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REVERSE MORTGAGES-scamarama??

 
 
Reply Wed 27 May, 2015 05:08 pm
For fun, I entered several test plots into a "reverse mortgage calculator" In all cases, from a low income high equity-to high income low equity, it has me convinced that we qualify and should apply.
The full disclosure of this product is that it is a loan, while the principle remains fixed and becomes the basis of which your cyclic payouts are calculated . But there is interest to pay n that principle. You arent really "dipping into your equity", you are given a loan based on some amount of equity that is calculted by substracting any amount owed on a mortgage and then about a 60% of equity , as a (devalued equity) is given you (parsed out in monthly or annual payments till about the 85th birthday of the last person to leave the house (feet first no doubt),
I dont fully understand the concept so I went into the market (My wifes uncle has decided to draw a reverse mortgage but he is already 86. I dont know whethere he would even qualify.


The whole thing appears like its a borderline scam (or maybe its a full frontal scam--I dont know and Im only posing what I know from my own reading-what am I doing wrong in my undertanding?)
I welcome anyone , ANYONE, who is knowledgeble on this product.

 
roger
 
  1  
Reply Wed 27 May, 2015 05:24 pm
@farmerman,
Darn little knowledge, but here's my ex-wife's story.

She and her present husband got into one, pretty much as a necessity. Now, he was old enough to qualify, and she wasn't. Therefore, she signed over her interest in the house. The problem that might arise is if he dies first. She tells me she will then have one year in which to move out, and obviously without compensation of any sort. If it works out that way, it will be a total disaster. An unusual case, of course, but could be major problem for some few that get involved.

Naturally, your heirs get nothing from the house.
CalamityJane
 
  1  
Reply Wed 27 May, 2015 05:24 pm
@farmerman,
My neighbor had a reversed mortgage. I think he took it when he was around 70 years old and he died recently with 80. The bank where he had the reversed mortgage with, said that they don't want to fuss around too much - the estate should sell the property and reimburse them for the outstanding loan balance incl. interest. I have no idea what the amounts were, but my neighbor doesn't care anymore either, he's departed.

I think it's good for people who have very little retirement funds and a lot of equity in their homes. Needless to say, you have to shop around to get the best deal.
0 Replies
 
edgarblythe
 
  1  
Reply Wed 27 May, 2015 05:39 pm
@roger,
I read a news story in which the woman was too young and signed away her rights and then was evicted after her husband died.
roger
 
  1  
Reply Wed 27 May, 2015 07:27 pm
@edgarblythe,
I forgot to mention that she says she could remain there if she came up with some sum of money. I'm not knowledgeable of the details, but it's not something she could come up with. Scam or not, it's clearly not for everyone.
0 Replies
 
Butrflynet
 
  2  
Reply Wed 27 May, 2015 07:52 pm
I looked into reverse mortgages a few years ago while working out financial arrangements for BBB and I. Here are some links and some excerpts from what I found. We decided against it for now. It might be an option for me when mom is no longer around since I have no heirs other than my brother who I will probably out live.


http://home.howstuffworks.com/real-estate/selling-home/pros-cons-reverse-mortgages.htm


Quote:
The benefits of reverse mortgages are substantial. You can tap into your home equity and receive cash payments. The loan only has to be paid back when the last surviving borrower permanently moves out, sells the home or dies. You don't get taxed on your payout and you can still receive your full Social Security and Medicare benefits.
Reverse mortgages have their downside too. Upfront costs are heftier for reverse mortgages than for conventional mortgages and are usually paid out of the home's equity. Real estate taxes and homeowner's insurance will still be your financial responsibility. You'll be obligated to carry expensive mortgage insurance in order to safeguard the lender in the event that the value of your home decreases or if you continue to hold the mortgage for a longer-than-average period of time. If you don't properly maintain the property, the lender is entitled to take it back. Similarly, if you leave for any extended period to stay in a nursing home or hospital, even if your intention is to return to your home, you can be required to repay the entire balance of the loan plus interest. Lastly, the interest on your debt with a reverse mortgage accrues with time and the increase compounds. This means that the equity of your house decreases at the same rate. When you move out permanently or die, the entire loan balance will have to be repaid, up to a maximum of the home's appraised value when it is sold.



