how comes that reverse mortgages have no fixed duration ? what if?

Question

you live long enough that the loan you are recieving on a monthly basis; exceeds the total home value ?!!!

Also if your home os worth $ 700,000 in california, what is a good estimation on the amount of loan you recieve each month;

Answer 1

Q: how comes that reverse mortgages have no fixed duration ?
A: Reverse mortgages - like life insurance - are based on actuarial life expectancies. The older the borrower, the more they can borrow because there is less risk to the lender that the borrower will live a long time. The loan terminates when the homeowner/borrower dies, sells, or moves out. Reverse mortgages were originally designed to provide lifetime retirement income and this is "why" they have no fixed duration.


Q: what if you live long enough that the loan you are receiving on a monthly basis; exceeds the total home value ?!!!
A: One of the biggest "selling" points of reverse mortgages is that the borrower (or estate) can never owe more than the market value of the home at the time of loan termination. If the home owner dies with a reverse mortgage balance that totals $200,000, but the home can be sold for only $175,000, the FHA insurance that the borrower paid for (upfront and over the loan's life) picks up the difference.

Q: Also if your home os worth $ 700,000 in california, what is a good estimation on the amount of loan you recieve each month;

A: Use any of several online calculators to get a very good idea. You'll need other infor like homeowner(s) age and outstanding mortgage balance. Here's a good place to start:

http://www.top-reverse-mortgage-lenders-weekly-review.org/

Answer 2

Very, VERY good question.

When reverse mortgages first came out, account executives would come by my office and as soon as "reverse mortgage" came out of their mouths, I told them I didn't want to hear about them. I told them under no circumstances, was I going to scam elderly people.

That is because I didn't fully realize how they work.

They are a risk for the lender as well. Very similar to insurance polices: Insurance policies have some people that have collected more than they have paid in, but MOST people have paid in more than they collect...therefore, that is how insurance companies make a profile.

Reverse mortgages are the same way....most people don't live to see their equity maxed out, and that balances out the very, very few who do max out the value of their home.

Lenders carry insurance to protect them to a degree. If you received payments of, let's say, $400 per month and maxed out the value of your $700K home, you would CONTINUE to receive the payments...on, and on, and on. Even if that means you exceed the value of your home....and you still continue to live there. They cannot evict you.

These are very, very complicated transactions, and are not given to everyone that applies. The criteria is steep, but with as much equity as you have, yours won't be a problem.

I would highly recommend that you don't do a reverse mortgage with a loan officer that does these with 200 other mortgage products...find one that specializes in reverse mortgages, and that will be the best person to help you.

I hope that helps!

Answer 3

Read this before "Cashing In" on a Reverse Mortgage. From what I understand, the home owner loses, no matter what.

http://www.ftc.gov/bcp/conline/pubs/homes/rms.shtm