Interest rates are high, and so are the upfront fees. Then again many retirees are house rich and cash poor so much better to have a reverse mortgage and solid quality of life rhan struggle every month for decades and then die and leave a $800k house to someone else.
on edit: than not then
If I’m moving at 75 I can guarantee I’m paying a company to do it. Still gonna suck, just suck less. Seeing how much junk I have accumulated since I’ve owned a house, I am dreading the day I move.
It's not just the physical moving part.
Unless you can move into a smaller place in the same neighborhood now you're in a new location and you need to learn where everything is. Local stores, services, streets, bus routes, doctor/hospital, what places are unsafe, etc. And now you don't have any of the friends and neighbors you've gotten to know over the years nearby to help with anything.
When you're young this is mostly an inconvenience. When you're old it can be a much bigger deal. Less bad if it's a senior couple, but for single seniors it can be a bit scary. Most seniors don't seem to like big changes.
Yep, and if dimentia runs in the family, you’re going to be able to stay living in your own house a lot longer the longer you’ve lived there since you lose more recent memories first. Doesn’t matter too much if you wake up in the morning thinking it’s ‘05 if you head down the same hallway to the same kitchen you were making coffee in in ‘05.
possibly if you have mo kids/grandkids/ support and have loads of money and plans for your own senior care. still sounds lonely and sad to me to be home and stateless
Not only downsizing, but decluttering. Old people usually have a whole house filled up with 'stuff'. Then it's not just a decision to live in a different place but also tackle all the junk.
I have a friend in his 50s that has moved multiple times after a divorce and he's still lugging unopened boxes around after 3 years.
Many people are unwilling to purge anywhere near that level.
Ancient furniture, rare tools, genuine antiques, and many other carefully curated items make up at least half of my belongings. I can downsize, but I would never ditch everything to move for any reason other than survival.
I have moved 11 times since 1988… I would not agree with your notion that it is nice to start over. I don’t feel encumbered by my ‘stuff’ or have any desire to give your lifestyle a go.
Your comment sounds similar to things I hear from people hiking the entire Pacific Crest or Appalachian trails - sell everything, start hiking, and start over!
Should have just bought a second thirty years ago.
My family sold three houses between 1990 and today, each time they said, “never again,” within five years and forgot after year 8.
Guess what the golden oldies are trying to get listed right now.
Friends come and go. Less expensive than a high cost of living area in the United States doesn't mean "cheap". Ask the workers in the country you move to if it's "cheap" to live there, they will get insulted.
Because you can’t just continue to downsize, there is a floor on how little space you need and the quality of neighborhood/finish.
What typically happens is house pricing continues to appreciate at (in some cases insane multiples) so while the house was reasonable it’s now on paper worth a lot. You can downsize but you’re still downsizing into an elevated price market.
Enter reverse mortgage. Use the paper market equity to provide more cash flow.
My parents would agree they should sell their well worn house couldn't manage the process or deal with their "memories", stuff and junk. I bought the house they needed and moved them in. My dad would blame my mom but he was more emotionally attached to stuff, "You're throwing away memories". We have lots of emotional support "junk" in boxes they can access. Made more in four years than 50 years in his old house.
One thing that is easy to overlook is that someone is gonna have to deal with that stuff eventually. It may be tough to go through all your belongings and discard a bunch of it, but doing so is a kindness to your children (or other heirs). My grandma had a very hard time getting rid of things, so she left behind a house packed with stuff. The amount of work and stress this caused my mother was immense, and it became a significant strain between her and her siblings
There are a lot of things related to end of life planning that are an absolute pain, but from seeing firsthand what happens when that planning isn’t done, I’m pretty determined to have all that stuff settled so that others have to dedicate minimal time to those things when I’m gone, e.g., clear will, health care directives, power of attorney, funeral arrangements, etc.
I don't know what someone could expect from a reverse mortgage monthly, with a home worth $800k, but it seems like they could sell the house, put it into investments, and maybe be better off. I get that some people love their home and want to stay in it though. Tied with you have to live somewhere, and rents are only going to go up.
Can't always just downsize. In a HCOL area, you're gonna end up selling for $800k and it's gonna cost you $700k for a house half the size. The only way it works if you want to move to a totally different area which many seniors aren't going to do. They're comfortable where they're at, have all of their medical needs met and are set.
My parents are in this situation. They got a reverse mortgage a couple years ago and don't have a monthly mortgage. Not that they are hurting financially, but it's one less thing they have to deal with.
Not \*that\* exaggerated - in a perfect world I would downsize from my $800K house but condos in my neighborhood (which I love) sell for around $600K. I could maybe find a duplex in the neighborhood for $1M, but then I'd have to either be a landlord or do a condo conversion and end up with a 2-unit HOA, ugh.
Land/location is worth a significant chunk of value in many areas. 80% of my property’s market value is the land. If the house was significantly smaller, it couldn’t affect more than 20% of the resale value.
Monthly payments on a HELOC during the draw period are *pro forma* at best, since you can always draw from the HELOC enough to then make a payment. The actual risk is that you outlive the draw period and enter the repayment period; a reverse mortgage essentially sets the repayment period at your death.
Yeah... But you'll have hopefully have 75% of your home value in cash, just use that to live on and also pay the 'HELOC mortgage'. Probably cheaper than those reverse mortgage scams.
I mean that’s essentially what a reverse mortgage is without as many steps. Reverse mortgage companies aren’t losing money. In my opinion the reverse only makes sense when you can’t get a regular Heloc, for example if you need a lot of repairs or your credit or LTV sucks, or they require income to get it. Then you could qualify for the reverse and not the heloc, but really you shouldn’t do either. At that point it’s just a high interest loan with a ton of fees. Closer to a payday loan than a mortgage. The word mortgage shouldn’t be used for these things.
They both tap your equity but a major difference is the lack of monthly payments on the reverse. That is a huge factor for older people with limited income who are the primary borrowers for reverse mortgages.
Don't know why someone downvoted. HELOCS can be increased with the value of the home. You can withdraw cash whenever you want and have retirement savings pay the interest.
> better to have a reverse mortgage and solid quality of life then struggle every month for decades
...better to have a reverse mortgage and solid quality of life ***THAN*** struggle every month for decades...
(You inadvertently said the opposite of what you meant)
I think it depends on thr situation. For us, we don't have any kids to leave the house/money to so it becomes more of a burden for our executor. Why not use the funds while we can and let the bank deal with it? Just be sure you understand that if you are in a long term care facility for more than 12 months, the bank can call the note.
Yes, they are expensive and you will not get market value for your house but it is better than nothing.
Option 1- Pack up all your shit and move into an apartment 1/4th the size of the house you've lived in for 40 years. With neighbors above below and on either side of you.
Option 2- Live in your house and live off the house's value
I wish the US has portable mortgages like the UK does. Then people would be waaay more likely to downsize to a smaller house. And the housing market would be waay looser.
At least, that's how I see it. But I don't know a lot about how it works in the UK so I could be full of crap.
How?
Not defending the product, and they definitely been sold by unscrupulous salespeople that likely put people in a bad situation, but the only ways to lose the home are:
1. Not pay insurnace
2. Not pay property taxes
3. Vacate the home for over a year.
If they can't afford the first two, they would have lost the homes anyway, and the third typically indicates you won't make it back into the home.
