<<I have shopped reverse mortgages for my clients in the past. In each

case, what I have found is that the difference between a reverse
mortgage and taking out a traditional mortgage and investing the
proceeds is that the traditional route always (based on my clients
circumstances) favors the traditional mortgage on an after tax after
expense basis.>
The OP has equity of ~$300K and mortgage payments of $42K per year. In
order for your plan to work, he would have to have an investment that
pays at least 14%!!

Where would he get that big a return?

John Cowart

Simple, original poster indicated that the home was to be sold...

Apparently I am coming in late to this thread, but let me make a comment.
With a Reverse Mortgage, The lender appraises the value of the equity
in the home, then gives you a percentage of that equity.

The lender then continues to pay the ENTIRE mortgage each month,
and ADDS that amount (including interest) to the mortgage. There is
NO OBLIGATION to pay off the mortgage. The qualified buyer AND
his Spouse are permitted to LIVE in the house until they either DIE
or move away (nursing home).

At that time, the home is sold, and if there is any NET Gain, it passes
to the heirs. HOWEVER if there is NOT or if there is a NET LOSS, it
is absorbed by the lender (through insurance sold at the time of the R/V/M)

Cal Lester



"bo peep" <cowartmisc1[at]yahoo.com> wrote in message
news:1148308720.510748.85170[at]j55g2000cwa.googlegroups.com...
- quote -

tfprusd[at]yahoo.com wrote:
- quote -

Start shopping for an apartment in a retirement home so that your
parents won't need to be split up. That way assistance can be delivered
when needed and your father will have more intensive care when he needs
it.

--
Ron

<<I have found is that the difference between a reverse mortgage and
taking out a traditional mortgage and investing the proceeds is that
the traditional route always (based on my clients circumstances) favors
the traditional mortgage on an after tax after expense basis.>
I'm not understanding how this would work. In the case of the original
poster, he has about $200-300K in equity in current home, and he
already has
a current conventional mortgage payment of about $3500 / month. How
would he redo this with another conventional mortgage and an investment
to completely get rid of the monthly mortgage payment in the manner
that a reverse mortgage claims to provide?

John Cowart

I have shopped reverse mortgages for my clients in the past. In each
case, what I have found is that the difference between a reverse
mortgage and taking out a traditional mortgage and investing the
proceeds is that the traditional route always (based on my clients
circumstances) favors the traditional mortgage on an after tax after
expense basis. Side by side, the reverse mortgage expenses were more
than three times the cost of the traditional closing costs.
Traditional mortgages also have the advantage of not requiring clients
to waive their homestead rights as provided by state law and it leaves
the investment risk/return in the clients hands. In addition, I am not
comfortable recommending a solution that cannot be altered in the
future (especially given the many uncertainties out there right now,
such as the possibly housing bubble, increasing foreign competition,
probable increasing taxation, global population shifts, and even the
trade deficit and decline of the dollar -- and that is not to mention
the clients individual circumstances that could change dramatically in
the future). If that is not bad enough, we all read about the
deceptive sales and pretatory practices that appear rampant in the
reverse mortgage industry (the abuses that have been uncovered are even
worse than the practices of the traditional mortgage industry, possibly
becuase they are prey on older Americans). Again, just my $0.02 plus
$0.02 more.



Gary Brolis
http://www.MechanicsofMoney.com
http://www.MechanicsofMoney.com/blog.php

bo peep wrote:
- quote -

I have shopped reverse mortgages for my clients in the past. In each
case, what I have found is that the difference between a reverse
mortgage and taking out a traditional mortgage and investing the
proceeds is that the traditional route always (based on my clients
circumstances) favors the traditional mortgage on an after tax after
expense basis. Side by side, the reverse mortgage expenses were more
than three times the cost of the traditional closing costs.
Traditional mortgages also have the advantage of not requiring clients
to waive their homestead rights as provided by state law and it leaves
the investment risk/return in the clients hands. In addition, I am not
comfortable recommending a solution that cannot be altered in the
future (especially given the many uncertainties out there right now,
such as the possibly housing bubble, increasing foreign competition,
probable increasing taxation, global population shifts, and even the
trade deficit and decline of the dollar -- and that is not to mention
the clients individual circumstances that could change dramatically in
the future). If that is not bad enough, we all read about the
deceptive sales and pretatory practices that appear rampant in the
reverse mortgage industry (the abuses that have been uncovered are even
worse than the practices of the traditional mortgage industry, possibly
becuase they are prey on older Americans). Again, just my $0.02 plus
$0.02 more.



