A Reverse Mortgage Question

[mrclose]

My parents who are thinking about a reverse mortgage have asked me what I think about the idea.

Mom is 65 and dad is 73.

It is the credit cards that are hurting them the most and the main reason they want the RM.

They will not accept help from the family .. No winning an argument on this with them .. period!

They need about $135,000.00 to pay off the home and debts.

I'm sure that they can get the RM without a problem.
(Many offers already)

I've seen the downsides and upsides to these reverse mortgages and I must say .. I only see the upside in their case!?

First: With a combined Social Security income of $2,400.00 a month, their total monthly expenses would be around $500.00 (which includes property taxes).

Food costs around $500.00

Subtracting $1,000.00 from their $2,400.00 S.S benefits each month leaves them with a savings of $1,400.00 a month!

That $1,400.00 will allow them to save, upgrade some things that they've wanted to do around the home or .. just enjoy a Debt free retirement!

They will stay in the home for the rest of their lives.

The loan will never have to be repaid "until" mom and dad pass away.

The kids (my brothers, sisters and myself) are fairly well off and don't care about them (our parents) leaving us .. What my parents call a legacy!

(They would feel bad if they can't leave us anything. "WE don't care as long as they're happy"!)

So .. What's the down side?

Thanks Everyone!

[Cincinnatus]

I am not qualified to advise you but before your parents commit themselves to a reverse mortgage program I strongly encourage you and they do some internet research on drawbacks or problems.

For example: Problems With Reverse Mortgages   http://www.ehow.com/about_5378401_problems-reverse-mortgages.html

Good luck.

[truth_seeker]

Thanks Everyone!

From real estate point of view, what is the current fair market value of the home, and what is the mortgage payoff?

The net of those two is their current "equity."

With a RM, they are "trading" that equity, in order to "use" the home until their deaths.

There must be significant equity, or there would be no offers for RM.

Other options include selling outright, debt consolidation, etc.

With RM you forego future appreciation, or any further financing or sale options. What if one or both need the equity MORE in the future, due to old age and/or ill health?

Although I'm an active real estate broker, I won't advise for or against the RM, but you asked for comments so I gave a few.

A good real estate attorney might be a useful resource. Maybe creative ways to retain ownership, do some below the radar family help, etc. with a trust.

[mrclose]

I am not qualified to advise you but before your parents commit themselves to a reverse mortgage program I strongly encourage you and they do some internet research on drawbacks or problems.

For example: Problems With Reverse Mortgages   http://www.ehow.com/about_5378401_problems-reverse-mortgages.html

Good luck.

Thank You Cincinnatus.

I've been 'looking' around but there is a lot of obscurity?

Some swear by it.
Others .. Not so much!

I'll scope your link out!

Thanks Again!

[mrclose]

From real estate point of view, what is the current fair market value of the home, and what is the mortgage payoff?

The net of those two is their current "equity."

With a RM, they are "trading" that equity, in order to "use" the home until their deaths.

There must be significant equity, or there would be no offers for RM.

Other options include selling outright, debt consolidation, etc.

With RM you forego future appreciation, or any further financing or sale options. What if one or both need the equity MORE in the future, due to old age and/or ill health?

I can't advise for or against the RM, but you asked for comments so I gave a few.

Not Real sure of the homes value (now) but before the recession it was at something like $212,000.00

Payoff is around $95,000.00

Offers received have been around $135 to $144,000.00

They don't care about equity (they'll be dead) and they can save $15 to $20,000.00 a year with the income from SS.

[Oceander]

Please, please, please, please - ad infinitum - have your parents consult with an experienced real estate attorney in their area who can properly advise them.  There will be fees for the consultation (remember, you get what you pay for, so a "free" consultation usually gets you nothing of real consequence), and if those are onerous to your parents then perhaps you and your siblings can chip in.  Your parents should also consider whether it would make any sense to file for bankruptcy; there are more options than just a liquidation bankruptcy and, for example, a Chapter 13 bankruptcy might allow them to effectively deal with those credit cards without having to sell the house - effectively - to pay them off.  To get proper advice on that, however, requires that your parents consult with an experienced attorney in their area.

Another thing to throw into the mix is the question of estate planning - not necessarily planning to pass assets on to you and your siblings, although that would be a definite plus - but to plan for potential medicaid issues, in which the value of the house might be at risk if either of your parents should end up requiring medicaid coverage from, for example, long term nursing home care.

I would suggest that you and your parents think of the legal fees, least for an initial consultation to get an idea if it's worth going forward, as a form of insurance premium because you're effectively paying to provide your parents from at least a little protection from future risks and mistakes.

This isn't legal advice by any stretch, period, so you and your parents definitely owe it to yourselves to get some real legal advice before they take any irrevocable steps.

[mrclose]

Oceander,  I'd like to thank You and the rest of the folks who replied!

So much to take in on this subject 'but' I'll get it sorted out .. eventually!

Again .. Thank You Everyone!

[raml]

Please listen to Oceander. I have only had bad experiences with people coming to my 92 yr old dads home in California that was paid off and offering him a reverse mortgage He died at 94 so they would get the home after 2 yrs of pymts not a good deal at all. His wife my mom had just died and he was having a hard enough time with that and then at his age to be pestered by these people made me mad they would come to the door a couple of times a week. He would call me and tell me what they were offering him and I said do you need more money you have $500,000 in different banks readily available that you can spend if you need to. He would of course say no he got enough from his pension and social security and interest on his savings to live nicely and even save money so I told him then tell the people to leave and he would give the phone to me to tell them. After my mom died my dad really went down hill mentally before her death he was still as sharp as a tack he had been president of his own company and vice president before that of Gar Wood industries in Michigan and had a degree in engineering and the law and he wouldn't have even let them in the house. My brother who was out there and lived with him after he retired to help out my folks till they died didn't want to be responsible for giving him advice since I was his executor and he would just have him call me when they came to the door but he would have never allowed the people to take advantage of him but what if he hadn't had people looking out for him he didn't need money like your folks seem to but still be careful that home seems to be their only asset and they don't want to lose that or be pushed into something that wasn't right for them. Personally chapter 13 sounds like a good idea to look into they would still be paying it back but at a lower rate that they could afford.