More retirees pay the bills with reverse mortgages

[wicket]

http://www.boston.com/business/personalfinance/articles/2005/04/25/more_retirees_pay_the_bills_with_reverse_mortgages/

Eleanore Higgins retired from her job as a secretary in 1987 expecting her pension and Social Security checks would sustain a comfortable retirement in the suburban home where she had raised a son. But about three years ago, rising healthcare costs, high property taxes, and $10,000 in dental bills left her wondering whether she could make it financially. Now, Higgins pays her medical and other bills without worry. She is even thinking of making a trip to New Orleans next year for Mardi Gras.

She regained her financial security by doing what an increasing number of seniors across the country have done: They have taken out reverse mortgages that allow them to convert a portion of the equity in their homes into cash without selling their home. The mortgage is not due until they move or die, when proceeds from the sale of the property can be used to satisfy the loan.

-snip-

The number of seniors nationwide who took reverse mortgages in 2004 doubled from the previous year to more than 40,000, according to the US Department of Housing and Urban Development, which insures the loans. California, with nearly a third of the mortgages, ranked first, followed by Florida, Texas, and New York. Massachusetts ranked 11th, with 922 loans last year, up from 612 in 2003.

Under the program, the amount owed can never exceed the value of the house, because only a portion of the equity can be tapped.

[brainshrub]

1. English translation:

The American middle-class guts their children's inheritance to make ends meet.

Only the rich get to leave a heritage for their children.

[bemildred]

2. Yup, eating the seed corn. nt

[Rose Siding]

4. We could call this the Long Life Tax

[oneighty]

6. Unless

Unless we old ones die a long slow 'death by nursing home' in which case the family gets nothing anyway.

Eat drink be merry for tomorrow we may die?

These are tough choices. One I am worrying over now. The system is set against poor people passing along their earnings of a lifetime.

180

[curlyred]

3. my dad has a reverse mortgage

I told him to go for it. He and his wife live comfortably, travel, and enjoy life...I don't need any inheritance from him - he worked for it, he should spend every dime.

[Mr.Green93]

5. Yes

I agree. It is a viable option.

[demnan]

7. I think my mother should do this

She's 83 and lives in a home she's had since 1968. She's been living off the equity for a long time taking out loans against the house.

Now she's maxed out. I think she has an option of either selling the house to move to a smaller place or taking a reverse mortgage. She will probably take the reverse mortgage because she has two unemployed sons living with her that she feels she must support.

[AndyTiedye]

14. It Sounds Like Your Mother Has Already Done This

Now she's maxed out.

Can you go to a higher LTV with the reverse mortgage?



Obviously, the pitfall of this scheme is that if you live long enough,
you eventually can't borrow anymore, and that time may come a lot more
quickly if property values decline.

What happens to a reverse mortgage in a falling real estate market?
Can they forclose if the property value drops near or below the
loan amount?

[NNN0LHI]

8. I have a question about this

Suppose the people who get a reverse mortgage end up in a state financed nursing home someday and the state comes after the house to pay for the long term care. Not being dead yet who gets the house at that point? Does the state get the house or the mortgage lender who gives the reverse mortgage? There is probably a common sense answer to this question, but I am missing it.

Don

[Inland]

10. The lent money has to be paid back

if the house stops being the residence under some definition. The only way to do that, one would think in all cases, is sell the house. Anything left is the asset of the ex homeowner, and would be used up before medicare kicks in.

The correct answer is the house remains the elderly person's, but it is encumbered by a mortgage so when the loan comes due, for any reason, the mortgage forecloses or the home is sold voluntarily.

[NNN0LHI]

11. Thanks for the explanation n/t

[SoCalDem]

12. Here's an example

Grandpa needs to go to a nursing home..He and Grandma have a paid-for home . The state would demand and get an appraisal. They would take out a reverse mortgage and get "X" amount of dollars a month , when the amount they have received equals or exceeds what they have in equity, Granny must move out, and the house is then sold.. At THAT point they would be "{indigent" and Grandpa would switch to medicaid..

This whole :plan" was originally started for people who were terminally ill, and had expenses they could not afford. If you knew you had an illness that would take you in a year, and you had 200K equity in your home, it made sense to take out a reverse mortgage, and spend your last days in comfort and maybe travel..

In THIS format, it's a recipe for disaster for the surviving spouse, and for the grown kids, if any. Instead of the surviving parent living in their home until they pass on, and then the home being sold to pay final expenses, and whatever's left, divided between the heirs, there will be NOTHING to pass on.. and you can bet there will be additional "twists" and the heirs will get tagged for even more expenses...,

[NNN0LHI]

13. Thank you also n/t

[SoCalDem]

9. Estate tax revocation ensures that rich kids will get THEIR inheritances

and reverse mortgages means that middle class heirs will get "bupkus"..

Middle class equity built up over a lifetime is being gobbled up by medical insurance companies, HMOs, and drug companies.. How nice:puke:

[mcscajun]

15. Yet it might make sense for Single Seniors with no children

to which to leave any inheritance.

As a single homeowner, I've begun to look at this for some part of my financial future. Especially as BushCo has left me far less secure than I was just five years ago.

Sure, I have nieces and nephews, but providing for them is their parents' responsibility, not mine, especially since my sisters are far better off financially than am I.

So, if any of the next generation expect an inheritance from me, they'll be surprised.

[Lydia Leftcoast]

16. That's my way of thinking, too

A single senior whose siblings are affluent enough to provide for their own children might do well to take out a reverse mortgage.

[SoCalDem]

17. But... it's a gamble.. what if you live "too long"??

where do you go then?? What if you end up 92 years old, no family, and your equity "used up"??

[mcscajun]

18. Well my family history is against my living to 92

And certainly my choices aren't for everyone. I'm not advising every single senior to plunge in, and I'm not going to either, until I've done some serious research on this, and of course, I get to 62 (which from what I've heard so far, is the minimum age any reverse mortgage issuers would take you on.)

As to what happens if I wind up totally alone and broke, and none of my nieces or nephews would take me in, I have a Smith & Wesson .357 — it's the ultimate "retirement policy".

[SoCalDem]

20. My family is not long-lived either. whew!!..n/t

:)

[NNN0LHI]

19. Reverse mortgage applicant ’shocked’ by up-front fees

http://www.isucceed.com/news/viewarticle.cfm?article_id=45771

DEAR BOB: I am currently applying for a reverse mortgage. But I think you should warn readers about the high up-front fees so that it is not a big shock, as it was to me. The closing costs in my situation will be almost $15,000. But in my case it is worth paying these expenses for a lifetime of tax-free income? – Ruth G.

DEAR RUTH: Yes, the up-front loan fees to obtain a senior-citizen tax-free reverse mortgage seem high. But they really are quite reasonable if you stay in your home for more than five years.

Purchase Bob Bruss reports online.

Before you obtain your reverse mortgage, the lender must provide you with a Total Annual Loan Cost (TALC) disclosure chart based on two years, your life expectancy, and even beyond your expectancy. If you keep your reverse mortgage only two years, the annual interest rate, including up-front loan costs, will usually be at least 12 percent, often more. But at 10 years, your annual cost typically drops to a much more reasonable 6 percent or 7 percent interest.

That’s why I constantly advise against obtaining a reverse mortgage unless you plan to stay in your home at least five years. There are so many reverse mortgage advantages I can’t list them all here. A great new book explaining this topic is Tom Kelly’s "The New Reverse Mortgage Formula," available at bookstores, public libraries, and www.amazon.com.