Anonymous
Anonymous asked in Business & FinanceRenting & Real Estate · 10 years ago

Reverse Mortgage, Good or Bad idea?

My Parents are in their 70's, have a house worth $100,000 and owe about $50,000. They have heard good things about Reverse Motgages. My initial reaction was "No Way! Don't just give up your house to the bank..." but I wanted more information on the process and if it will help them out...

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  • 10 years ago
    Favorite Answer

    You want to get it through a reputable mortgage lender. I'd be very worried about the fine print. The AARP has good advice on this.

    In general it seems like a good idea. You've spent your life building up equity in the house. You might as well spend that money, but you don't want to move. So you sell your house to the bank, who has a contract to let you live there as long as you want. (That's why you'd better make sure it's a good lender, who's not going to screw you at a bad time.)

    If you don't want to sell the house to the bank, you can take a Home Equity Loan, which is similar: they loan you the money in exchange for a lien on your house. With the home equity loan you have to keep making mortgage payments, and with the reverse mortgage they just send you money. The Home Equity Loan requires a lot more management on your part, but you keep owning your house. The loan eventually has to be paid off, and that usually comes when they sell the house. If they live a long time... well, that can become a problem.

    Shop around for the cheapest reverse mortgage. There can be considerable up-front costs and you want to minimize those.

    Once you've got it all set up, though, your parents get their money and can really enjoy their retirement.

    Of course every dollar they spend is money you don't get in inheritance, but I say, good for them. Blow the wad. You only live once.

  • Anonymous
    10 years ago

    The costs for reverse mortgages have dropped DRAMATICALLY over the last few weeks. Most lenders have eliminated the fixed rate servicing fees as well as dramatically reduced (even eliminated in some cases) the origination fee. Fixed rate products can be found with interest rates as low as 4.99% in some cases as well.

    Definitely check into the product further and get a quote from a respectable lender or broker. You may be pleasantly surprised at the numbers. These loans are becoming much more affordable and pricing seems to improve every week.

    If your parents were going to take out a fixed rate product, they could eliminate their current mortgage rates and probably receive additional money in a lump sum. There are many other payment options besides just the lump sum distribution.

    If money in their pocket is more valuable than continually shoveling it into their home mortgage payments every month, I'd suggest you look into it further.

  • 10 years ago

    Depending on the financial status of your parents, this might be a great idea for then. You are not giving up your house to the bank. The bank is lending them money that they will never have to pay back and they may remain in the house as long as either one remain live.

    There are fees and points that are required in order to get a reverse mortgage. You must pay for a FHA appraisal. If the house need repairs then you would need to make the necessary repairs prior to an approval.

    You indicated that there is a current mortgage on the property of approximately $50,000. This mortgage would have to be paid off in this transaction. Once any liens and all fees are paid off the remainder of the funds become your parents.

    They may collect the remainder of the funds all at once or in monthly payments. It is their choice.

    Now once they are no longer with us the mortgage lender will claim the house. If the heirs or any other relative would want to keep the house, they would have to pay off the reverse mortgage by getting a new mortgage or pay cash.

    You might consult a local lender that does reverse mortgages. Though this is not a recommendation, Wells Fargo is a front runner in doing reverse mortgages. You will find others in your local telephone book or you might google reverse mortgages followed by the city in which you reside.

    (I, nor any of my relatives work for Wells Fargo nor do I have an financial accounts with them.)

    I hope this has been of some benefit to you, good luck.

    "FIGHT ON"

  • Anonymous
    10 years ago

    It completely depends on the situation of course. The National Association of Realtors has a division called Information Central where employees gather resources on various topics and call them field guides. They have done a field guide on Reverse mortgages in the past. Some of the information is open to the public, but some requires username/password (through membership). Even with the passworded information, your public library could probably get you the remaining articles if you printed out the field guide and showed it to them.

    http://www.realtor.org/libweb.nsf/pages/fg312

    Hope this helps!

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  • 10 years ago

    It won't work in your parent's situation. The value of the home is only $100K. Your parents can perhaps initially obtain maybe 65% of that value in a lump sum. After paying off the existing $50K lien, there's about $15,000 left. Out of that, origination fees and the like will whittle that $15K to about $8K. So, your parents will end up with $8K when all is said and done, hardly worth it.

    Reverse mortgages are really beneficial only where there is significant equity (e.g. $150K +) in the home.

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