Ask Me Help Desk - Reverse mortgages

Reverse mortgages

What has your experience been or what is your knowledge of reverse mortgages?

What is your question specifically? Speficics and details matter... particularly on a topic this broad.

TV ads feature well-known figures pushing reverse mortgages as the best thing since sliced bread. I had read comments on an AMHD board a while ago (have searched but can't find the comments) that all reverse mortgages are scams. I have friends who have reverse mortgages and claim they are life savers.

I am wondering if any AMHD member has had experience with a RM and thus an opinion about them.

I don't think they are all scams. I think about it... being 66 and owning my house outright.

I retracted that part about the blog I guess as you were answering.

These can be great for one person... and a very bad idea for the next depending on a lot of personal details... including expected livespan... ammount needed... exactly what the terms of the reverse mortgage actually is... (meaning like investments some carry far higher fees than others do).

Way too many variables and there is no one size fits all answer on the topic.

They aren't scams. It is something I'm considering for when I a) retire and b) pay my home off. But I'm not close enough to either to research it now.

Reverse mortgages are not all scams, but you need to be careful - there are some shady operators out there, and given the incentives for brokers to sell these products they can be deceptive. I think in general reverse mortgages are an expensive form of loan - in essence they give you money now in exchange for a big payment later (when you die), and the imputed interest rate in this loan is generally not favorable. But it's a loan that doesn't require repayment with cash, so for many people it's the only type of loan they can afford. Be very careful that you fully understand what happens if/when a spouse dies - there have been cases of really bad deals where the home is foreclosed and the surviving spouse kicked out because her name was not on the deed. And you need to be confident that there won't be any financial crises in your future that would make you wish you still had the safety net of equity in your home to fall back on.

Quote:

Originally Posted by ebaines

Reverse mortgages are not all scams, but you need to be careful - there are some shady operators out there, and given the incentives for brokers to sell these products they can be deceptive. I think in general reverse mortgages are an expensive form of loan - in essence they give you money now in exchange for a big payment later (when you die), and the imputed interest rate in this loan is generally not favorable. But it's a loan that doesn't require repayment with cash, so for many people it's the only type of loan they can afford. Be very careful that you fully understand what happens if/when a spouse dies - there have been cases of really bad deals where the home is foreclosed and the surviving spouse kicked out because her name was not on the deed. And you need to be confident that there won't be any financial crises in your future that would make you wish you still had the safety net of equity in your home to fall back on.

My understanding is that the bank is buying back your house and there won't be a "big payment" later (for what?). As long as the owner is living in his home, the RM is in effect.

Quote:

Originally Posted by Wondergirl

My understanding is that the bank is buying back your house and there won't be a "big payment" later (for what?). As long as the owner is living in his home, the RM is in effect.

What I meant was that when you die the bank gets a "big payment" in the form of the house itself, which they can then sell.

Quote:

Originally Posted by ebaines

What I meant was that when you die the bank gets a "big payment" in the form of the house itself, which they can then sell.

That's why it's called a reverse mortgage. The bank gets the house in the end, minus any equity still left.

Quote:

Originally Posted by Wondergirl

That's why it's called a reverse mortgage. The bank gets the house in the end, minus any equity still left.

I'm not sure what your point is. You asked what I meant by the term "big payment" so I explained it. I think we all in agreement as to the basics of how it works.

Quote:

Originally Posted by ebaines

I'm not sure what your point is. You asked what I meant by the term "big payment" so I explained it. I think we all in agreement as to the basics of how it works.

I was just confirming that that is my understanding too and thinking you meant the same thing as what I've been told.

I wish I could find that thread where therr was a short discussion of why RMs are a scam. Like someone indicated earlier in this thread, like with any contract, be sure to read and understand all the ins and outs of one before you sign on the dotted line.

One concern I have (even with a good company) is that I am getting my house valued at recession prices (by them), and when I die the appraisal could be rigged in their favor. For someone like me who has no mortgage, the lump sum would be a lot if I die soon, and my heirs, who live far away, won't even know the difference between their appraisal and an impartial one.

What Joy said is the big issue. The banks are gambling that a) you die before they pay out the property's true value and b) that they tend to value the property based on a lower appraisal, then you might get to account for price fluctuations. The banks hope that property values increase at a rate higher than the cost of money to them.