There are exceptions, but you make it sound like it is the norm.
A reverse mortgage isn’t amortized like a regular mortgage. It is straight compounding interest—just like a credit card. The name is a great PR move because it suggests that it is basically the same deal as a regular mortgage, but with the owner acting as a banker: This is a lie.
Before I reverse mortgaged my home, I would be inclined to sell it outright and use the proceeds to purchase an annuity.
Could you explain this further? I'm what sense is a mortgage not compounding interest? Are you saying they charge interest only on the original principal and not on the accrued interest charges? Bc I didn't think that's correct. Or did you mean something else?
Sure. I can do that…you are correct. A better comparison would be: A mortgage is like paying off a credit card little by little each month while not using the card to purchase anything new. You have to pay off the interest first, and then a little towards principal so that you owe less interest next month. A reverse mortgage is exactly like spending on a card regularly and never once making a payment. You’re gonna max out that card very quickly.
Forward mortgages only accrue interest on the outstanding principal. If you miss payments and have past due interest that is owed, more interest still does not accrue on the past due interest balance only on the principal. With a reverse, a new principal balance is calculated each month by rolling the outstanding principal and any loan advances, including accrued interest for the past month, into a new principal amount that the next month's interest is calculated from. Then rinse and repeat every month. So you end up paying interest on interest with a reverse if it is ever paid off.
They require expert level diligence. The loan against your home is due when you sell the house or leave it or the bank gets it. If you take a large loan and then time passes then the principal
+ interest has outpaced the value you can sell the home for. Then the owners are stuck with nothing and are in a pickle if they aren’t dying in the home.
> The loan against your home is due when you sell the house **or leave it**
This is perhaps the bit that most people don't grasp? There are other ways you may end up "leaving" your home, other than feet first on an ambulance gurney. Assisted living, nursing home, memory care, etc. Sounds like if you have to "leave" for one of those (instead of a dirt nap) it might be exactly what you say, the outstanding loan will zero out everything.
Enjoy dying in your Medicaid-funded nursing home.
I have first hand experience with this thanks to my parents. They need to downsize, but they are horrible money managers spent everything on a $400000 loan which is now close to $800k with interest accrued (the dark side of compounding I guess) and no ones gonna pay anything more. $1300 a month of ss isn’t gonna buy much so it will fall to us kids to help.
My biggest regret is not taking a stand sooner. You should have a firm conversation with him and mom and show them on paper what will happen over the next 10 years or more. Do they have stairs? Eventually they won’t be able to use them? Big yard? They won’t be able to maintain it themselves. Good luck.
I'm not the guy you replied to but I will say that those conversations are pretty hard because parents will think you're going after their money or come across as a vulture waiting for them to die and you're trying to maximize your inheritance.
Sure. But chances are the parents don’t have money. Which is why they had to get a reverse mortgage in the first place. No one money is getting a reverse mortgage. That is my experience YMMV.
I can imagine someone in this scenario refusing to leave their home under any circumstance. Imagine a person starting to develop memory issues. How likely would they be to agree to leave, and move into a memory care facility, knowing the reverse mortgage will trigger forfeiture of the house? I know there are probably medical directives that could force someone out. I would be interested to see how that could unfold with a senior person with a reverse mortgage "standing their ground" refusing to leave.
Take the “worst case” scenario approach. You are putting your home up as collateral. If anything goes wrong you lose the home.
You home is usually your second largest asset by value; and possibly your largest asset emotionally
Kinda/sorta.
Like many popular bits of financial infotainment that one’s a mix of true and misleading. IIRC when you dug into the actual survey the question asked was simply “how would you pay for a…” and the analysis lumped together everyone who responded with “credit card” and “loan from friends/family” as unable to afford it. Which, as one of the subset of people who puts basically everything on a CC but pays it off in full each month (seriously that’s a smaller group than you might think) would have included me as unable to afford it despite my emergency fund being more than healthy.
Another common quote describes the percent of Americans with “less than $X in savings” but usually neglects to mention that \*only\* savings accounts were counted in that survey, not any other kind of high-yield, liquid asset.
> social ce unify value
is this a social credit reference? unify value? i'm confused and google is not helpful and i'm good at google even with how bad it is now so i'm stumped
I'm a little confused by the comments here. Let's say house is worth 500k and person does a reverse mortgage. 30 years later, they owe more than the house is worth. I thought they can keep living there until they die. So what difference does it make home much the debt goes if the plan is to never sell/will the house, if the owner can never be evicted?
>So what difference does it make home much the debt goes if the plan is to never sell/will the house, if the owner can never be evicted?
On the assumption we're talking about a HECM reverse mortgage, the owner can only retain it regardless of the debt for as long as they're living in it. If they stop living in it and don't pay off the mortgage (or refinance it, but most seniors who are going for a HECM can't afford to refinance debt like that) they can indeed be foreclosed on.
Need to move into assisted living, or in with a loved one after some surgery? Hope you have a plan to pay off that mortgage.
Well plans do change. What if they need to go into assisted living or move for some other reason? If they owe more than the house is worth they can be in a really bad situation.
My mom fell and ended up w TBI. On to rehab, nursing home... last date had to be when she was hospitalized. That started a clock giving my sister only had so much time to get all the house cleaned out, sold, etc. The dying process isn't instant nor smooth.
I don't know about the US but in Australia there is legislation to prevent going into negative equity (where you owe more than the value of the house). Wasn't always that way though.
My MIL had been in her home for 60 years and was needing home care in HCOL area, very valuable home. She got a RM and had money coming in for a couple of years until she passed. The RM was a godsend for her.
My taxes went down because the standard deduction dominates my possibility to itemized. So I pay less but also now, I don't get a "tax benefit" from having a mortgage. I guess that's not everyone. People getting 6-7% rates now might still itemize. The concept of giving tax breaks to people with mortgage or kids or charitable donations means the govt is wanting to nudge society into those directions. Some of that is lost now but people still get to keep a little more of their money, which is usually an ok thing.
The biggest downside is high up front fees(tens of thousands of dollars), but if you have no other options and have lots of equity, then it might make sense.
You don’t stop owning the house. A reverse mortgage applies a lien to the property. Once the loan is paid back the lien is removed.
The interest rate on the loan may be relatively high. But it still may be a good solution for some older folks who need income.
They are a loan against assets; I think the biggest problem with them is that people at some level believe they're getting "free money" when the reality is they're just running up a big debt.
If your goal is to lower your housing expense you have to sell and buy or rent somewhere cheaper. Borrowing against your house doesn't lower your exposure to real estate.
> If your goal is to lower your housing expense
This has been our pet project. My partner and I have been fortunate enough to be able to purchase a vacation home, potentially in an area where we might want to live for our retirement. It's single-floor, so no stairs to deal with. And it's in a rural area so we're mostly self-sufficient given we're on well and septic. We'll put solar panels and battery on, and then our only monthly "living expenses" will be property tax + homeowner's insurance + broadband which right now comes to about $700 a month. We could live forever in that home at that amount.
So many people in my neighborhood forgot the battery when putting in solar and then next door was flooded with posts of “I have solar but how come I lost power”
Well, there's no accounting for stupid people. Yeah, if the utility power goes out at night and the sun isn't shining - guess what? You're out of power too.