Gary Brolis
http://www.MechanicsofMoney.com
http://www.MechanicsofMoney.com/blog.php

bo peep wrote:
- quote -

<<I personally do not recommend reverse mortgages to my clients ... The
bottom line is that the financial institution is set to make money off
of the deals or they wouldn't bother doing them.>
It seems to me that this would apply equally to regular mortgages - the
financial institution is not going to offer a mortgage unless they
think they can make money off of it. The financial institution is in
the business of creating transactions (*any* kind of transactions) that
will generate income from their capital.

<<So you are saying that reverse mortgages are free and the financial
institutions that are not profiting from them are doing charity work?>
Yes, they are *effectively* free during the seller's lifetime while
still living in the house. No, they are not charity, as the financial
institution charges interest against the loan, in much the same way
that they charge interest on a normal mortgage. The difference is just
that they have to wait to *collect* the interest until the owner dies
or moves out and the house is sold, which is exactly why they only sell
reverse mortgages to the age 62+ crowd.

- quote -

"The loan is repaid when you cease to occupy your home as a principal
residence, whether you (the last remaining spouse, in cases of couples)
pass away, sell the home, or permanently move out. The amount owed can
never exceed the value of your home. Furthermore, if the home is sold
and the sales proceeds exceed the amount owed on the reverse mortgage,
the excess money goes to you or your estate".

John Cowart

So you are saying that reverse mortgages are free and the financial
institutions that are not profiting from them are doing charity work?
Realistically, sure it produces an income stream; however, there are
expenses (as listed in the federally mandated "list of expenses" that
one must sign at the closing) -- expenses that would not otherwise be
incurred.

It has been my experience that financial reasons are not the root cause
of disrepair of a house, instead, it is health, mental decline and/or
infirmities. I think of my grandpa who never hired contractors -- even
though he had the money, and was in desperate need of them -- because
he beleived that they would see his belongings and rob him -- and he
was only in his late 60s at the time... I see that same mentality in a
lot of my clients. Given the age of the folks involved here, I would
guess that they may have a touch of the "Great Depression" upbringing
that may factor into this analysis as welll...

I personally do not recommend reverse mortgages to my clients (it would
have to be some extreme circumstance, which wasn't described here).
The bottom line is that the financial institution is set to make money
off of the deals or they wouldn't bother doing them. You never know
what life will through at you, and volunteering to add restrictions to
your life typically isn't a good thing... especially if it involves
your largest financial asset...

Of course that is just my 0.02 sheckles...



Gary Brolis
http://www.MechanicsofMoney.com
http://www.MechanicsofMoney.com/blog.php

<<If you do consider a reverse mortgage, you should be very wary of the
expenses involved (which are often very high).>
Wrong - there are no net expenses involved in a reverse mortgage. A
reverse mortgage produces net income, not net expense.

<<Also, you should balance that against the possiblity of losing the
house early, due to your mother not being able to live in the house any
longer.>
The OP was considering selling the house in favor of a condo. That also
constitutes losing the house.

<<In addition, there is the possiblity that she might be forced out if
she cannot keep the house in proper repair.>
She is more likely to keep the house in proper repair when a reverse
mortgage is in place, as the additional income is available to pay for
the repairs.

John Cowart

On Wed, 17 May 2006 14:21:12 -0500, tfprusd[at]yahoo.com wrote:

- quote -

I realize we are winding up this thread, but I keep coming back to the
OP's idea that what is needed here is an estate plan. I'm not at all
convinced that this is an estate planning issue (unless one plans to
artificially impoverish the parents now via gifts or irrevocable
trusts so as to qualify for Medicaid, which I generally don't favor
for several reasons.)

Anyway, the parents are only mid-60s. With decades of life expectancy
ahead, I'd be more interested in arranging and handling their affairs
now in such a way that the money will last. That calls for a
financial plan (investments, taxes, budgets, etc.), not an estate
plan.

So my opinion is that we are asking the wrong question. Which of
course gives us the wrong answers.





-HW "Skip" Weldon
Columbia, SC

thanks for the help everyone. I am going to talk to people at HICAP
and set up a meeting with a lawyer. I agree on the reverse mortgage,
sounds a little scary to me.

-tim

If you do consider a reverse mortgage, you should be very wary of the
expenses involved (which are often very high). Also, you should
balance that against the possiblity of losing the house early, due to
your mother not being able to live in the house any longer. In
addition, there is the possiblity that she might be forced out if she
cannot keep the house in proper repair.

I agree with the comment about speaking to an elder law attorney. You
should definately do that.



