Know the risks of Reverse Mortgages
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in their home into cash loans without having to sell their home or take on an additional monthly bill. In a reverse mortgage you receive money from the lender and generally dont have to pay it back for as long as you live in your home. Instead the loan must be repaid when you die, sell your home, or no longer live there as your primary residence. … “Reverse Mortgage” Housing Payments loan lean lien “older Americans” “senior citizens” money debt collateral equity home house reverse mortgage ” …
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Can I refinance my fixer upper, take out the additional value in cash and reinvest that money into the house?I bought a house in DC for 350k and have completely renovated it (my wife is an architect and we did all the work). The house is now valued at $550k. My question is: Can we refinance the house at $550k, take out the extra cash and use it to refinance the house again? Or take the money to invest it in other properties? By doing this do we really have an extra $200k?
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September 28th, 2009 at 9:08 am
The biggest drawback with reverse mortgages are the high upfront costs. Some seniors may want to consider other options to tap their home equity, particularly if they do not think they will remain in the home for at least five years.
For example, a home equity line of credit (HELOC) requiring interest-only payments for 10 years can be used. These loans typically have very low (or zero) upfront costs. The drawback is that, unlike a reverse mortgage, the borrower must make a monthly (interest-only) payment to the lender. These payments can be made for several years by drawing on the line of credit itself. Of course, the balance needs to be paid off when the house is sold or the owner dies – just as with a reverse mortgage.
Other options that can free up home equity but avoid the high upfront costs of a reverse mortgage include: 1) intra-family loan or sale-leaseback and, 2) selling and moving to a less expensive dwelling or location. However, when selling the homeowner incurs high closing costs including, typically, a 6% commission, moving costs, and purchase costs on the new dwelling. Currently, there is a coordinated government program called "Aging in Place" that strives to assist the homeowner in staying in their home and neighborhood, if that is their desire. Various studies, including AARP, show that over 80% of elderly homeowners do not want to move.
September 28th, 2009 at 9:47 am
September 28th, 2009 at 11:38 pm
I am entirely against the reverse mortgages because I feel there are other financial vehicles that perform better. It is not my recomendation to my clients to gamble with physical assets. You are better off selling your home, moving to a more affordable area and structure out an anuity.
A reverse mortgage in theory is merely a glorified anuity with more fees and restrictions. The only time you could really benefit is if you live too long.
Pros…. The lender can't take your home away if I outlive the loan
You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. You can never owe more than your home's value.
Con- Unlikely you will leave anything to your heirs.
When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs. None of your other assets will be affected by reverse mortgage loan. This debt will never be passed along to the estate or heirs.
September 29th, 2009 at 12:25 am
if you have a lot of money in you house i would suggest you sale downside you house hold and move into a small house or apt!!! i just like to control my own future!!!
September 29th, 2009 at 10:55 pm
September 30th, 2009 at 1:26 am
Every reverse mortgage I have seen has been an FHA program for older people and they normally choose to get all the money in one chunk. They are set up so that the owner never has to make a payment as long as they live in the house- but if they go to a retirement home they will need to sell the house and (because of the interest build up and maybe the weak real estate market) the seller might owe more than the house is worth. Again this FHA program is pretty good because it is a non recourse loan so that all the lender can do is take the house – they can't file against you personally.
September 30th, 2009 at 4:08 am
That's true. The government shouldn't have encouraged such risky loans. The country would be better off today. Mainly, I guess it doesn't matter at this point who is to blame. The problem needs to be addressed and quickly.
Even with all of the money that the government is going to throw on top of this fire, we have yet to see if it will be a fix or just a band-aid. I think the problem is far too complex to guess at the outcome. We will just have to wait and see what happens next.
September 30th, 2009 at 4:18 am
I think it's just Dumb and Dumber.