4dtvman[at]verizon.net (4dtvman) wrote in message news:<f37884ca.0308280946.35e99bd1[at]posting.google.com> ...
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The downside to reverse mortgages are that they are a more expensive
product than your typical mortgage. This is for two reasons:

1. Reverse Mortgages (except in Rhode Island) have associated with
them a 2% premium of the amount of the loan. This is like paying two
points except that that money (charged on all federal reverse
mortgages) goes into what is an essence a federally regulated
insurance pool. That money is then used for folks who outlive the
actuarial odds. (In a reverse mortgage, you can get a lump sum, a
monthly payment for life or a combination of the two. The monthly
payment is calculated based on how long you are actuarially expected
to live.) If you outlive the actuarial odds the insurance pool
guarantees that you continue to get the monthly payment for as long as
you and your spouse/partner/co-borrower are alive and at least one of
you is still living in the house. The theory behind charging the two
percent on all reverse mortgages is that it spreads the pain equally.

2. The bank fees for reverse mortgages are higher than what you see in
a typical mortgage. You won't see any "No costs, No Points, No fees"
mortgages here like you may see advertised by your local bank for a
normal 30 year mortgage. The reason for this is that your local bank
doesn't tell you that they get their fees by being paid a portion of
the interest you are charged each month. Ironically, in most cases,
this adds up to a fee more than the fees in reverse mortgages but,
since you don't see it, you don't think about it. Anyhow, since there
are no monthly interest payments with reverse mortgages the lender
charges their fees up front as a lump sum.

Otherwise, reverse mortgages makes a lot of sense for a number of
reasons.

1. They are federally guaranteed so a senior knows they will always
get their money. (HUD does this for s good reason-it is a lot cheaper
and better for seniors to remain in their homes than going to nursing
facilities.)

2. Seniors no longer make mortgage payments but get paid (with a
penalty to the bank if the bank is late in making a payment).

3. The senior is never individually liable to pay back what they draw
down. The only "entity" that makes repayment is the principal
residence subject to the mortgage and then only if the senior has died
(or both have died where there is more than one borrower); both
permanently no longer live there (defined as not living in the home
for twelve consecutive months) or the home is sold.

4. At the time the house is sold, the pay off amount is what was
drawn down. It is a fallacy that all the equity is used up. If the
amount drawn down is less than what the house sells for then your
heirs get the equity-just like a regular mortgage.

The odds of this are actually good. Typical reverse mortgages have a
current cap of $274,500.00 and that is set based on a ratio, I
believe, of about 70% of the appraised value. (This is the federally
set upper limit. Even if your home is worth, let's say, $600,000.00,
the cap is still $274,500.00. The only time it is higher is if you
have a jumbo reverse mortgage where the home is worth more that $1
Million.) Also, the amortization tables used to calculate reverse
mortgages assume a housing value increase of 4% per year while the
historical level has been 7% per year.

5. Should the sale of the house (at at least 95% of the appraised
value) get less than what is owed then that is all that gets paid.
There is never any deficiency.

6. The amounts paid to a senior under a reverse mortgage are tax free
and, although I need to check this out more thoroughly, I do not
believe they are subject to Medicaid/Medicare spend down requirements
nor should they affect what you get from SSI. After all, the bottom
line of a reverse mortgage is that it just makes liquid what is
already yours-the value of your house. (A common observation made
about reverse mortgages is that they are the epitome of the bumper
sticker "I AM SPENDING MY KIDS'INHERITANCE".)

7. A senior can get a reverse mortgage and choose not to draw any
amount down. If they do so then the money grows and later in life they
can get a larger lump sum or larger monthly payments.

8. The costs of a reverse mortgage come out of the home's equity so
the senior is not writing a check at the closing table. In that sense
the costs are painless. Also, taken from the house equity is the
payoff of any current mortgages meaning you change a cash flow out
position to a cash flow in position.

9. The senior can use the money for anything they want-home repair,
assistance to stay home etc.

That is generally the summary pros and cons. I hope this helps you
with your planning.


Rob Cannon

4dtvman wrote:
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They are an EXCELLENT way for people who are retired,
and do not (as most of my contemporaries) have any NEED
to leave a HOME to thier heirs. My children, and those of
most people I know, all have homes of thier own. Therefore,
the walls whithin which I live, are not something that I feel I
have to preserve for my heirs.

On the other hand, the ability to ELIMINATE mortgage
payments, and receive instead additional income is very
attractive, and beneficial. Although it will never happen in
my family, I am certain that if it could, my kids would much
rather have the MONEY, rather than having to SELL my
home after I die to get at it.

Obviously, this would NOT be a good idea, if you lived in
a "Family Home (or farm)", which has been "in the family"
for many years, and which your kids are looking forward
to living in someday, this would NOT be appropriate.

The only other potential downside would be if it were in
an "appreciating" area (so. california), where the value
might be increasing.

Cal Lester CLU

Birthdays are good for you - the more you have the longer you live

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4dtvman wrote:
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1. When you die, you have no house to leave to your heirs. Of course, if
you don't *like* your heirs, that could be a positive rather than a
negative.

2. Your ability to obtain SSI and Medicaid may be adversely affected.

See http://www.reverse.org for more info.

John Cowart

I've been hearing alot about reverse mortgages lately. They seem to be
a good income vehicle for retirement as the home owner can stay in
their home as long as they want even after the entire value of the
house has been paid to them. I think I would be interested in doing
this when I am 62 (still 20 years down the line) as I have no heirs to
worry about. However, reverse mortgages just seem too good to be true.
What are the negatives, if any?