Need Your Opinions Please! (Reverse Mortgage)

[mrclose]

My parents who are thinking about a reverse mortgage have asked me what I think about the idea.

Mom is 65 and dad is 73.

It is the credit cards that are hurting them the most and the main reason they want the RM.

They will not accept help from the family .. No winning an argument on this with them .. period!

They need about $135,000.00 to pay off the home and debts.

I'm sure that they can get the RM without a problem.
(Many offers already)

I've seen the downsides and upsides to these reverse mortgages and I must say .. I only see the upside in their case!?

First: With a combined Social Security income of $2,400.00 a month, their total monthly expenses would be around $500.00 (which includes property taxes).

Food costs around $500.00

Subtracting $1,000.00 from their $2,400.00 S.S benefits each month leaves them with a savings of $1,400.00 a month!

That $1,400.00 will allow them to save, upgrade some things that they've wanted to do around the home or .. just enjoy a Debt free retirement!

They will stay in the home for the rest of their lives.

The loan will never have to be repaid "until" mom and dad pass away.

The kids (my brothers, sisters and myself) are fairly well off and don't care about them (our parents) leaving us .. What my parents call a legacy!

(They would feel bad if they can't leave us anything. "WE don't care as long as they're happy"!)

So .. What's the down side?

Thanks Everyone!

[DumbAss Tanker]

The downside is that house goes away when the last of them dies, with no payoff into the estate, if that's not an issue to you and the other children, it's got its points...especially since a protracted illness or nursing home move could end up taking the house away anyway, even if they had it paid off, and the RM would keep it from being forced into sale by an unforeseen issue like that.

The bigger problem is how they got in such credit card debt in the first place, because if they aren't on top of that problem, they will be another $50K in the hole within two years of closing the deal on the house and having everything paid off.

Just my $.02, I don't think I'd ever be interested in one myself and I doubt they'd give one on a farm even if I was.

[debk]

A fellow Realtor's husband died about 2 years ago.

They had a reverse mortgage. He was 81, she was 60.

Because of the way reverse mortgages work, only he was old enough to get it. And that also meant the house had to be in his name only.

He dies, she's not old enough to qualify to keep it. They gave her 2 months to sell the house, or they would take it away from her. She closed with a day or two to spare, but did not get any extra out of the house.

To make things even worse, he had rapidly progressing  Altzheimer's. He had a stroke about a month before he died, and it escalated the disease, and he went from hospital to nursing home. What she didn't realize was that he was worse than she thought, prior to his stroke. He had cleaned out his retirement, and had not paid his life insurance. She was basically left with nothing. 

She had no idea she would lose the house - unless she could qualify and pay for it herself, which she couldn't - when they did the RM.

The only way your parents should even remotely consider it, MrC, is if both of their names are on the mortgage, and the house will belong to the survivor, until death of survivor.

They are both over 65, so that will eliminate the age requirement.

Find out what happens, should one have to go into assisted living or nursing home. Usually either situation, will require either selling the house or putting some type of hold on it by the nursing home.

Should one or both have to go into a care facility, you - and any other heirs - may not be able to sell the house to pay for a care facility. Nor will they be able to transfer ownership to you/heirs, in order to avoid having to sell the house to make them eligible for care assistance, or for you/heirs to inherit the house.

Reverse mortgage sounds great in the commercials and in all the stuff coming in the mail...but one thing to remember.

Banks/mortgage companies are in the business of making money. They are not in the business of being kind and generous.

The details are in the fine print. If you don't see the fine print until time of closing, the chances are 99.9% the buyer/homeowner will not read the fine print. The lender knows this. The lender also knows, that at the time of closing, buyer/homeowner as little to no choice in changing their mind or refusing to sign.

 In 16+ years of being a Realtor, I have only been to one closing where my buyer read the fine print at the closing. There was some stuff she didn't agree with, and her only choice was to either sign or walk. She signed

The other thing to remember...when refinancing or getting a new loan on an existing home, chances are homeowner will miss at least one payment in the refinance process. If homeowner doesn't sign, they may or may not be able to go back to existing mortgage. If they can't, and have to get an different new mortgage, that could take another 4-6 weeks. During this time, IF existing mortgage is not being paid with already established payments, the lender's default department is going to start the process of foreclosing. Once first payment is missed, and if not caught up by 2nd payment due date, and 2nd payment not made on time, preliminary foreclosure process starts.   

