reverse mortgages;good or ripoff?

carl reitnauer · Feb 24, 2014

i'm looking into a reverse morgage to reduce my cash outflow. The existing mortgage is my only indebtness,roughly a third of the property value in this down market. has anyone had experience with these,good or bad? EXPERIENCE NOT OPINIONS. The upfront fees are heavy and scary.

Mike (WA) · Feb 24, 2014

I've looked into them pretty extensively, to advise clients.

They can be useful to increase cash flow, IF you don't care if your property is passed on to your heirs. By the time you die, the mortgage on the property will be pretty hefty, and if your kids are in good enough financial shape to bail it out then, maybe you could sell to them now and reserve a life estate, to get more income. They're especially useful if you have good equity in the place, you either don't have kids or don't have any that you care to pass it on to, and you would rather stay in the place than sell it.

Also, the reverse part (how much you'll get monthly) is figured on actuarial tables, so the older you are, the better deal they are. Probably not worth bothering with if you're not at least in your 70's.

There will be many who will respond that "they're a ripoff, the bank is stealing your house." Well, not really- the bank is BUYING your house and letting you stay in it, and giving your heirs the chance to buy it back after you die.

Anonymous-0 · Feb 24, 2014

I don't think Carl is talking to a reputable financial institution - the specific mention of hefty fees indicates the house will be gone quickly. Also, he's still in a down market while the rest of the country is recovering. That's another bad sign.

Anonymous-0 · Feb 24, 2014

You may want to seriously consider selling that house and moving to a rental somewhere that your income can support. That's your bottom line. Don't break yourself trying to hang onto a property that your kids may not even want.

Starting into that reverse mortgage now kind of limits your future options unless your area starts to recover. What is the economic forecast for your area? If things get better, you're still stuck with that old appraisal value and a growing loan balance.

If things get worse, the bank is stuck with you and your loan. Bankers get panicky in a down market. I don't know what part of the country you are in but most of the country has started to recover.

Wile E · Feb 24, 2014

Yeah, you are right.
I have thought of Reverse mortgages are for older folks that had their pensions run dry, or they made bad investment choices. So.........Next is to drain the equity in their home so they can survive.

I agree that selling the house is the best option. Downsize......and pocket the difference.

carl reitnauer · Feb 24, 2014

I'm in a poverty pocket in Fl. My house is overbilt for the area.i have paid for rentals i could move in and the kids have no interest in living here. Trying to sort it all out.

dcarp · Feb 24, 2014

You should look into if a surviving spouse is still able to stay in the house after the death of one spouse. Many of the reverse mortgages require that the surviving spouse move out. Not a good deal. Not that knowledgeable about them but the steep fees part runs up a red flag.

RandyB(MI) · Feb 24, 2014

They will calculate your estimated date of death based on your age now and your health. They then set your monthly payment so that they have paid you no more than 75% of the equity you have in your place at present evaluation. If you die earlier (which they hope for) they will do even better. One must remember, they are in this business to make money, not to help you or anyone else. You will never "outlive" their calculations. That would be very stupid of them. Kinda like the rich tycoon talking you into letting him take out a $500,000 life policy on you at age 70 and listing him as beneficiary and he will pay you $ 500 per month as long as you live just for the privilege. Once you see ALL the figures and conditions (you will be responsable for all upkeep and repairs to keep the house in "as contracted" condition) I think you will seek another way to do accomplish your goal. Just another "legal but preditory" business. Not just an opinion but we've looked into it for my mother-in-law who was sucked in by the fancy "celebrity" sales force on TV.

Anonymous-0 · Feb 24, 2014

That's a tough situation. Southern Florida, Las Vegas, and Phoenix have a long way to come back.

Things could be worse - you could be in Detroit!

I am looking to move to Florida but not for several years. What part of Florida are you in?

Anonymous-0 · Feb 24, 2014

I look at it this way--
When they hire a has been actor/politician to sell their product, then they don't have a sellable product to sell. Just the pitch man's hype.
They make it sound like you stay in your house for free and collect a monthly check. But, who pays the taxes, insurance and property maintenance.
Reverse mortgages may work in some cases, but when it comes to financial schemes, there are a lot of scams. Like sharks on blood.

Dick2 · Feb 24, 2014

Financial experts say that Reverse Morgages are the "latest financial scheme" from Wall Street and advise people not to fall for them.

SweetFeet · Feb 24, 2014

Carl R.,

If you are saying that you "OWN" paid-for rental properties... then I would consider selling your current home just to get out from under it. (If it is "over-built" for that neighborhood, it will never sell for the value it might in a more affluent neighborhood.)

Someone correct me if I am wrong - but this is my line of thinking:
Even if you sell the house for less than its actual value - say you sell it for two-thirds its value… then somebody gets a great deal on a home… AND THAT STILL ENABLES YOU to pay off the third" that you currently owe, while pocketing the "second third" as profit.

And this lets you out from under the monthly payments, the property taxes, and the expenses for maintaining the property.

donjr · Feb 24, 2014

Lawyers and bankers exist in life to separate people from their money and put it in their pockets. Fuzzy math and slicksters are their greatest weapon.