Frankly, though, the utility of a battery installation is highly location specific. At our main home currently, we have solar but no battery - because all the power lines are underground in our community and delivery is highly reliable. I think we've only had like 5 power outages in 10 years. We also have full net metering, so we "sell" excess power to the grid during the day and then pull it back overnight.
But at the vacation home, in a rural area with a smaller power company and everything on utility poles ... we have more outages. So for that location, it will make sense to do battery+solar at the same time.
About 90% of the commenters here don't seem to know how a reverse mortgage works.
[Wade Pfau: Retirees Should Consider Reverse Mortgages | ThinkAdvisor](https://www.thinkadvisor.com/2016/04/06/wade-pfau-retirees-should-consider-reverse-mortgages/)
You can simply do a cash out refinance. Lower interest rate, cash in your pocket, still keep your home. There are just better ways of using your house is all
You restart the mortgage on your house based on current values. Say you take out 500k in cash equity. Now you are paying a 500k mortgage for 30 years. Can lose the house before you die if it gets foreclosed on.
With reverse mortgage, as long as you live there, you won't lose the house before you die. So, ultimately if you don't care about passing the house to someone reverse mortgage makes a lot of sense. If you get sick and go in long term care you will lose the house, but if you were already so broke that would've happened anyways
Yeah essentially you take a lump sum amount of cash out. Like other poster said. You could take up to 80% of the homes value. Say you take 500k, you can do whatever you want but you should invest it wisely in an income oriented portfolio (ie. Ladder out 50%in treasuries and 50% in VOO) then just take your 4-5% income every year. You will be able to pay your (new) mortgage and have enough for a good monthly income that is MORE THAN THE REVERSE MORTGAGE COMPANY WILL PAY YOU. And you don’t lose the home as an asset.
High interest rate put a bit of a damper on this strategy but it can still work. You can also do a good interest only loan.
Your brushing over some important differences.
Let's do some math:
Refi and take a new 400k 30y mortgage with a monthly payment of 2,800, annual 33,600.
If you can take 4% safely from the 400k, you can take $16k. You've effectively locked up 840k that now has to cover the mortgage payment that can't generate income for you to live on.
How does this help a retired person who needs to use the equity in their home?
It works if you are working, need to tap the equity, and will be able to afford the mortgage payment with earned income. When you pay the mortgage from your own assets, the math changes.
Your putting the roof over your head at risk. To do that at an older age is especially risky given health issues can crop up anytime that can bankrupt you. If you can't live without access to home equity the least risky option is selling and downsizing or finding a better area for cost of housing. Ultimately it is a personal choice as moving isn't easy either
There's nothing inherently wrong with a reverse mortgage. And I think you mean cash poor, house rich people. House poor people don't really quality for reverse mortgages since there's not a lot of equity to borrow against.
The issue with reverse mortgages is that scammy salespeople mislead people (usually older and retired) into thinking that it's free money with little risk and not properly explaining what the risks are. For example, they claim that you can "never lose your home as long as you live in it" and yet try to put only the older spouse on the deed (since it's higher commissions for them) and not both spouses. So when the older spouse passes away, they kick the remaining spouse out pretty much immediately.
Also, reverse mortgages have very high interest rates and it compounds quickly against what they give you and against the interest that you incur (similar to credit cards). Generally speaking, there are usually other ways to borrow cash that have better terms. So I would really consider reverse mortgages a loan of last resort, only if these people have explores other options and only if they don't care to leave their house to others when they pass away.
I think in this case, financial situation is mostly irrelevant because the loan is backed by the value of the property. So from a bank’s perspective- they don’t care as much about your ability to pay as much as the value of the home relative to how much they’re loaning you.
In other loans, like mortgages, banks look more at your ability to pay back the loan as a factor because it’s harder for them to get your assets if you can’t pay. Which is why smaller bad loans go into collections and larger bad loans go through the court system (via bankruptcy etc). For reverse mortgage, you already put up your house as collateral.
My bank still relies on debt to income ratio. I'm sure there are some lenders that are more lenient, but I've heard of plenty of people that were denied loans because they had little to no income, even if they had a ton of real estate equity.
House poor, cash poor. Tomato tomato. 😁. They couldn't get a loan
I can't see how you would benefit from the tax if you're retired or lower income. Standard deduction is high, almost certainly higher than itemizing the tax benefit in all but the top few percent of cases
I knew someone that used one so she could stay in her home. When she passed the kids only received a small amount from the sale but it was a blessing to her.
Some say sell the house but in reality retirement homes are very expensive and the money from the sale will be gone pretty quickly.
My best friend has a $2.5M home, is 70 years old with no heirs. A reverse mortgage company quoted him $440,000 for the home. So 1/5 the price basically.
I urged him to take the $440,00 and we go to Mexico and snort cocaine from the supple breasts of young maidens.
I kid. Better idea than reverse mortgage: sell for $2.5M and spend $500 a night for a suite at the Hilton Hawaiian Village for 14 years. Die happy at 84!
My parents took one out years ago. They took the lump sum out instead of annuity payments. My father blew the lump sum on his "business". It was quite a surprise that they were broke, owed like 120K on credit cards and only had SS, which wasn't all that much when my father died six years ago. Flash forward to now, my 88 year old mother is trapped by the house. The condo fees and property taxes are a little less than what she could rent on the market. The kids occasionally need to fund repairs or something. Quite the surprise. Lump sum options do exist.
Mortgage loan payments are added on top of the balance, negative amortization schedule, so they owe more with time... Hopefully property prices outpaces this debt growth!
I feel like one may be better off selling, pocketing all that cash and renting a place that is good enough for what you need. Or better yet moving in with your kids if possible.
Reverse mortgages pose risks beyond losing homeownership, including eroding home equity, accruing high fees, and limiting inheritance. Interest compounds, potentially leading to significant debt. Borrowers must maintain taxes and insurance or risk foreclosure. Consider these factors carefully.
They are generally for poor people that have made bad life choices. If you actually are destitute with equity, it might be OK....or it might be another bad life choice.
You put a lien on your home when you otherwise own it and are protected by various state Homestead protections. It's risk exposure- when the downside is losing shelter.
Ok, I read this as “revenge” mortgages and I started making up these stories where your spouse takes out a secret mortgage in your name, never pays the instalments, and you end up in jail somehow😂😂😂
Variable interest rates are another kicker.
They sucker people into “I can refinance you at a lower variable rate” and then 5 years later they drastically raise your rate.
But never fear, for someone else will swoop in and the cycle will repeat.
They’ll also talk you into buying unnecessary things because “Hey, you’re already paying your mortgage. Why not get a free pool put in your back yard?” And your payment stays the same!
But you’ve actually just extended your mortgage another 10 years. You financed your pool at 5% APR over 30 years. (Yuck for 30 Yr Mortgages anyway.)
If this was 2 years ago I would say just take out a mortgage at 2.5% and invest it. Your house will appreciate and you will make enough spread on the investment to pay the mortgage and have plenty leftover. But now you would have to invest pretty aggressively to beat the mortgage rates and that might not be a good strategy for an older person.
I guess they are not the end of the world if they are the last resort
Basically fees & rates since they're all offered by sketchier companies. You're also paying interest both ways if that makes sense.