I am not saying not to do it, just make sure that you or someone you/your parents trust, read all the details in the contract. If they change their mind after switching to a RM, they may not qualify to go back to a regular mortgage, especially since there will be no equity in the house once they do a RM.

[marv]

Tanker has it right. FIRST...get your expenses in order. Fix whatever created the need for the Reverse Mortgage.

Know up front that RMs will require a first mortgage, so if you have a current mortgage through a bank or some such, there will have to be negotiations - with the home owner in the middle.

My wife and I are in our seventies. We took line of credit through State Farm Bank to cover anticipated extraordinary medical expenses. We are only obligated to pay the monthly interest on whatever we've tapped into.

[obumazombie]

I think of traditional mortgages in terms of P.I.T.I
Principal
Interest
Taxes
Insurance
The only payment that RM eliminates is Principal, that is if your home is currently free and clear. I am not sure what happens if interest goes up during the term of the RM. In traditional mortgages Interest only or ARMs can eat you out of your home with increasing interest rates. Taxes are still subject to going up as would be insurance.
Not sure who would be responsible for insurance once the house goes to the Bank.
All in all I shun the idea of RMs.

[Lacarnut]

I have a reverse mortgage and think it is great. Am single and my brother who is my heir does not need the money. I used the money to buy a beach condo. A dream come true for me.

My brother would love the condo which is paid off. It sounds like it would be a good deal for your parents. Since both your parents are over 65, one or both could live in the house the rest of their lives without paying a note. If the house is paid off, they would get around 65% of the appraised value. The fees are high. It is a little difficult to do comparative shopping. Wells Fargo quit the business but I think Metropolitan or a big bank might be the best bet. I think I had around $7k deducted out of my procedes. Interest and PMI is deducted each month, and I would venture to guess that in 10 to 15 years, they would have zero equity in the house. The house still belongs to your parents and nothing would prevent them from selling it as long as the debt is paid off. Those that are against RM cite the fees, one of the seniors is not over 65 which can cause big problems, the heirs want the money from the sale of the house. On the other hand, if the money is used wisely, I think it is a good deal for seniors and it make life much easier.  

I have to agree with others on the root cause of their credit card debt. Have not had any in over 10 years. Hopefully, they do not gamble. Medical problems are a big concern. However, I do not see what difference it makes whether you have a home mortgage or RM.  

[debk]

I have to agree with others on the root cause of their credit card debt. Have not had any in over 10 years. Hopefully, they do not gamble. Medical problems are a big concern. However, I do not see what difference it makes whether you have a home mortgage or RM.  

The problem with medical care is if permanent long term care is needed. Regular insurance policies do not cover this type of care.

Medicare will cover in 30 day increments, provided patient goes directly from hospital to care facility. Medicare will continue to cover as long as patient continues to make progress. "Progress" is defined by the guidelines of Medicare. 

My dad was in an assisted living situation. He collapsed, they called 911, he was resucitated. THREE TIMES! (this was a person who had a DNR    He was paying out of pocket for assisted living. He went straight from hospital to a full care facility. He not only had great insurance, but he also had Medicare. The first 30 days was covered by Medicare. Then Medicare was cancelled because it was determined he was "not progressing with physical therapy". This man was a diabetic, in kidney failure, and his toes were becoming gangrene ... but he was "not progressing" because he could not walk! (duh!) It did not matter that he was getting better at using a wheelchair. He was moved from a Medicare room with 2 people to a self-pay 4 bed and the care was not nearly as good (good being a relative term    ). Fortunately (?) he only lasted about 5 more weeks. My brother and I were trying to deal with all of this long distance. I was in charge of paperwork. In trying to get Medicaid for him, nothing could be done UNTIL all of his assets - in his case life insurance, retirement  & social security - were gone.

There is also a time frame, where no transfers to heirs - or anyone else - can be done and excluded from the patient's assets. At that time, January 2001, it was 6 months prior. I know the time frame has been increased, as a friend of mine went through it with her mother a couple of years later.

A house is considered an asset. I do not know what happens with a reverse mortgage in this case, particularly when there is a spouse and the spouse is healthy and wants to remain in the house.

