What is a reverse mortgage? Is it a good idea for my parents?

Answer 1

Reverse mortgages are the most regulated and misunderstood mortgage product in America. Many of the posts are incorrect.

The #1 myth is that the bank takes the house. The bank does not take the title of the property. The only way the bank would take title is by foreclosure. As your parents do not make any mortgage payments for as long as they live in the house, the only reasons they can get foreclosed on are: 1) refuse to pay property taxes and hazard insurance, 2) allow the house to go into disrepair and refuse to remedy the problem, 3) the property goes to the estate upon death of all the borrowers and the estate refuses to sell or refinance the property in a reasonable time period – 6 to 12 months, 4) the borrowers permanently move out of the house (do not live there for over 12 months) and refuse to refinance or sell the property.

Reverse mortgages are not really more expensive than regular mortgages in dollar costs. Reverse mortgages cost about the same as a regular FHA loan. The confusion that comes into play is when you get a regular loan, you borrow all the money at the closing. With a reverse mortgage you are borrowing the money over time. The longer you keep the reverse mortgage, the cheaper the costs become as a percent of what you borrowed. Loan costs / loan amount = percentage of costs. So a reverse mortgage can seem expensive at the closing, but is cheap 5, 10 or 20 years down the road.

The answer to “if a reverse mortgage is a good idea for your parents” is does a reverse mortgage help them with their problem. The advantages reverse mortgages offer include:
1) They remain independent - A reverse mortgage allows them to have the money to stay in their home without relying on others for support such as you.
2) They can afford to stay in their home and retain homeownership versus having to sell it.
3) No monthly mortgage payments – they do not pay back the reverse mortgage nor make any monthly mortgage payments until they permanently move out of the home.

They can get the money in several ways:
1) Lump sum - they can receive part or all of you loan amount at closing.
2) Tenure payment - a monthly payment to them for as long as they live in the home.
3) Term payment - monthly payments for a time period they choose. By limiting the time period they receive monthly payments, they can increase the dollar amount of the payments; versus the tenure payment which is for the rest of their lifes. They do not make any payments after the term expires. They can refinance the reverse mortgage with another reverse mortgage if they want to at that time.
4) Line of Credit - similar to a traditional equity line. They pull out money from the line when they need it. The difference is with a traditional equity line they need to make monthly payments. The credit line is a great emergency fund.
5) The Home Equity Conversation Mortgage (HECM) and Home Keeper Mortgage programs allow you to combine these plans.

Reverse mortgages are highly regulated. There are three main Reverse Mortgage programs:
1) the government insured HECM program
2) the government sponsored Home Keeper program
3) the government regulated Cash Account program.
Your parents will have to take mandatory reverse mortgage counseling by law, before the mortgage company can process their loan.

Federal and state government, AARP, National Counsel on Aging, etc., advocate reverse mortgages as a loan product that can keep seniors in their homes – “Aging in Place”. Most people do not realize that they cannot get Medicaid until they are basically broke. So now that the senior gets Medicaid for home care, etc., how do they afford to keep their home? The National Counsel on Aging calls this “Using Your Home to Stay at Home” – a reverse mortgage.
I would recommend meeting with a loan officer that specializes in reverse mortgages to see what a reverse mortgage can do for your parents. How much they qualify for based on their age, location, and the equity of their home.

I would also recommend meeting with an Elder Law attorney about a trust or life estate to protect the equity in your parent’s home. The State is required to try to get as much of any Medicaid money your parents get as possible, by putting a lien on the senior’s home. As reverse mortgages are designed for seniors, they allow for trusts and life estate unlike traditional mortgages. The "look back" period has been increased from 3 years to 5 years.

Some children are happy that their parents are taking care of themselves and others are worried about their inherence. In either case, get the correct facts.

Good luck.

Answer 2

Indeed a reverse mortgage is a way of pulling equity from a property without ever having to pay it back while the borrower is alive (unless they sell the property and move). In order to qualify for a reverse mortgage, the borrower or borrowers, if a couple, must be at least age 62. (This age applies nation-wide)

The reverse mortgage company does not buy or own the home, as some of the previous posts mentioned. They are simply providing a loan based on the equity and value of the home. Instead, a lien is put on the property by the reverse mortgaging company. This lien will be paid off after the death of the property owner.

Reverse mortgages are very expensive with high upfront costs, however, the expense is indirectly incurred. It is built into the mortgage. The reverse mortgage is an excellent strategy for seniors who have paid off their property but find themselves in need of additional income. The reverse mortgage allows them to live in the home indefinitely until their death (final death if a couple). At the final death, the mortgage must be repaid either by the estate or from the sale of the property. The reverse mortgage company has a lien on the property, thus they will be entitled to the first dollars from the sale. If the sale is made for more than the lien, the remaining balance once the lien is paid off is passed along to the estate.

It is a good idea for your parents if they meet the following main criteria:

1) They are both 62 or older
2) They have a monthly income that is not sufficient to meet their financial obligations and allow them to live comfortably.
3) They do not have significant (over $25K) cash/investment assets at their disposal (this includes IRA's and other retirement plans, CD's, bank accounts, annuities, etc.)
4) They do not have an outstanding mortgage, the equity in their property exceeds $75K, and they plan on living in the same house for a minimum of the next 5 years. Reverse mortgages work best if they plan on living in the house indefinitely.

Several of the above posts make mention to reverse mortgages making available only a specific percentage of the equity - that is incorrect as well. The amount available varies by borrower age, the Federal Housing Administration or Fannie Mae's appraised value of the home, as well as the location of the home. Reverse mortgages require an insurance premium, which is one of the big upfront costs, to account for the possibility of the home owner borrowing more than the home is actually worth at the time of their death.

Answer 3

A reverse mortgage is one that pays you. At the end of the term of the mortgage or when your parents pass away, then the home becomes property owned by the mortgage company.

Answer 4

A reverse mortgage is basically they take what your house is worth, give you about 60% of that and break it down into monthly payments. When both of your parents die the bank automatically owns the house...you will have the option to buy it back, but it will be bought back at the bank's price, not what it's worth. Here in VA you have to be 55 to apply, but my grandparents have one and it has helped free up a lot of money for them. They don't give you 100% of the worth just in case the market changes, but in my opinion it's a great idea as long as they research all of the requirements for you state. Hope this has helped some!

Answer 5

They don't give you 100% of the worth just in case the market changes

Answer 6

sell the holiday domicile. That'll provide them around $113,000 sparkling after paying off all their debt. it rather is going to additionally cut back their expenditures by way of $4,000 or however a month or over $12,000 a year. the bigger situation is they don't choose to cut back back on how they are living, yet with $60k in CC debt, they are living greater effectual than they are able to have the money for. sell the holiday domicile. repay all bills. paintings out a finances to adhere interior of their potential.