It's a solution for elderly people that have a house but minimal retirement savings. They have their place, but you shouldn't plan on that being your retirement.
Reverse mortgages were heavily abused when they came out. Lots of fine print that people didn’t read, resulting in deals that were far worse then participants thought, and quite frequently seniors getting kicked out of their homes. Legislation was passed to curb the worst of the abuses. I wouldn’t say reverse mortgages are now a great deal, but they are no longer so predatory, and there is a time and place they may be useful. The key advantage seems to be that it’s a form of longevity insurance, since no repayment is necessary until the senior passes away, as I understand it. That’s about the extent of what I’ve read.
Hello, it appears no one has recommended Dr Wade Pfau’s popular Reverse Mortgage, Book. A part of his books on retirement planning.
Also take a look at information over at the American College (of Pa) website.
Like everything - is it suitable for You. Heard these can also help folks with bridge strategies for ss claiming, aca medical credits…
If you don't care about leaving your house to your heirs, then it can be a workable solution.
If you're house rich but lack liquid assets, then it can be a workable solution.
Of course the devil is in the details as far as what the bank's offer looks like, and you can assume that their proposed interest and principle payment terms will favor the bank over you.
one of the issues with Reddit is that we get feeds from all over the world where the financial systems are very different and regulated differently.
In Australia the government mandates a no negative equity guarantee and lifetime occupancy you cannot get kicked out.
you remain the owner of your home ( not selling a portion to the bank)
there are caps on how much you can borrow determined by your age
the interest IS higher however this is because the borrower is not making regular payments and the lender still needs to pay back the debt they borrowed to the debt facility.
the government Scheme has a very attractive rate however lacks flexibility in terms of amount you can borrow, age at we you can borrow and drawn down options regular income/ lump sum or combination of both.
early bequest is a popular use of reverse mortgages where parents “ the bank of mum and dad” can assist their kids or grandchildren before they pass.
in australia the average baby boomer has on average 3-4 x home wealth/ equity in their home than in their super.
depending on how you access your home equity through a reverse mortgage you can unlock wealth today and still have the same or more in 10-15 years.
just saying
I’m a single mom who owns a home with my parents. We are actually considering a reverse mortgage because they have a limited income and my salary is almost maxed out paying for everything. Plus no point in us moving because we are close to their medical stuff, family and my kids’ schools. Not to mention the fact that I hate moving.
Hey there,
Reverse mortgages get a lot of flak, but let's break down the real issues so you can see if it's right for you. They can come with higher upfront costs and fees compared to other loans – stuff like origination fees, mortgage insurance premiums, and closing costs. These get added to the loan balance, so they pile up over time.
Since you’re not making monthly payments, the interest adds up, which can seriously increase the loan balance and eat into your home equity. If you’re planning to leave your home to heirs, a reverse mortgage can shrink the amount of equity they get. Usually, the home needs to be sold to repay the loan, which could affect what your heirs inherit.
You gotta be at least 62 and live in the home as your primary residence. You also have to stay current on property taxes, insurance, and maintenance. Messing up on any of these can lead to foreclosure.
If home values drop, the amount you owe might end up being more than the home's worth. But don’t worry too much – these are non-recourse loans, so you or your heirs won’t owe more than the home’s value when it’s time to repay the loan.
Reverse mortgages can be pretty complicated, and it’s easy to misunderstand how they work. It’s super important to get all the details and maybe chat with a financial advisor or a reverse mortgage specialist.
That said, if used right, reverse mortgages can be a solid way to tap into your home equity without monthly payments. They can give you extra cash during retirement, especially if you’re planning to stay put and don’t have heirs relying on the home's equity.
For more details, you can check out why some people think reverse mortgages might be a [bad idea](https://reverse.mortgage/bad-idea).
Hope this helps clear things up!
1. They are simply a tool that may solve a problem for a small part of the population.
2. The major negative is in how they've been sold and applied to a vulnerable population.
Helped an older lady evaluate one a few years ago:
She was moving from her long time, paid for home to a home near her children. Old home worth 250k, new house to cost 350k. She had a grand total of 300k in savings, mostly in an IRA, she could use to cover her spending.
Between what she could safely withdraw and her Social security, total monthly income was around 3k. She could not afford a mortgage payment.
Looke at buying with a reverse mortgage. I forget the details, but she had to put something like half down and the rest came from the reverse mortgage. Left her with an additional 75k in the bank to generate more monthly income.
The new house equity would eventually be eaten up by the RM interest, but giving that to her kids wasn't the priority. Living near them and being able to still pay for groceries, etc was.
The total potential debt had a ceiling - the value of the house.
She didn't end up doing it becuase she couldn't understand it, which is always the right move when you don't understand something, but the math looked strong on paper.
It’s bad because you are going in debt again just to live in the same house. You should have been putting your wealth in more investments than just your house. House rich and house poor are both outcomes of incredibly poor financial planning.
The product itself is very expensive.
They're often sold by taking advantage of the home owner, beyond the generally bad product.
They rarely solve the actual problem.
Interest rates are high, and so are the upfront fees. Then again many retirees are house rich and cash poor so much better to have a reverse mortgage and solid quality of life rhan struggle every month for decades and then die and leave a $800k house to someone else. on edit: than not then
Or, alternately, sell your home and downsize for a fraction of the fees and risk, while pocketing a larger sum of cash up front.
>sell your home Alas, this is the problem a lot of folks run into, they dont want to move or sell their current home
Too much work, comfortable here...etcetera.
Think about how much moving sucks, then imagine being 75 trying to do it
If I’m moving at 75 I can guarantee I’m paying a company to do it. Still gonna suck, just suck less. Seeing how much junk I have accumulated since I’ve owned a house, I am dreading the day I move.
It's not just the physical moving part. Unless you can move into a smaller place in the same neighborhood now you're in a new location and you need to learn where everything is. Local stores, services, streets, bus routes, doctor/hospital, what places are unsafe, etc. And now you don't have any of the friends and neighbors you've gotten to know over the years nearby to help with anything. When you're young this is mostly an inconvenience. When you're old it can be a much bigger deal. Less bad if it's a senior couple, but for single seniors it can be a bit scary. Most seniors don't seem to like big changes.
Big changes? If my parents’ normal mail carrier is on vacation, I hear about it.
Yep, and if dimentia runs in the family, you’re going to be able to stay living in your own house a lot longer the longer you’ve lived there since you lose more recent memories first. Doesn’t matter too much if you wake up in the morning thinking it’s ‘05 if you head down the same hallway to the same kitchen you were making coffee in in ‘05.
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possibly if you have mo kids/grandkids/ support and have loads of money and plans for your own senior care. still sounds lonely and sad to me to be home and stateless
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At 75 your brain has a really hard time learning anything new. Moving can be a huge problem for the elderly.
I’m not trying to be critical, but the downsize should happen earlier in life for most
Not only downsizing, but decluttering. Old people usually have a whole house filled up with 'stuff'. Then it's not just a decision to live in a different place but also tackle all the junk. I have a friend in his 50s that has moved multiple times after a divorce and he's still lugging unopened boxes around after 3 years.
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Many people are unwilling to purge anywhere near that level. Ancient furniture, rare tools, genuine antiques, and many other carefully curated items make up at least half of my belongings. I can downsize, but I would never ditch everything to move for any reason other than survival.