Gary Brolis
http://www.MechanicsofMoney.com
http://www.MechahicsofMoney.com/blog.php

<<Father: 64 years old> <<Mother: 64 years old> <<Current mortgage payment is about $3500 / month> <<I want them to sell their house and use the proceeds + some
retirement cash to buy a small condo for my mom>
Mom may not want to do this. Since they are both over 62, they could
get a reverse mortgage. This would a) get rid of the mortgage payment,
b) provide some additional income, and c) avoid using up any retirement
cash for the condo

John Cowart

In article <1147891124.183556.200370[at]u72g2000cwu.googlegroups.com> ,
tfprusd[at]yahoo.com wrote:

- quote -


Now is the time to spend about 30 minutes with an elder care attorney.
It will be well worth the money.

In general your mother will be allowed to keep a bit over $90K of the
community property and about $2K per month in income. She can keep the
house but MediCal may (will) put a lien on it. It may make sense to pay
off the mortgage.

Also call HICAP 1-800-434-0222 and set up an appointment with a long
term care counsellor (it is free).

AARP and possibly HICAP have some good pamphlets on what you can keep
and what has to be used to pay for long term care before MediCal kicks
in.

Now is also the time to start "auditioning" LTC facilities.
--
Avrum Lapin avrum223[at]nospam.verizon.net
Upland CA Remove NOSPAM from address

Really the answer is just too complex for a forum like this; however,
here are some very basic thoughts:

Some people try to have assets pass to a trust upon the demise of the
first spouse, with a provision in the trust which says that the trust
can make loans to any person the trustee chooses. The kids (as
trustees) then opt to purchase a small house/condo for the benefit of
their surviving parent, by taking out a loan via the trust. The kids
then pay in the interest to the trust over time. The loan is then
forgiven when the second parent passes away (either through the sale of
the property or other assets of the trust). There are a lot of
pitfalls and planning opportunities that surround this type of deal, so
you must consult your advisors about it.

Another option for the house/condo is a QPRT
(http://www.mechanicsofmoney.com/blog...67537663301681).

Luckily in a community property state, you get a double step up in
basis (versus the single step up in basis in common law property
states). There are some planning opportuities in this regard if low
basis property is involved (which is the case with most Californians
who own real estate these days).

Reconsider purchasing an annuity inside of a trust. Consider naming a
non-California trustee, so as to avoid the Calif. Trust Income Tax.

Be wary of the look back period for MediCal, which just changed
recently.

Of course, your finanical advisors can easily walk you through these
issues and more. You should give them a call.


Best of luck,


Gary Brolis
http://www.MechanicsofMoney.com
http://www.MechanicsofMoney.com/blog.php

hello, I know this is a lot to ask, but I want to get a rough idea of
an estate plan idea for my parents. I will be consulting an attorney
to make sure the docs are drawn up correctly and to clarify any
additional questions. here are the circumstances and ideas. sorry for
any typos.

*Father:
64 years old, disabled with Parkinsons disease and will need to move
into an assisted living facility in the next 6 months to one year.
it's difficult for him to move around, too hard for my mother to take
care of him, etc.

Receives medicare insurance part B (managed by aetna I believe). He
has used about $300K of his lifetime benfits already.

Does not have long term care insurance and can't get it b/c of
disability

receives 1500/month social security and 3500/month disability (tax
free) until he dies.

Has about $200-300K in equity in current home - have lived in it for
more than 2 years as primary residence

Has about $300K in retirement - a varity of mutual funds with varying
risk

Has $50K in savings (joint account)

Current mortgage payment is about $3500 / month
Current in-home care costs are about $3000 / month

Has life insurance policies with family members as benficiaries. Not
sure on the amounts but I think it's in the $500K range.

*Mother:
64 years old, no income. Will get SS at 65 - $800/ month. Will get
medical [at] 65 as well.

Has long term care insurance (not using it at this time)

Is basically healthy and can live on her own for the time being.

*General notes:
Family of four (myself + brother)

Their assests are held in a living trust with my brother and I as
benficiaries. I am the succesor trustee after my mother.

We all live in california

*****
Thoughts:

The monthly income my father draws would be used for assited living -
room and board

Move some or all of the retirement money in annuties to guarantee
returns for my mother. The family trust would be the pay on death
beneficiary. (?)

Sell his car

I want them to sell their house and use the proceeds + some retirement
cash to buy a small condo for my mom. This would stay under the trust
and get rid of their mortgage payments.
Would this home be protected after 5 years if mediCal every came into
the equation?

Does not sound like Medi Cal will ever be an option in this case due to
his income, nor do I plan to have them give everything away to qualify.
Having said that, I guess you never know what might happen in 10-15
years in terms of health expenses racking up.
-would it make sense to do an irrevokable trust now just in case 5+
years (lookback) down the road he needs to apply for Medi Cal?

****
Sorry for the long post, but I really do appreciate all your help.

-tim