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According to one of the links in the OP, a common rule of thumb is that the maximum percentage you can get is calculated as the age of the borrower minus 12: Thus an 80 yr old borrower, minus 12 = 68 = maximum 68% of home's appraised value at the time. (There is a max of $726K for 2019)
So in your $100K example, the 80 year old applicant could not borrow more than $68K against the house.
Another link included this:
A reverse mortgage is a "non-recourse" loan, which means borrowers or their estates will never be obligated to pay the lender more than the loan balance or the current value of the home, whichever is less.
Which brings up an interesting scenario. Suppose 80-yr-old Mr Jones borrows $68K today with a 5% interest RM on that $100K house and lives to be 92. Unless my calculations are off (which is possible, lol) the loan balance after 12 years would be around $175K, right? According to the information quoted above, if the property is only worth, say, $150K twelve years from now, the lender would "lose" $25K because the maximum due is the lesser of the two values ($175K loan balance due vs. $150K property value.) Seems to me that RM lenders would not want to issue these in areas where property values don't have a good chance of increasing over time (i.e., economically depressed regions.) Or am I missing something?
interest rates play a big roll so you cannot use a rule of thumb , as well as you have about 5% in fees coming out upfront .
the usual outcome is these loans do not provide as much as people think and those resorting to them generally will not be in any better shape ..in many cases they just delay the inevitable and that is they can not afford the carrying costs on the house and life in general and in the end would have been better off selling the house day 1.
you are required to keep up the house and may be forced to put that new roof on .
another problem is the majority of reverse mortgage receivers are now taking lump sum.
that reverse compounding interest can be killer.
even here in long island with the typical home worth more than 500k it can be quite painful.
On a $250,000 lump-sum in ten years the balance will climb to $465,841. Assuming 3% home price appreciation, that would leave about $72,000 in equity based on a home's $537,566 value. In 20 years, the loan balance would reach $868,031, exceeding the home's $722,444 value.
having to relocate can be a real issue . don't forget eventually many who live out of state want to move closer to kids and family if they need care. or what if you can't drive anymore and now need an area with good public transportation .
there are just so many negatives to using your home as a piggy bank that we all could make a never ending list as life plays out. many who took these loans just have not reached the point where their location has been a problem health wise or family wise yet..
Years ago, my mother had brought this reverse mortgage idea up and wanted my opinion. Thankfully she chose to discuss this versus just going out and doing it. I was and still am against it. Sadly there are too many scams or gimmicks that sound good, and look great on paper, but IMO aren't a deal at all.
Lady at church lost her home to a reverse mortgage about three years ago. A huge mess and she ended up moving in with her son's family which is good because she had a place to go.
Seems a bad wind storm knocked her garage over, the insurance company paid the claim to the reverse mortgage company which kept the money. The reverse mortgage company took the home because the owner didn't replace the garage. Duhh?
Total scams and those selling these are crooks, cons and creeps. Never get a reverse mortgage regardless of what Henry Winkler says.
They are waiting for people to make a mistake so they can foreclose. If I was in that situation I would sell and use the money to rent.
So there is a video version on MSN, this is happening in Philadelphia. so I will ask, rent where. My two sons just got there first apartment in PHiladelphia. Their rent is 950 bucks a month and it's right on the border of gentrification and get shot at night.
No a/c
no wiring for internet or cable.
no living room.
800 bucks??? the problem is, if they don't have money for the house oit stands to reason they won't have money for the loan
Last edited by eliza61nyc; 06-13-2019 at 06:59 AM..
I think that what really made these mortgages a disaster was the lump sum payout option. Originally you got an annuity, depending on your age and the equity in the house. Now you can get it all up front and spend it all. Whether it's spent on essentials or blown on a cruise, you're broke again. No money to pay the property taxes, insurance or repairs. I cringe when I see those commercials with the statement, "You cannot lose your home". (According to the Dave Ramsey video, about 18% of reverse mortgages are going bad because the homeowners can't pay taxes and other expenses they're required to keep current.)
At least they've changed the rules that let a couple put only one owner of a married couple (the older, of course) on the reverse mortgage so they'd get more $$ out. If the older spouse died the surviving spouse had to move out because the reverse mortgage company now owned the house. Some really sad stories about those cases.
I think a smart thing to do (which I did since I'm so smart, LOL) is set up a home equity line-of-credit as they get ready to retire (thus having the income to qualify) as an EMERGENCY source of credit for the first 10 years of retirement. The line I set up has a $50 a year fee, and for that amount I have the security knowing that ready cash is available to me in case of unforeseen circumstances.
The key is that this takes discipline not to cash out for an expensive car, a world cruise, or what have you.
I think a smart thing to do (which I did since I'm so smart, LOL) is set up a home equity line-of-credit as they get ready to retire (thus having the income to qualify) as an EMERGENCY source of credit for the first 10 years of retirement. The line I set up has a $50 a year fee, and for that amount I have the security knowing that ready cash is available to me in case of unforeseen circumstances.
The key is that this takes discipline not to cash out for an expensive car, a world cruise, or what have you.
One would hope that by the time you reach retirement age you have the good sense, and discipline, to not run out and spend all your credit on something silly. That sounds more like something someone does at 21 with their first credit card.
I think a smart thing to do (which I did since I'm so smart, LOL) is set up a home equity line-of-credit as they get ready to retire (thus having the income to qualify) as an EMERGENCY source of credit for the first 10 years of retirement. The line I set up has a $50 a year fee, and for that amount I have the security knowing that ready cash is available to me in case of unforeseen circumstances.
The key is that this takes discipline not to cash out for an expensive car, a world cruise, or what have you.
I agree with doing this before retirement- when DH and I downsized a year after my retirement (he'd been retired for years since he was older), the idiot mortgage company pretty much ignored our substantial assets and looked only at DH's SS and my $900/month pension as income. We couldn't borrow as much as we wanted. Of course I suppose now it's nice that my monthly mortgage payment is only $700!
I don't really need the HELOC, though- I know there will be "oh, crap" expenses over time such as replacing the car, but keep my withdrawal rate below 3.5% knowing that I need reserves for shocks to the budget.
I guess I'm not the target market for sellers of reverse mortgages.
One would hope that by the time you reach retirement age you have the good sense, and discipline, to not run out and spend all your credit on something silly. That sounds more like something someone does at 21 with their first credit card.
Don't be surprised. I know a 60-year-old who asked her mother for $800 to repair her car and then used the money to fly to Hawaii instead.
(Maybe that tells you why she didn't have $800 in savings by age 60. No discipline. And there are millions of people just like her.)
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