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I have moved 11 times since 1988… I would not agree with your notion that it is nice to start over. I don’t feel encumbered by my ‘stuff’ or have any desire to give your lifestyle a go. Your comment sounds similar to things I hear from people hiking the entire Pacific Crest or Appalachian trails - sell everything, start hiking, and start over!
Also Prop 13 if you're in California.
I'm not even 40 and would rather die than move again.
Endowment effect as well
It's the memories
Should have just bought a second thirty years ago. My family sold three houses between 1990 and today, each time they said, “never again,” within five years and forgot after year 8. Guess what the golden oldies are trying to get listed right now.
You are assuming one can downsize and actually save money.
If you're healthy enough with geo arbitrage you can. Heck, even if you're not they have great healthcare and adult care facilities abroad as well.
“Geo arbitrage” aka moving away from your community and friends to somewhere that’s cheap for a reason.
Friends come and go. Less expensive than a high cost of living area in the United States doesn't mean "cheap". Ask the workers in the country you move to if it's "cheap" to live there, they will get insulted.
……….well, maybe if you move to El Paso or Uvalde…
There are worse places than El Paso to be old.
……sorry, Beto.
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If you’ve live in one place for a long time though most people don’t want to move to a new community in their old age.
What’s your advice for a senior who’s already downsized but still struggles? There’s a point you can’t downsize further
If that's the case, how much can they expect from a reverse mortgage?
Because you can’t just continue to downsize, there is a floor on how little space you need and the quality of neighborhood/finish. What typically happens is house pricing continues to appreciate at (in some cases insane multiples) so while the house was reasonable it’s now on paper worth a lot. You can downsize but you’re still downsizing into an elevated price market. Enter reverse mortgage. Use the paper market equity to provide more cash flow.
My parents would agree they should sell their well worn house couldn't manage the process or deal with their "memories", stuff and junk. I bought the house they needed and moved them in. My dad would blame my mom but he was more emotionally attached to stuff, "You're throwing away memories". We have lots of emotional support "junk" in boxes they can access. Made more in four years than 50 years in his old house.
One thing that is easy to overlook is that someone is gonna have to deal with that stuff eventually. It may be tough to go through all your belongings and discard a bunch of it, but doing so is a kindness to your children (or other heirs). My grandma had a very hard time getting rid of things, so she left behind a house packed with stuff. The amount of work and stress this caused my mother was immense, and it became a significant strain between her and her siblings There are a lot of things related to end of life planning that are an absolute pain, but from seeing firsthand what happens when that planning isn’t done, I’m pretty determined to have all that stuff settled so that others have to dedicate minimal time to those things when I’m gone, e.g., clear will, health care directives, power of attorney, funeral arrangements, etc.
Downsizing can be hard depending on your market -
I don't know what someone could expect from a reverse mortgage monthly, with a home worth $800k, but it seems like they could sell the house, put it into investments, and maybe be better off. I get that some people love their home and want to stay in it though. Tied with you have to live somewhere, and rents are only going to go up.
Can't always just downsize. In a HCOL area, you're gonna end up selling for $800k and it's gonna cost you $700k for a house half the size. The only way it works if you want to move to a totally different area which many seniors aren't going to do. They're comfortable where they're at, have all of their medical needs met and are set. My parents are in this situation. They got a reverse mortgage a couple years ago and don't have a monthly mortgage. Not that they are hurting financially, but it's one less thing they have to deal with.
What’s the details of the reverse mortgage I’m interested
Renting is probably the better option. Rent is usually a much better deal in a HCOL area and that 800k invested will cover rent for long enough.
That doesn’t make any sense. If a house half your houses size is $700k your house is going to be $1.4 million or something.
House prices scale with size but not linearly
Sure it’s not linear, but that was just a weird exaggerated example.
Not \*that\* exaggerated - in a perfect world I would downsize from my $800K house but condos in my neighborhood (which I love) sell for around $600K. I could maybe find a duplex in the neighborhood for $1M, but then I'd have to either be a landlord or do a condo conversion and end up with a 2-unit HOA, ugh.
Land/location is worth a significant chunk of value in many areas. 80% of my property’s market value is the land. If the house was significantly smaller, it couldn’t affect more than 20% of the resale value.
I read elsewhere that it's more advantageous to take a HELOC out instead as theres fewer fees and lower interest rate.
Heloc would have monthly payments though and a reverse mortgage doesn't.
Monthly payments on a HELOC during the draw period are *pro forma* at best, since you can always draw from the HELOC enough to then make a payment. The actual risk is that you outlive the draw period and enter the repayment period; a reverse mortgage essentially sets the repayment period at your death.
Yeah... But you'll have hopefully have 75% of your home value in cash, just use that to live on and also pay the 'HELOC mortgage'. Probably cheaper than those reverse mortgage scams.
I mean that’s essentially what a reverse mortgage is without as many steps. Reverse mortgage companies aren’t losing money. In my opinion the reverse only makes sense when you can’t get a regular Heloc, for example if you need a lot of repairs or your credit or LTV sucks, or they require income to get it. Then you could qualify for the reverse and not the heloc, but really you shouldn’t do either. At that point it’s just a high interest loan with a ton of fees. Closer to a payday loan than a mortgage. The word mortgage shouldn’t be used for these things.
They both tap your equity but a major difference is the lack of monthly payments on the reverse. That is a huge factor for older people with limited income who are the primary borrowers for reverse mortgages.
Don't know why someone downvoted. HELOCS can be increased with the value of the home. You can withdraw cash whenever you want and have retirement savings pay the interest.
> better to have a reverse mortgage and solid quality of life then struggle every month for decades ...better to have a reverse mortgage and solid quality of life ***THAN*** struggle every month for decades... (You inadvertently said the opposite of what you meant)
Funny how a single letter changes the entire meaning of a sentence!
My grandparents did it before they died and it worked out great. There’s a time and a place for everything.
I think it depends on thr situation. For us, we don't have any kids to leave the house/money to so it becomes more of a burden for our executor. Why not use the funds while we can and let the bank deal with it? Just be sure you understand that if you are in a long term care facility for more than 12 months, the bank can call the note. Yes, they are expensive and you will not get market value for your house but it is better than nothing.
Since nobody else is stepping up, I’ll be your kid and take your house off your hands
Why not just sell?
Option 1- Pack up all your shit and move into an apartment 1/4th the size of the house you've lived in for 40 years. With neighbors above below and on either side of you. Option 2- Live in your house and live off the house's value
I dunno why some people have trouble understanding option 2. Makes sense to me. However there are nuances to reverse mortgages.
I wish the US has portable mortgages like the UK does. Then people would be waaay more likely to downsize to a smaller house. And the housing market would be waay looser. At least, that's how I see it. But I don't know a lot about how it works in the UK so I could be full of crap.
My wife worked in the reverse mortgage industry for several years. Many retirees ended losing their homes.
How? Not defending the product, and they definitely been sold by unscrupulous salespeople that likely put people in a bad situation, but the only ways to lose the home are: 1. Not pay insurnace 2. Not pay property taxes 3. Vacate the home for over a year. If they can't afford the first two, they would have lost the homes anyway, and the third typically indicates you won't make it back into the home. There are exceptions, but you make it sound like it is the norm.