Sell what are now assets and keep them in YOUR pocket!!!

8Nr--WI · Feb 24, 2014

From the little bit of financial info you provide, which includes..."reduce my cash outflow"....and "own rental properties"...Steve gave you some good advice.

"You may want to seriously consider selling that house and moving to a rental somewhere that your income can support."

You sell the house, keep any equity after paying off the mortgage, save on all the property tax your are paying on the house, save on future maintenance costs, and move into one of the rental properties you already own free and clear.

Tim

Wile E · Feb 24, 2014

Very well said..........Amen brother.

Pops1532 · Feb 24, 2014

[b:b1bf7f2dc6]Things could be worse - you could be in Detroit![/b:b1bf7f2dc6]

.......or most anyplace in Illinois.

Ultradog MN · Feb 24, 2014

I don't know much about them except they are better than Social Security.
At least with a RM if there is any equity left when you die it can be transfered to your heirs.
And the RM company doesn't reduce your payment by giving it to a bunch of do nothings.

Frank 41 · Feb 24, 2014

All of these ads sound too good to be true. THEY ARE going to make money off of you. I agree with most that you should sell and rent something affordable and your size.

barnE · Feb 24, 2014

At best RM gives you half what house is worth. You still pay taxes, upkeep and your heirs get nothing. Worst deal unless you can do nothing else. I have talked to several agents. You also cAN BE TOO YOUNGFOR THJIS.

37ar · Feb 24, 2014

don't forget if you sell your home you will give 3.8% to external_link care.

gtractorfan · Feb 24, 2014

Anytime they have to have "celebrity" pitch men repeatedly trying to cajole customers into something it sets off bells and whistles to me. They're not looking out for you, or why would they need to pay a "celebrity" to do the speel? I think it's somewhat like a "cash advance" loan-- what's the end result interest?

Anonymous-0 · Feb 24, 2014

Maybe, but only if his adjusted gross income is over $200,000 and only on the value of the house that is over $250,000 since it is his personal residence.

oldtanker · Feb 24, 2014

Wife's aunt and uncle did a RM. They can come in and inspect the house anytime they want to by the terms in the contract. Any repairs are their responsibility and if they fail to make those repairs they could be forced out of their home. They wish they had never done it.

Rick

Jeff B. · Feb 24, 2014

My mom had a RM on her home after dad passed. It was good for her at the time, I guess. By the time she passed, she had used up most of what they allowed her. I was the executor of her estate. The mortgage company gave us 120 days to sell the home and pay off the loan, or they would foreclose on it. Luckily, we found an immediate buyer and was able to pay back the loan and pocket a little $$$ for ourselves, otherwise we would have got nothing. Now knowing more about how it works, I would NEVER do it myself. I plan on passing my property to my children debt free.

ldj · Feb 24, 2014

(quoted from post at 23:17:57 02/24/14) My mom had a RM on her home after dad passed. It was good for her at the time, I guess. By the time she passed, she had used up most of what they allowed her. I was the executor of her estate. The mortgage company gave us 120 days to sell the home and pay off the loan, or they would foreclose on it. Luckily, we found an immediate buyer and was able to pay back the loan and pocket a little $$$ for ourselves, otherwise we would have got nothing. Now knowing more about how it works, I would NEVER do it myself. I plan on passing my property to my children debt free.

Yes that would be the way to do it---BUT---if you are running out of money, what then. OK you could refinance, but then you have payments, you also have to pay taxes and upkeep just like the RM. It was mentioned to sell and rent. Well, what if you are lucky enough to live a long time and run out of money from your sale? RM sounds pretty good to me.

Jeff B. · Feb 24, 2014

Given anyone's personal situation, perhaps it is right for them. Remember, though, typically they will only give you @70% of the appraised value, so you might be losing a good chunk right up front.
I'm sure they are the right thing to do for some people. No one's situation is the same, so it's a matter of personal choice. Just take time to be sure you know all the pros and cons before you commit.
In my mom's case, I really don't think she needed it. My dad's pension and SS provided her with over $3000/mo. She took a couple of trips, and remodeled her kitchen, ate out every night with various family members. Us kids used to joke that she ended up eating her house. But it was her house, her money, and the golden years of her life, and we never expected much inheritance anyway. As it ended up we did ok because we had a fast sale on the house. Without that we had nothing.
I hope you make a wise decision.

Traditional Farmer · Feb 25, 2014

Banks are pushing them hard so that tells me its a very good thing for the banks and a very bad thing for those getting them.

smallercrawler · Feb 26, 2014

Carl-am currently looking into this for distant family member and wife, both of whom are disabled and being eaten up by home care assistance, non-covered medical bills, etc. Both were gainfully employed for in excess of 35 years and paid their own way, now in a rapid downward, no end in sight, financial spiral; they feel that this is their "last gasp".
The following link defines the Federal (HUD) qualification requirements:
Untitled URL Link

reverse mortgages;good or ripoff?

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