My mother recently got a letter about reverse mortgage of her house. (She's not far off of retirement age). In the letter, it says that basically, they would take over her mortgage, and possibly pay a stipend, but that when she passes, the house goes to her heirs (if she has any) and they would be responsible for paying back the amount paid (with interest, I'm sure). However, I have also heard from another source that the company takes the home when she passes.
Does anybody know if this is true?
2007-01-18 21:53:33 · 7 answers · asked by Arlene06 4 in Business & Finance ➔ Renting & Real Estate
It's not necessarily a Bad Deal, and the lender does not necessarily take the house.
Basically, in a reverse mortgage, your monthly payments are set to be lower than the amount needed to pay off the loan. As a result, the amount you owe either stays the same or actually goes up. (It will go up if your payments don't include the full amount of interest falling due.)
These programs are required to meet certain Federal standards and laws in order to help prevent fraud.
A reverse mortgage is useful for someone who needs a home but can't afford the high payments of the standard, fixed-rate, 20 or 30-year mortgage plans ("conventional mortgage"). When he sells the house, he will have to then pay off the FULL amount of the loan and he might not have any equity in the house--but usually, house values go up in the long run, so he might earn some equity that way.
There are special programs, regulated by Federal law, aimed at the elderly. Under these programs, the elderly can borrow against the equity in their house and not make ANY payments at all as long as they own the house. So the mortgage will consist of both the borrowed principal, and the unpaid interest on the amount borrowed. If the owner is elderly and on a small, fixed income, this can be a very helpful program, because it's a way for that person to have more income but not have higher expenses. If the house is sold, or if the owner dies and the heirs inherit the house, then the accumulated principal and the accumulated interest must be paid off then--but only then.
This particular kind of program, aimed at the elderly, is called the "Home Equity Conversion Mortgage" (HECM), and is sponsored by Fannie Mae. A list of approved lenders is availble by calling 1-800-7FANNIE.
It means the heirs inherit less. But so what? It allows the elderly owner to have a better life than a small fixed income would have allowed.
The Federal Deposit Insurance Corp. (FDIC) has an excellent article in its Summer, 2002 "Consumer News" about "High Cost Predatory Home Loans: How to Avoid the Traps" which may help you on your concerns. Go to: www.fdic.gov/consumers/consumer/news
2007-01-19 00:04:21 · answer #1 · answered by AnOrdinaryGuy 5 · 2⤊ 2⤋
The above answer sounds good, but a reverse mortgage is not what that is. In a reverse mortgage you do not pay anything . The above is called a NEGATIVE AMORTIZATION, NOT A REVERSE MORTGAGE!!!!
In a nutshell. For a reverse mortgage, you can live in your house until you die, period. They can never take it away from you. There are several programs offered in a reverse mortgage. Some will give you a lump sum, others a lump sum and a monthly payment and still others a monthly payment. You can also opt for a monthly payment that will continue until you die or move out.
The "rub" is that all the while you are accumulating interest on the balance of the money they have given you (and the upfront fees). So, at the "end" whether your mom moves out or passes on to greener pasture, you will owe the bank all the money she was given + interest. "IF" there is any money left over after the sale of the house, you will get it, if not, you get zip!
See the links below and let me know if you have any additional questions. I'm not 100% convinced these programs are very good, but if your mom lives to 115 and stays in her house - you will make a ton of money, otherwise, probably not!
Regards,
Joe...
2007-01-19 01:42:48 · answer #2 · answered by Joe K 3 · 2⤊ 0⤋
Reverse mortgage is like balloon loan...once contract is up, someone has to pay back all the money they received for years...such as 3-5-7 years. if you can't make the balloon payment, you can either refinance or sell the place. It works for some one doesn't have any kids, who cares then they die...The government is going to take over anyway...why not to have mortgage company to pay you while you are alive and enjoy the payments you don't have to pay; plus mortgage co. pays you...ha, ha
2007-01-24 14:59:14 · answer #3 · answered by Mimi 4 · 0⤊ 0⤋
It seems likely that if the beneficiaries can't pay back the money, with interest as you say, they will lose the house. This obviously won't affect your mother much. If she is struggling financially when she retires it might make life easier for her but will mean you lose you inheritance. It might sound a little harsh but if you don't want that to happen then it is up to you to ensure your mother wants for nothing in her retirement and doesn't need to consider this option.
2007-01-18 22:25:37 · answer #4 · answered by gerrifriend 6 · 2⤊ 0⤋
They take the home if the beneficiaries cant pay the accumulated debt. The interest rates are very HIGH.
2007-01-18 22:09:57 · answer #5 · answered by simpletrader 2 · 0⤊ 0⤋
Please contact me I have an alternative for your mom please do not let her do a reverse mortgage.
walding714@yahoo.com
2007-01-23 03:42:11 · answer #6 · answered by walding714 2 · 0⤊ 0⤋
DO NOT LET HER DO THIS!
2007-01-18 22:00:11 · answer #7 · answered by detroit al 2 · 1⤊ 0⤋