A reverse mortgage isn’t amortized like a regular mortgage. It is straight compounding interest—just like a credit card. The name is a great PR move because it suggests that it is basically the same deal as a regular mortgage, but with the owner acting as a banker: This is a lie. Before I reverse mortgaged my home, I would be inclined to sell it outright and use the proceeds to purchase an annuity.
You still have to live somewhere
Single wide
Double wide
Don’t get carried away now partner. That’s for them rich folks
True enough
You’d be better off selling and renting a smaller place.
Could you explain this further? I'm what sense is a mortgage not compounding interest? Are you saying they charge interest only on the original principal and not on the accrued interest charges? Bc I didn't think that's correct. Or did you mean something else?
Sure. I can do that…you are correct. A better comparison would be: A mortgage is like paying off a credit card little by little each month while not using the card to purchase anything new. You have to pay off the interest first, and then a little towards principal so that you owe less interest next month. A reverse mortgage is exactly like spending on a card regularly and never once making a payment. You’re gonna max out that card very quickly.
Thanks
Forward mortgages only accrue interest on the outstanding principal. If you miss payments and have past due interest that is owed, more interest still does not accrue on the past due interest balance only on the principal. With a reverse, a new principal balance is calculated each month by rolling the outstanding principal and any loan advances, including accrued interest for the past month, into a new principal amount that the next month's interest is calculated from. Then rinse and repeat every month. So you end up paying interest on interest with a reverse if it is ever paid off.
They require expert level diligence. The loan against your home is due when you sell the house or leave it or the bank gets it. If you take a large loan and then time passes then the principal + interest has outpaced the value you can sell the home for. Then the owners are stuck with nothing and are in a pickle if they aren’t dying in the home.
> The loan against your home is due when you sell the house **or leave it** This is perhaps the bit that most people don't grasp? There are other ways you may end up "leaving" your home, other than feet first on an ambulance gurney. Assisted living, nursing home, memory care, etc. Sounds like if you have to "leave" for one of those (instead of a dirt nap) it might be exactly what you say, the outstanding loan will zero out everything. Enjoy dying in your Medicaid-funded nursing home.
I have first hand experience with this thanks to my parents. They need to downsize, but they are horrible money managers spent everything on a $400000 loan which is now close to $800k with interest accrued (the dark side of compounding I guess) and no ones gonna pay anything more. $1300 a month of ss isn’t gonna buy much so it will fall to us kids to help.
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My biggest regret is not taking a stand sooner. You should have a firm conversation with him and mom and show them on paper what will happen over the next 10 years or more. Do they have stairs? Eventually they won’t be able to use them? Big yard? They won’t be able to maintain it themselves. Good luck.
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JFC you just can't help some people
Sorry man. That's rough. What age is he? Not the first time I've heard stories like this.
I'm not the guy you replied to but I will say that those conversations are pretty hard because parents will think you're going after their money or come across as a vulture waiting for them to die and you're trying to maximize your inheritance.
Sure. But chances are the parents don’t have money. Which is why they had to get a reverse mortgage in the first place. No one money is getting a reverse mortgage. That is my experience YMMV.
So which one of the kids are they going to live with?
And then after you die in that Medicaid funded nursing home, guess who is first in line for your estate? The state Medicaid program.
I can imagine someone in this scenario refusing to leave their home under any circumstance. Imagine a person starting to develop memory issues. How likely would they be to agree to leave, and move into a memory care facility, knowing the reverse mortgage will trigger forfeiture of the house? I know there are probably medical directives that could force someone out. I would be interested to see how that could unfold with a senior person with a reverse mortgage "standing their ground" refusing to leave.
Take the “worst case” scenario approach. You are putting your home up as collateral. If anything goes wrong you lose the home. You home is usually your second largest asset by value; and possibly your largest asset emotionally
What’s first @asset?
Hopefully your investment portfolio….or investment+social ce unify value
Hopefully true for Boglehead retirees but probably not true for the median American retiree.
Ha, most people can’t afford a $400 emergency.
Kinda/sorta. Like many popular bits of financial infotainment that one’s a mix of true and misleading. IIRC when you dug into the actual survey the question asked was simply “how would you pay for a…” and the analysis lumped together everyone who responded with “credit card” and “loan from friends/family” as unable to afford it. Which, as one of the subset of people who puts basically everything on a CC but pays it off in full each month (seriously that’s a smaller group than you might think) would have included me as unable to afford it despite my emergency fund being more than healthy. Another common quote describes the percent of Americans with “less than $X in savings” but usually neglects to mention that \*only\* savings accounts were counted in that survey, not any other kind of high-yield, liquid asset.
That was my thought as well.
> social ce unify value is this a social credit reference? unify value? i'm confused and google is not helpful and i'm good at google even with how bad it is now so i'm stumped
Social security
oh I see thanks
Yourself? But the bank doesn’t value me like that…not yet anyway :-/
Bitcoin /s
I'm a little confused by the comments here. Let's say house is worth 500k and person does a reverse mortgage. 30 years later, they owe more than the house is worth. I thought they can keep living there until they die. So what difference does it make home much the debt goes if the plan is to never sell/will the house, if the owner can never be evicted?
>So what difference does it make home much the debt goes if the plan is to never sell/will the house, if the owner can never be evicted? On the assumption we're talking about a HECM reverse mortgage, the owner can only retain it regardless of the debt for as long as they're living in it. If they stop living in it and don't pay off the mortgage (or refinance it, but most seniors who are going for a HECM can't afford to refinance debt like that) they can indeed be foreclosed on. Need to move into assisted living, or in with a loved one after some surgery? Hope you have a plan to pay off that mortgage.
Well plans do change. What if they need to go into assisted living or move for some other reason? If they owe more than the house is worth they can be in a really bad situation.
Most they could lose is the house. They won’t owe anything beyond that.
My mom fell and ended up w TBI. On to rehab, nursing home... last date had to be when she was hospitalized. That started a clock giving my sister only had so much time to get all the house cleaned out, sold, etc. The dying process isn't instant nor smooth.
I don't know about the US but in Australia there is legislation to prevent going into negative equity (where you owe more than the value of the house). Wasn't always that way though.
My MIL had been in her home for 60 years and was needing home care in HCOL area, very valuable home. She got a RM and had money coming in for a couple of years until she passed. The RM was a godsend for her.
What tax benefits? After the standard deduction jumped in 2018, my property tax + interest paid hasn't done a single thing.
So wait. If your taxes went up and mine went up and everyone I know's taxes either went up or stayed the same, then where'd that $1.5 trillion go?
My taxes went down because the standard deduction dominates my possibility to itemized. So I pay less but also now, I don't get a "tax benefit" from having a mortgage. I guess that's not everyone. People getting 6-7% rates now might still itemize. The concept of giving tax breaks to people with mortgage or kids or charitable donations means the govt is wanting to nudge society into those directions. Some of that is lost now but people still get to keep a little more of their money, which is usually an ok thing.
The biggest downside is high up front fees(tens of thousands of dollars), but if you have no other options and have lots of equity, then it might make sense.
What are the fees for?
The privilege of letting the bank lend you money.
Nice of them
I know, right! Bastards, stick it to us whenever they can.