This page has 8 short videos describing how it works and some of the pitfalls.

http://blogs.howstuffworks.com/brainstuff/how-reverse-mortgages-work-getting-payments-from-your-house-instead-of-making-payments.htm


What happens when a person with a reverse mortgage dies?

http://homeguides.sfgate.com/happens-person-reverse-mortgage-dies-43304.html

What Happens to a Reverse Mortgage When a Person Becomes Permanently Disabled?

http://homeguides.sfgate.com/happens-reverse-mortgage-person-becomes-permanently-disabled-95760.html

Can You Get Out of a Reverse Mortgage?
http://homeguides.sfgate.com/can-out-reverse-mortgage-9367.html

Quote:
Federal law gives homeowners taking out a home-equity loan, mortgage refinance or reverse mortgage a "right of rescission," the AARP states. That means you have three business days--including Saturday--after closing on the reverse mortgage to cancel the deal with no penalties. You have to do it in writing, whether by fax, telegram or letter, and it must be delivered to the lender by midnight on the third day.


Negative Aspects of Reverse Mortgages
http://homeguides.sfgate.com/negative-aspects-reverse-mortgages-9349.html

Quote:
To qualify for a reverse mortgage, the senior must own the home free and clear, the federal Department of Housing and Urban Development states. If the home still has a mortgage, the owner will have to pay it off at closing, cutting further into the proceeds of the reverse mortgage.


Quote:
Owners can receive reverse mortgage payments in several forms: a lump sum, a line of credit, monthly payments or a combination. In any form, if the money isn't spent immediately, the remaining money will be counted as an asset if you're receiving or applying for Medicaid, according to Investopedia. As an asset, it could affect your Medicaid payments.


Quote:
If an owner has to move out of the house for a certain period of time--to a nursing home or a hospital, for instance--that absence could be enough to trigger the repayment requirement, Investopedia states. With an FHA reverse mortgage, the owner can spend up to 12 months in a nursing home without the debt coming due.


Quote:
If a homeowner dies, his estate will have to pay off the mortgage, plus the interest, Investopedia states. Depending on the size of the debt, that could require selling the family home instead of passing it to the heirs. However, if the sale of the house doesn't cover the mortgage debt the heirs cannot be held liable for any more money.


Cons of Reverse Mortgages
http://homeguides.sfgate.com/cons-reverse-mortgages-2280.html

Quote:
The allowable loan amount for a reverse mortgage varies based upon numerous factors, including the age of the borrower, the appraised value of the home, the home's location, and the current interest rate at the time of the reverse mortgage transaction. A borrower must be 62 or older to complete the transaction, however, the closer a borrower is to age 62, the smaller the percentage of the house's value he will be able to borrow. For example, a homeowner who is 62 would be eligible to borrow only $99,749 on a $250,000 house, versus a homeowner who is 80 who could borrow $145,029 on a $250,000 house. Additionally, if the home has a traditional mortgage, that mortgage must be paid in full from the proceeds of the loan, leaving the borrower with even less equity to use for other purposes.


Quote:
If a borrower's monthly income is increased by a reverse mortgage, or she deposits a large lump sum in her bank account from the proceeds of the loan, she could be disqualified from receiving Medicaid benefits. A senior citizen who has more than the allowable assets as a result of obtaining a reverse mortgage may lose eligiblity for nursing home care. It should be noted, however, that Social Security and Medicare benefits are not affected by a reverse mortgage transaction. Potential borrowers must weigh all the options before procuring a reverse mortgage. Federal guidelines require that all borrowers looking for reverse mortgages go through a basic course on this loan product to learn all the pros and cons prior to finalizing a loan.


Common Mistakes With a Reverse Mortgage
http://homeguides.sfgate.com/common-mistakes-reverse-mortgage-2296.html

Can a Reverse Mortgage Be Short Sold?
http://homeguides.sfgate.com/can-reverse-mortgage-short-sold-60903.html

Complaints About Reverse Mortgages
http://homeguides.sfgate.com/complaints-reverse-mortgages-3096.html

Quote:
Equity Loss
A reverse mortgage is due in full when the last borrower dies, sells the property or no longer is able to live in the home. All or part of the home's equity is tied up by the reverse mortgage. A borrower who needs to sell his house due to financial issues, such as medical bills from a serious illness, may not get any money from the sale of the house due to the reverse mortgage. The heirs of a deceased borrower can end up in the same situation, and have no way to get money from the sale of the house to pay the expenses of the estate.


chai2
 
  2  
Reply Wed 27 May, 2015 09:45 pm
Butterfly is on the right track. I think reverse mortgages can be very useful if you are no longer married and have no heirs, or your heirs are fine financially.

