Is there a downside to taking a reverse mortage?

Question

My folks are 78 yrs old, have no savings and limited income. Their house is a 2 family worth 500,000. They are considering a reverse mortgage. Is it a good idea?

Answer 1

There really is only one downside to taking out a reverse mortgage. The children are not left with 100% of the value of the home for an inheritance.

With both of your parents being 78, they qualify to get around $230,000 to use as they will. The house is still in their name it just shows that there is a mortgage on the home like any other conventional mortgage. They can take the full amount in a lump sum, split it up in monthly payments or leave it in a line of credit which right now has a growth rate of about 7%. This means if they didn't touch the line of credit in one year they would have $246,000 dollars. With the line of credit they are only charged interest on what they pull out of the line of credit and that interest rate right now is right around 6.5%. The rest of the money sits there untouched until they need it. These loans are set up so that there should always be equity in the home to pass along to their heirs.

All of this money is tax free and there are no monthly payments to make. You CAN make a payment if you want and are concerned about keeping the balance down. You even get a tax break if you pay back the interest you are being charged.

This is a much better option than a home equity loan which you have to make high monthly payments and if something happens and they get behind could lose their home.

So really the only downside to reverse mortgages is that someone like you wouldn't get 100% of the home value for your inheritance.

I'd be happy to send you some more information if you would like. This is what I specialize in and our company can do reverses almost anywhere in the country. If you would like some more information please email me at [e-mail]

Answer 2

My mom took out a reverse mortgage 2 years ago. It was one of the best decisions we ever made together. She took some as an annuity and put some away for future use. Now she has no mortgage payment, money put away towards the day she may need assisted living or long term care, and a monthly income that allows her to live the lifestyle she enjoys.

She will never own more on the house than it is worth. Yes she is using up the equity that could be left to her estate, but hey, it is her money.

These loans are carefully monitored by the Federal Government to prevent any type of elder abuse. They are a wonderful product that I believe we will see used more and more as the "Boomers" reach the accessible age.

Answer 3

The simple answer is yes. Most mortgages that are outside of the Fannie Mae guidelines have some risk and don't fit everyone. From a glance, though; your folks fit the reverse mortgage or possibly a first position HELOC like CMG's Accelerator. That being said, every person is different and it is wise to have some scenarios created after a full consultion. IM me if you would like more info.

Answer 4

Yes

The Home Equity Conversion Mortgage (HECM), aka reverse mortgage, does have drawbacks.

Very steep origination fees and premiums for the required insurance policy.

For a full discussion see: http://www.auditmypc.com/reverse-mortgage.asp

Answer 5

If your parents are in good health, they are not expected to live to be 100. then go for it!!!

Otherwise, the bank will own the home, they will pass their centinial birthday (either one) and have no home to live in or pass to you. Oh BTW, hope one of them doesn't get hurt or sick AFTER the sign they the reverible morgage.

Remember, a paid off home is better than a cardboard box in your "golden years".

Forced answer: NO WAY!!!!

Listen to the first guy "Owl" sell the place and buy something smaller that is paid off.

Answer 6

No, not usually. It's reckoned to be a very bad investment which hits the beneficiaries of the estate when your parents pass on. They would be far better off selling their home and buying a smaller place.