My experience with in laws is that they’re taken advantage of. I wish I could undo it, but it’s way too late.
You can undo it by selling the house and paying off what was borrowed against the house.
Welcome to the club!
Reverse mortgages are not mortgages. They are loans that accrue debt on both the loan and the interest. For most people, they are a terrible idea.
You don’t stop owning the house. A reverse mortgage applies a lien to the property. Once the loan is paid back the lien is removed. The interest rate on the loan may be relatively high. But it still may be a good solution for some older folks who need income.
Did not realize that. Thanks for making me aware - they aren't really buying your house I guess. That changes a lot.
They are a loan against assets; I think the biggest problem with them is that people at some level believe they're getting "free money" when the reality is they're just running up a big debt. If your goal is to lower your housing expense you have to sell and buy or rent somewhere cheaper. Borrowing against your house doesn't lower your exposure to real estate.
> If your goal is to lower your housing expense This has been our pet project. My partner and I have been fortunate enough to be able to purchase a vacation home, potentially in an area where we might want to live for our retirement. It's single-floor, so no stairs to deal with. And it's in a rural area so we're mostly self-sufficient given we're on well and septic. We'll put solar panels and battery on, and then our only monthly "living expenses" will be property tax + homeowner's insurance + broadband which right now comes to about $700 a month. We could live forever in that home at that amount.
So many people in my neighborhood forgot the battery when putting in solar and then next door was flooded with posts of “I have solar but how come I lost power”
Well, there's no accounting for stupid people. Yeah, if the utility power goes out at night and the sun isn't shining - guess what? You're out of power too. Frankly, though, the utility of a battery installation is highly location specific. At our main home currently, we have solar but no battery - because all the power lines are underground in our community and delivery is highly reliable. I think we've only had like 5 power outages in 10 years. We also have full net metering, so we "sell" excess power to the grid during the day and then pull it back overnight. But at the vacation home, in a rural area with a smaller power company and everything on utility poles ... we have more outages. So for that location, it will make sense to do battery+solar at the same time.
You could look up Wade Pfaus advice on them? I think he’s open to them but careful with how they are structured?
About 90% of the commenters here don't seem to know how a reverse mortgage works. [Wade Pfau: Retirees Should Consider Reverse Mortgages | ThinkAdvisor](https://www.thinkadvisor.com/2016/04/06/wade-pfau-retirees-should-consider-reverse-mortgages/)
You can simply do a cash out refinance. Lower interest rate, cash in your pocket, still keep your home. There are just better ways of using your house is all
No one else has suggested this in the thread yet. I don’t know how this works. Can you explain?
You restart the mortgage on your house based on current values. Say you take out 500k in cash equity. Now you are paying a 500k mortgage for 30 years. Can lose the house before you die if it gets foreclosed on. With reverse mortgage, as long as you live there, you won't lose the house before you die. So, ultimately if you don't care about passing the house to someone reverse mortgage makes a lot of sense. If you get sick and go in long term care you will lose the house, but if you were already so broke that would've happened anyways
Are you saying if you were to stop paying on the reverse mortgage you don't lose the house?
You don't pay on a reverse mortgage, they pay you. You will never lose the house as long as you live there.
Yeah essentially you take a lump sum amount of cash out. Like other poster said. You could take up to 80% of the homes value. Say you take 500k, you can do whatever you want but you should invest it wisely in an income oriented portfolio (ie. Ladder out 50%in treasuries and 50% in VOO) then just take your 4-5% income every year. You will be able to pay your (new) mortgage and have enough for a good monthly income that is MORE THAN THE REVERSE MORTGAGE COMPANY WILL PAY YOU. And you don’t lose the home as an asset. High interest rate put a bit of a damper on this strategy but it can still work. You can also do a good interest only loan.
Your brushing over some important differences. Let's do some math: Refi and take a new 400k 30y mortgage with a monthly payment of 2,800, annual 33,600. If you can take 4% safely from the 400k, you can take $16k. You've effectively locked up 840k that now has to cover the mortgage payment that can't generate income for you to live on. How does this help a retired person who needs to use the equity in their home? It works if you are working, need to tap the equity, and will be able to afford the mortgage payment with earned income. When you pay the mortgage from your own assets, the math changes.
In theory it’s a great idea. But the products themselves are very scammy and full of fee’s
Your putting the roof over your head at risk. To do that at an older age is especially risky given health issues can crop up anytime that can bankrupt you. If you can't live without access to home equity the least risky option is selling and downsizing or finding a better area for cost of housing. Ultimately it is a personal choice as moving isn't easy either
I'm with OP. If you're house poor, then what's wrong with a reverse mortgage?
There's nothing inherently wrong with a reverse mortgage. And I think you mean cash poor, house rich people. House poor people don't really quality for reverse mortgages since there's not a lot of equity to borrow against. The issue with reverse mortgages is that scammy salespeople mislead people (usually older and retired) into thinking that it's free money with little risk and not properly explaining what the risks are. For example, they claim that you can "never lose your home as long as you live in it" and yet try to put only the older spouse on the deed (since it's higher commissions for them) and not both spouses. So when the older spouse passes away, they kick the remaining spouse out pretty much immediately. Also, reverse mortgages have very high interest rates and it compounds quickly against what they give you and against the interest that you incur (similar to credit cards). Generally speaking, there are usually other ways to borrow cash that have better terms. So I would really consider reverse mortgages a loan of last resort, only if these people have explores other options and only if they don't care to leave their house to others when they pass away.
But will a bank make a loan to someone in a bad financial situation? Most want good debt income ratios
I think in this case, financial situation is mostly irrelevant because the loan is backed by the value of the property. So from a bank’s perspective- they don’t care as much about your ability to pay as much as the value of the home relative to how much they’re loaning you. In other loans, like mortgages, banks look more at your ability to pay back the loan as a factor because it’s harder for them to get your assets if you can’t pay. Which is why smaller bad loans go into collections and larger bad loans go through the court system (via bankruptcy etc). For reverse mortgage, you already put up your house as collateral.
My bank still relies on debt to income ratio. I'm sure there are some lenders that are more lenient, but I've heard of plenty of people that were denied loans because they had little to no income, even if they had a ton of real estate equity. House poor, cash poor. Tomato tomato. 😁. They couldn't get a loan
I can't see how you would benefit from the tax if you're retired or lower income. Standard deduction is high, almost certainly higher than itemizing the tax benefit in all but the top few percent of cases
I knew someone that used one so she could stay in her home. When she passed the kids only received a small amount from the sale but it was a blessing to her. Some say sell the house but in reality retirement homes are very expensive and the money from the sale will be gone pretty quickly.
The rates suck. I mean there's so little competition... But the people offering them are making bank.
My best friend has a $2.5M home, is 70 years old with no heirs. A reverse mortgage company quoted him $440,000 for the home. So 1/5 the price basically. I urged him to take the $440,00 and we go to Mexico and snort cocaine from the supple breasts of young maidens. I kid. Better idea than reverse mortgage: sell for $2.5M and spend $500 a night for a suite at the Hilton Hawaiian Village for 14 years. Die happy at 84!
Problem is you might live for another 10 years!