LA... you are in a different situation from several aspects. You don't have a spouse, and you used the money to purchase another property free and clear. If by some weird circumstance you lost your existing house with the RM, you have another place to go live that is debt free. Also, if you had to, you have unencumbered property that you could sell to provide funds for long term care, which you would have to do before getting any type of Medicaid.

[Lacarnut]

The problem with medical care is if permanent long term care is needed. Regular insurance policies do not cover this type of care.

Medicare will cover in 30 day increments, provided patient goes directly from hospital to care facility. Medicare will continue to cover as long as patient continues to make progress. "Progress" is defined by the guidelines of Medicare.  

My dad was in an assisted living situation. He collapsed, they called 911, he was resucitated. THREE TIMES! (this was a person who had a DNR    He was paying out of pocket for assisted living. He went straight from hospital to a full care facility. He not only had great insurance, but he also had Medicare. The first 30 days was covered by Medicare. Then Medicare was cancelled because it was determined he was "not progressing with physical therapy". This man was a diabetic, in kidney failure, and his toes were becoming gangrene ... but he was "not progressing" because he could not walk! (duh!) It did not matter that he was getting better at using a wheelchair. He was moved from a Medicare room with 2 people to a self-pay 4 bed and the care was not nearly as good (good being a relative term    ). Fortunately (?) he only lasted about 5 more weeks. My brother and I were trying to deal with all of this long distance. I was in charge of paperwork. In trying to get Medicaid for him, nothing could be done UNTIL all of his assets - in his case life insurance, retirement  & social security - were gone.

There is also a time frame, where no transfers to heirs - or anyone else - can be done and excluded from the patient's assets. At that time, January 2001, it was 6 months prior. I know the time frame has been increased, as a friend of mine went through it with her mother a couple of years later.

A house is considered an asset. I do not know what happens with a reverse mortgage in this case, particularly when there is a spouse and the spouse is healthy and wants to remain in the house.

LA... you are in a different situation from several aspects. You don't have a spouse, and you used the money to purchase another property free and clear. If by some weird circumstance you lost your existing house with the RM, you have another place to go live that is debt free. Also, if you had to, you have unencumbered property that you could sell to provide funds for long term care, which you would have to do before getting any type of Medicaid.

Who knows what is going to happen under Obamacare. It is going to be a crap shoot and those on Medicare will get reduced benefits since several hundred million dollars were taken out of Medicare to fund Medicaid.

My dad wound up in the hospital two months before his 99th birthday because of a previous stroke and circulation problems. He got a little better but since he could not do physical therapy in the hospital due to just having one leg and being so weak, we found a nursing facility that had physical therapy. In a matter of 3 weeks, he got a lot worse and wound back in the hospital and the doctor said there was no hope. So, he was sent home under hospice care. My brother and I and the sitter we hired 12 hours a day 7 days a week took care of him for about a month before he passed. Quite expensive but much better than the awful care he rec. in the nursing home. We did not have to fool with Medicaid. I fear that under Obamacare that things will get much worse. The doctor, hospital and social worker will decide whether what care you are entitled too and will it be cost effective.

You have brought up several good points about assets that have to be dispersed before going into Medicaid. I have a great attorney that is a specialists in wills that I need to go have a talk with. I may be wrong but I thought that under Medicaid that you were allowed to keep your house and car. After death, that might change. Finally, I would rather someone shoot me than go into an awful nursing home. I have seen some low class and high class ones and they all stink IMO.  

For me the RM was a great deal. However, every person has to make that decision on what is best for them. If the pros outweigh the cons, I would go for it. Like I said the fees on a RM are high, and that could be a stumbling block if the house is not fully paid off. 

  

[mrclose]

I'd like Thank the folks who replied!

So much to take in on this subject 'but' I'll get it sorted out .. eventually!

Again .. Thank You Everyone!

[Chris_]

I'd like Thank the folks who replied!

So much to take in on this subject 'but' I'll get it sorted out .. eventually!

Again .. Thank You Everyone!

We have some smart people here.  I knew you'd get some good information.

[Lacarnut]

I'd like Thank the folks who replied!

So much to take in on this subject 'but' I'll get it sorted out .. eventually!

Again .. Thank You Everyone!

There is a great deal of information on the internet and the RM companies will send you info. You can also get a calculated estimate on the internet of how much your parents would rec. My property assessor gave me a fair price. Believe it or not, the government takes steps to provide you with safeguards. Consultation is required and over a 100 pages to sign.