0 Replies
 
farmerman
 
  3  
Reply Wed 27 May, 2015 09:58 pm
Thank you. These are all great insights, and bsed upon expperience, they are gold.
My wife's uncle really doesnt need the additional income drawn in something of this complexity. He has a "girlfriend" who is as old as me (shes like 63) and he takes her on maybe 3 trips per year. They recently came back from "the Holy Land". Im going to try to talk him into just selling his hole outright, downsize and look at a small row home in the city or else rent an apartment.
That way his money will be covered under a single time deduction (Im sure the house is under the amount allowed), and he can invest it and use it for whatever he wishes.
glitterbag
 
  1  
Reply Thu 28 May, 2015 07:40 am
@farmerman,
I really haven't checked out reverse mortgages carefully, but the phrase that always haunts me is "you can keep your house for as long as you live there". That sounds so benign, but what happens if you have to be hospitalized, or if you need 24 hour round the clock physical therapy in a rehab facility?

But, honestly, Im a worst case scenario wussy when it comes to money issues.
chai2
 
  1  
Reply Thu 28 May, 2015 08:00 am
@glitterbag,
One of butterfly's quotes covers that glitterbag, see above.
glitterbag
 
  1  
Reply Thu 28 May, 2015 08:19 am
@chai2,
You are correct, I did read Butterflys note, thats the kind of term that would make me lose sleep.
farmerman
 
  1  
Reply Thu 28 May, 2015 08:43 am
@Butrflynet,
what do you think of the idea to try to see whether selling his house an pocketing the money. Its not "keeping" his home where he and his wife lived . I dont think hes that tied to the house, and hes a really good photographer so his "memories" with is deceased wife and son (who was killed in a plane accident yers ago) are intact as long as he can look at the pix.

He still says that he can "Smell" his wifes perfume in the house .
chai2
 
  1  
Reply Thu 28 May, 2015 10:15 am
@farmerman,
How long ago did his wife die? Just curious.

If he's not attached to the house, might be better to just sell it and get something more manageable.
chai2
 
  1  
Reply Thu 28 May, 2015 10:15 am
@glitterbag,
glitterbag wrote:

You are correct, I did read Butterflys note, thats the kind of term that would make me lose sleep.


A year?

I think if you're not ready to go home after a year of therapy, you're not going to.
farmerman
 
  3  
Reply Thu 28 May, 2015 02:07 pm
@chai2,
Quote:
might be better to just sell it and get something more manageable.
I talked with him earler today. Hes more concerned about the hssle of his time in selling, disposing of stuff, and then moving.
I said Id help out (Robert Service where are you now that I need you>)

SOOOO, we may already have a way out of this . Just letting him feel that hes not in it alone, has helped.

He really doesnt need any additional money,he owned and ran three businesses which he sold to his employees and made out pretty good . He was always fixed for life with plenty of "**** you" money. SO what he really needs is the sense of some kind of commitment. AND, weird as it may be, the reverse mortgage would require him to live out his life in the house . He already has a part time housekeeper and he rarely eats at home. When his girl frien stays over she likes to cook.

I think we were dealing with a gerontological problem , not a financial one.


roger
 
  1  
Reply Thu 28 May, 2015 02:55 pm
@farmerman,
Probably. I look at disposing of, or moving possessions to a new home and just cringe. Most of it isn't worth the cost of moving and rearranging, but would cost a fortune to replace. Not to mention the prospect of tossing something that I would need just one more time.
farmerman
 
  1  
Reply Thu 28 May, 2015 03:59 pm
@roger,
Thats the thing with her uncle. Hes got years of actual MOVIES and photos all framed beautifully. He also collects old firemens helmets.
He keeps telling me that he think "Im worthy of inheriting all those helmets" and I aid that I plan to die before him.
So apparently, my wofe doesnt know that shes being fit out as a fire helmet repository.
farmerman
 
  1  
Reply Thu 28 May, 2015 04:01 pm
@roger,
Off the topic but, was just now thinking, I have a big radial arm saw and a SHAPER. (I have no idea why I bought the shaper, there are some people who should n0t be given any large amounts of disposable cash.
Butrflynet
 
  1  
Reply Thu 28 May, 2015 04:01 pm
@farmerman,
Things I would be concerned with regarding your uncle:

1. Would he be able to easily adapt to new surroundings, new neighbors, etc. or would he have adjustment problems with that? Would it be worth the mental anguish for him?

2. Would he still be near his familiar support services and medical services? Would he be familiar with grocery stores, drug stores, etc., and if he isn't driving, would he have transportation to these places?

3. What about the safety features? Unfamiliar stairs, walkways and other obstacles could pose a problem for someone with mobility issues.
0 Replies
 
Butrflynet
 
  1  
Reply Thu 28 May, 2015 04:05 pm
@farmerman,
I bet you could find a firefighter museum or historical society that would be interested in those helmets.
 

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