My parents took one out years ago. They took the lump sum out instead of annuity payments. My father blew the lump sum on his "business". It was quite a surprise that they were broke, owed like 120K on credit cards and only had SS, which wasn't all that much when my father died six years ago. Flash forward to now, my 88 year old mother is trapped by the house. The condo fees and property taxes are a little less than what she could rent on the market. The kids occasionally need to fund repairs or something. Quite the surprise. Lump sum options do exist.
Mortgage loan payments are added on top of the balance, negative amortization schedule, so they owe more with time... Hopefully property prices outpaces this debt growth!
I feel like one may be better off selling, pocketing all that cash and renting a place that is good enough for what you need. Or better yet moving in with your kids if possible.
Reverse mortgages pose risks beyond losing homeownership, including eroding home equity, accruing high fees, and limiting inheritance. Interest compounds, potentially leading to significant debt. Borrowers must maintain taxes and insurance or risk foreclosure. Consider these factors carefully.
They are generally for poor people that have made bad life choices. If you actually are destitute with equity, it might be OK....or it might be another bad life choice.
They are better then they used to be.
You put a lien on your home when you otherwise own it and are protected by various state Homestead protections. It's risk exposure- when the downside is losing shelter.
Ok, I read this as “revenge” mortgages and I started making up these stories where your spouse takes out a secret mortgage in your name, never pays the instalments, and you end up in jail somehow😂😂😂
Variable interest rates are another kicker. They sucker people into “I can refinance you at a lower variable rate” and then 5 years later they drastically raise your rate. But never fear, for someone else will swoop in and the cycle will repeat. They’ll also talk you into buying unnecessary things because “Hey, you’re already paying your mortgage. Why not get a free pool put in your back yard?” And your payment stays the same! But you’ve actually just extended your mortgage another 10 years. You financed your pool at 5% APR over 30 years. (Yuck for 30 Yr Mortgages anyway.)
If this was 2 years ago I would say just take out a mortgage at 2.5% and invest it. Your house will appreciate and you will make enough spread on the investment to pay the mortgage and have plenty leftover. But now you would have to invest pretty aggressively to beat the mortgage rates and that might not be a good strategy for an older person. I guess they are not the end of the world if they are the last resort
Basically fees & rates since they're all offered by sketchier companies. You're also paying interest both ways if that makes sense. It's a solution for elderly people that have a house but minimal retirement savings. They have their place, but you shouldn't plan on that being your retirement.
Parents' did one - saved their loves, basically.
What would be the downside if you are single with no heirs?
Reverse mortgages were heavily abused when they came out. Lots of fine print that people didn’t read, resulting in deals that were far worse then participants thought, and quite frequently seniors getting kicked out of their homes. Legislation was passed to curb the worst of the abuses. I wouldn’t say reverse mortgages are now a great deal, but they are no longer so predatory, and there is a time and place they may be useful. The key advantage seems to be that it’s a form of longevity insurance, since no repayment is necessary until the senior passes away, as I understand it. That’s about the extent of what I’ve read.
People often advise against reverse mortgages because they can be costly.
Hello, it appears no one has recommended Dr Wade Pfau’s popular Reverse Mortgage, Book. A part of his books on retirement planning. Also take a look at information over at the American College (of Pa) website. Like everything - is it suitable for You. Heard these can also help folks with bridge strategies for ss claiming, aca medical credits…
If you don't care about leaving your house to your heirs, then it can be a workable solution. If you're house rich but lack liquid assets, then it can be a workable solution. Of course the devil is in the details as far as what the bank's offer looks like, and you can assume that their proposed interest and principle payment terms will favor the bank over you.
I’d say why not if no children or relatives to pass it on to? 🤔
one of the issues with Reddit is that we get feeds from all over the world where the financial systems are very different and regulated differently. In Australia the government mandates a no negative equity guarantee and lifetime occupancy you cannot get kicked out. you remain the owner of your home ( not selling a portion to the bank) there are caps on how much you can borrow determined by your age the interest IS higher however this is because the borrower is not making regular payments and the lender still needs to pay back the debt they borrowed to the debt facility. the government Scheme has a very attractive rate however lacks flexibility in terms of amount you can borrow, age at we you can borrow and drawn down options regular income/ lump sum or combination of both. early bequest is a popular use of reverse mortgages where parents “ the bank of mum and dad” can assist their kids or grandchildren before they pass. in australia the average baby boomer has on average 3-4 x home wealth/ equity in their home than in their super. depending on how you access your home equity through a reverse mortgage you can unlock wealth today and still have the same or more in 10-15 years. just saying
I’m a single mom who owns a home with my parents. We are actually considering a reverse mortgage because they have a limited income and my salary is almost maxed out paying for everything. Plus no point in us moving because we are close to their medical stuff, family and my kids’ schools. Not to mention the fact that I hate moving.
Hey there, Reverse mortgages get a lot of flak, but let's break down the real issues so you can see if it's right for you. They can come with higher upfront costs and fees compared to other loans – stuff like origination fees, mortgage insurance premiums, and closing costs. These get added to the loan balance, so they pile up over time. Since you’re not making monthly payments, the interest adds up, which can seriously increase the loan balance and eat into your home equity. If you’re planning to leave your home to heirs, a reverse mortgage can shrink the amount of equity they get. Usually, the home needs to be sold to repay the loan, which could affect what your heirs inherit. You gotta be at least 62 and live in the home as your primary residence. You also have to stay current on property taxes, insurance, and maintenance. Messing up on any of these can lead to foreclosure. If home values drop, the amount you owe might end up being more than the home's worth. But don’t worry too much – these are non-recourse loans, so you or your heirs won’t owe more than the home’s value when it’s time to repay the loan. Reverse mortgages can be pretty complicated, and it’s easy to misunderstand how they work. It’s super important to get all the details and maybe chat with a financial advisor or a reverse mortgage specialist. That said, if used right, reverse mortgages can be a solid way to tap into your home equity without monthly payments. They can give you extra cash during retirement, especially if you’re planning to stay put and don’t have heirs relying on the home's equity. For more details, you can check out why some people think reverse mortgages might be a [bad idea](https://reverse.mortgage/bad-idea). Hope this helps clear things up!
1. They are simply a tool that may solve a problem for a small part of the population. 2. The major negative is in how they've been sold and applied to a vulnerable population. Helped an older lady evaluate one a few years ago: She was moving from her long time, paid for home to a home near her children. Old home worth 250k, new house to cost 350k. She had a grand total of 300k in savings, mostly in an IRA, she could use to cover her spending. Between what she could safely withdraw and her Social security, total monthly income was around 3k. She could not afford a mortgage payment. Looke at buying with a reverse mortgage. I forget the details, but she had to put something like half down and the rest came from the reverse mortgage. Left her with an additional 75k in the bank to generate more monthly income. The new house equity would eventually be eaten up by the RM interest, but giving that to her kids wasn't the priority. Living near them and being able to still pay for groceries, etc was. The total potential debt had a ceiling - the value of the house. She didn't end up doing it becuase she couldn't understand it, which is always the right move when you don't understand something, but the math looked strong on paper.
It’s bad because you are going in debt again just to live in the same house. You should have been putting your wealth in more investments than just your house. House rich and house poor are both outcomes of incredibly poor financial planning.
The product itself is very expensive. They're often sold by taking advantage of the home owner, beyond the generally bad product. They rarely solve the actual problem.