Is a reverse mortgage a good idea?
My friends own a small farm with a modest home and a barn but it is in an area where many fancy housing additions are going up. Their Social Security checks are very small and they have no other monthly income or savings accounts. Up until now they have held part-time jobs but health problems won't allow them to work any longer. Both are in their late 70's and they need more income. Would a reverse mortgage be a good idea for them?
They have adult children who would like to buy the farm if the parents will hold the mortgage. I have doubts that they could/would keep up payments to their parents.
I should add that they do not want to sell their property and move out of the home they have shared for years. I had already suggested that they sell it and move to comfortable low-income senior housing in our community.
- Diane MLv 71 decade agoFavorite Answer
A reverse mortgage works for some people and not for others. It depends on the appraisal value of the house and their age. You can either take the money as a monthly stipend or you can leave it as a line of credit to pay large bills for medical, taxes, insurance etc. Right now the interest rates are low so its a great time to consider one. Of course all the costs (including a small monthly handling fee) are added to the amount which will be due in the end. They have to pay nothing back until the last spouse dies or moves out of the house permanently for 12 months. At that time whatever has been taken out of the loan is due, the home is sold and the estate gets anything left over. If people want to qualify for income based services, I usually advise them to leave their money in the line of credit so it doesnt affect their monthly income and disqualify them for services. They have nothing to lose by talking to a person about a reverse mortgage. I would just caution them not to sign anything unless they are comfortable. Two of the largest and most reputable companies that do these mortgages are Financial Freedom and Wells Fargo.
- 1 decade ago
First off, I'd caution you and your friends that not all companies that do reverse mortgages are equal. There are some scams and also some very high interest rates. Be sure to check with HUD (US Housing and Urban Development) for a referral to a decent company.
I've heard good and not so good things about reverse mortgages. These mortgages can provide needed cash and allow a person to stay in their home. However, people need to be careful about things like how much they take out, appraisals, interest rates, how much equity they have, can they maintain their homes with the money they will be getting....etc.
Here is link to more information:
Reverse Mortgages for Seniors
- !truth!Lv 71 decade ago
I suggest a real estate attorney be consulted as to how the children can buy the farm as contracts will be required to assure the children of making payments. I am a little amazed that the children are not helping out their parents knowing that when their parents past away, the farm will be theirs anyway, assuming that the parents are planning on leaving the farm to the children. Many legal questions need answers and a lawyer will certainly be needed.
- Cheryl PLv 51 decade ago
The reverse mortgage may be the ideal situation with this couple. Have them discuss this with their bank. In many cases, the "mortgage" can be redeemed by heirs upon the passing of the parents. The banks are inundated with properties right now, so they really don't want to end up with the actual property at the end, and would probably extend, to their heirs, a conventional mortgage on the property.
- How do you think about the answers? You can sign in to vote the answer.
- closetcoon_fanLv 51 decade ago
I'm sure the kids wished their parents would soon "buy the farm".
In all seriousness, I don't think a reverse mortgage is ever good. I would suggest to try and just live on the Social Security and ask some of the kids if they could help out once in a while.
- Allison SLv 61 decade ago
A reverse mortgage would give them the cash they need for living expenses while keeping a roof over their heads. It is precisely for people like your friends. And you are wise not to further the cause of their kids if you have any thought that they might not make the payments to their parents. It is more important that the parents be secure for the rest of their lives.
- antiekmamaLv 61 decade ago
a reversed mortgage is good idea for some. I checked it out, it is not cheap. Closing cost I was told was going to be around 8000. Then when you pass your heirs have to either pay back all you used at a certain % interest or the place will be sold at the lenders discretion. If you do not care what you leave for your heirs that works out OK. In my situation, my 3 kids, all struggle and I would like to leave them something. My house is paid for but the reverse mortgage is too costly for me and my kids.
- Anonymous1 decade ago
My late ex-mother-in-law took out a sort of Equity Release for £16.000. The property was worth about £66,000 at the time. She was being cared for by her son. She died 5 years later and the bank insisted on the house being sold even though it was the family home of her only son. He found out that the property had gone up in price to the tune of £180,000!!! The bank wanted not only the £16,000 but also 75% of the rise in price. This gave them almost £100,000 for a 5 year loan of £16,000!! Nice way of high street robbery!! My ex-husband was not only grief stricken over the death of his mother but he had to sell the house to pay the bank. He could only afford a mobile home with what money was left and within a year he was also dead.
Please tell your friends to think long and hard before they sign anything and to seek good honest financial advice.
- Anonymous1 decade ago
yes it would work for them -- at least they can live a debt free life for the remaining years == parents do not owe there adult children anything -- --- there is one other option they could just keep the area around the farm say 500 sq feet and sale the rest to a developer!!!
- Anonymous1 decade ago
I have heard about this.....and from everything I have heard....this is a bad idea. People look at immediate gratification but sometimes the mess left to clean up after you die is filled with greedy people and rip-offs.
Hate to say it but kids many times are looking at what they'll get...parents are looking at what they can leave....and the middle man making sure neither one gets it.
Heck they are even starting to rip off all those who pre-planned and pre-paid for their funerals. Any of these gimmicks are good for awhile.....but about the time they see people are getting ahead....they change the rules.
You want to help your kids? Do it now. If you love your parents.....don't be asking them to sacrifice their retirement for your "cut".
I hate to be crude....but once you turn 21....you can't then expect your parents to fund your retirement when theirs is in jeopardy. My parents left me with a huge headache.... I never wanted, never asked for and never expected. But they loved me and wanted to. They didn't know 1/2 of everything was going to lawyers and everything and it's made my life a living hell.....trying to be thankful and greatful and respectful because of all they did......and getting 100% responsibility for something I never wanted to begin with.
Use your funds to protect and finance you and protect yourself at every move because kids can and do put their parents in horrific situations just so they succede. Not to mention you may end up asking them to make sacrifices you never wanted for them or never imagined they would have to do.