. My in-laws have done this and are quite happy. They control their money and are actually growing their savings by investing rather than losing it.

I don't diagree with you, but some elderly will not leave. My MIL told us we would have to carry her body out of the house, and we did.

 

[HayGan]

And it doesn't have to be the very old that get attached to a home. My MIL really, really needs to move. She's only 60, but the house is just too much for her to handle all by herself (MIL lives 12 hours from us so we can't help her). But she will not move because of all the memories of her late husband. He died 18 years ago but still can't let go. Meanwhile, the house is starting to have a lot of problems and she can't keep up with it all (It's on an acre of land, just lawn care can take up all of her time). She needs to move to a townhome, or something where she doesn't need to do any maintenance. The house is worth more than enough to cover the cost of the new home, plus she'd have a ton of money left over. She could use it, too. She just lives off of her late DH's pension and the SS check. She supliments her income by sewing custom window treatments (which she doesn't charge enough for, but that's a vent for a differant day). She lives cheap, but whenever a major repair or expense comes up, it's a scramble for money to pay for it (and she'd rather be dead in a ditch than take money from us!). We're worried, we just don't know what to do about all of this.

DH has tried several times to get her to move. But she just won't budge.

We had the same problem with my grandmother and now several months following her death we are still dealing with the house and all the problems surrounding it.

I understand the sentementality of wanting to stay in home but in some (I dare say many) it goes against logic and practicality. Many of today's older people want to stay in the homes they lived in most of their lives but it really is not the best situation for them. It is their asset and they can do with it what they like but it often times is not the best decision.

 

[patsal]

You know there's going to be a cost -- a high cost. The bank can't "buy your house" at market value, make payments to you, then wait 10 years to take possession of it. They're a business.

And it's a risk for both parties. If the homeowner lives only two years, the bank wins! They made only a few payments to the homeowner, then they get to sell the house and make a big profit. On the other hand, if the homeowner lives 30 years, the bank's going to lose big time.

It might be a good option for the right person: the person who has a nice home, but little retirement savings. It could be a better choice than being forced to live in poverty during retirement, or better than being forced to sell the house and go live with one's children (key word being forced -- I know some families would welcome this arrangement).

Obviously, it is a business, but my point was, no you dont' get 100%--the business would be losing money on that one, and for many living in areas where the real estate boom will just never hit, well, they will have the reality of it not being a wise move--for my MIL the little pay off was not worth the risk. Since DH is an only he, doesn't really want the obligation of dealing with the reverse mortgage unless she is going to benefit from it. There are some things that safegard the situations you mentioned. If only a year or two of dispersments were made, the family has the option of paying back what was dispersed and keeping the property and after so many years of dispersments, the bank has the right to stop payments. Each company seemed to offer a little something different with "their product". Ultimately if it means the ability to live off your own assests then perhaps it is a good thing, for MIL her house isn't all that and the $$ isn't worth the frustration when she may need that $$ to pay for long term care.