Reverse mortgages?

John Baker

John Baker

Final Approach
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John Baker
I'm looking at obtaining a reverse mortgage on my house. The bank rep came to my house last night with a pile of papers to sign. He assured me that they were only the application, so I can still walk away until I sign the actual loan documents.

I have around 300K in equity, with about the same amount still owed on my mortgage. I'm paying $2,300.00 per month payments.

If I could sell my house, I could walk away with a nice chunk of change. probably pay cash for some modest dump somewhere and never have to work again.

If I do the reverse mortgage, I can continue living in my own modest dump for the rest of my life. After looking at the loan papers, that is what I would have to do, there would be nothing left in equity within just a few years. Nothing for a nursing home to glom onto.

However, by not having a mortgage, I should be able to sock away a few thousand dollars a month, if I keep working.

No house payments, the only thing I would actually own is my airplane, car, and business. My network of friends and support, like doctors and such, are all set up for me now here in San Diego. Moving to another location I would have to re-build that network with new people.

According to the loan guy, I would have to live for a portion of each year in my home. He said that could amount to spending one night a year here if I want, without losing my home.

I explained to him I'm a pilot, and there is a risk of spending time in a long term care facility. He said if I hire someone to bring me home on a gurney, and I spend one night, I've met the requirements for being in my house for a portion of the year.

So what do you guys think? have any of you done this?

John
 
John Baker said:
I'm looking at obtaining a reverse mortgage on my house. The bank rep came to my house last night with a pile of papers to sign. He assured me that they were only the application, so I can still walk away until I sign the actual loan documents.
Click to expand...

John, was this your idea, or is your bank rep trying to sell you on it? My philosophy is this: "Don’t buy what someone wants to sell to you. Buy what you have researched, and what you think has value."


John Baker said:
According to the loan guy, I would have to live for a portion of each year in my home. He said that could amount to spending one night a year here if I want, without losing my home.

I explained to him I'm a pilot, and there is a risk of spending time in a long term care facility. He said if I hire someone to bring me home on a gurney, and I spend one night, I've met the requirements for being in my house for a portion of the year.
Click to expand...

What that guy says doesn't mean squat. What's in the documents?

John Baker said:
So what do you guys think? have any of you done this?
Click to expand...

I haven't done it, but from what I've heard, the fees can be outrageous, and the business attracts unethical characters when seniors & money are involved.

Here's a few links I culled from a quick search on clarkhoward.com:

http://www.clarkhoward.com/news/cla...tgages-offer-last-option-seniors-stay-t/nFp5/

http://reverse.org/

http://www.ftc.gov/bcp/edu/pubs/consumer/homes/rea13.shtm
 
+1. All that glitters is not glit. Neither is all that titters, especially in CA.

rpadula said:
John, was this your idea, or is your bank rep trying to sell you on it? My philosophy is this: "Don’t buy what someone wants to sell to you. Buy what you have researched, and what you think has value."




What that guy says doesn't mean squat. What's in the documents?



I haven't done it, but from what I've heard, the fees can be outrageous, and the business attracts unethical characters when seniors & money are involved.

Here's a few links I culled from a quick search on clarkhoward.com:

http://www.clarkhoward.com/news/cla...tgages-offer-last-option-seniors-stay-t/nFp5/

http://reverse.org/

http://www.ftc.gov/bcp/edu/pubs/consumer/homes/rea13.shtm
Click to expand...
 
What you've described kind of sounds like "something for nothing" unless I'm missing something. And too good to be true usually is.

If you could sell your house, all that EQ would be yours free and clear, no strings. Why add a reverse mortgage into it which is just going to be more fees to a bank?
 
You are selling your house for 60 cents on the dollar.
In addition they are betting that statistically you won't live to collect all 60 cents and they get the house even cheaper...
My limited understanding is that if you croak a month after cashing the first check they own it...
If that is what you want to do, have at it...

denny-o
 
John Baker said:
So what do you guys think? have any of you done this?

John
Click to expand...

My older sister did, it worked for her, and she sold her home and paid back the reverse and still has a large portion of her EQ to live on. she only had about 4 years of the reverse to pay off.

You could sell and move, many do, as you age your circle of friends gets smaller and smaller, and the house gets bigger and bigger.

WE have considered the reverse but in our situation it is too early in our lives to do it, Barb will most likely out live the mortgage and it would stop when she needs it most.
 
I only know one person who beat them at their own game - my sister in law...
Leroy died and she worked as long as she could... At the height of the real estate bubble she took out a reverse mortgage on this sagging shack of a house in Flint Michigan from some bank in California... She even took the worse deal where they gave her less than half of the appraised value as payment in full up front instead of monthly payments... She tucked that $60K away in the bank and lived modestly for another 4 years, when she had a stroke, declined and finally died after a few months...
Her daughter became executor of her estate...
First, the hospital and the Medicare came in and demanded that she pay her mother's medical bills out of her own pocket - she snorted and laughed in their faces...
Then the bank came in and wanted possession of the house, she told them the key was under the door mat and to have at it but to slam the car door a couple of times before walking up on the porch because the crack heads in the neighborhood had a tendency to shoot when startled...
Then the bank manager called and plaintively asked if that was actually the right house... She said it was and why did he ask...
He explained that they had $65K in it and it was appraised at $180K... They had their real estate company put it on the market and the only offer they had was fifteen hundred cash from a slum landlord...
He also said that they were entitled to recover any unspent monies from their payment... She laughed and informed him that when the court gave her access to her mothers bank account there was exactly $1 left and she found 74 cents in change under the couch cushion and did he want it... He said, no, no, that will just cause me more grief than it is worth..

So she won still holding a buck seventy four...

denny-o
 
Dr. O said:
I only know one person who beat them at their own game - my sister in law...
Leroy died and she worked as long as she could... At the height of the real estate bubble she took out a reverse mortgage on this sagging shack of a house in Flint Michigan from some bank in California... She even took the worse deal where they gave her less than half of the appraised value as payment in full up front instead of monthly payments... She tucked that $60K away in the bank and lived modestly for another 4 years, when she had a stroke, declined and finally died after a few months...
Her daughter became executor of her estate...
First, the hospital and the Medicare came in and demanded that she pay her mother's medical bills out of her own pocket - she snorted and laughed in their faces...
Then the bank came in and wanted possession of the house, she told them the key was under the door mat and to have at it but to slam the car door a couple of times before walking up on the porch because the crack heads in the neighborhood had a tendency to shoot when startled...
Then the bank manager called and plaintively asked if that was actually the right house... She said it was and why did he ask...
He explained that they had $65K in it and it was appraised at $180K... They had their real estate company put it on the market and the only offer they had was fifteen hundred cash from a slum landlord...
He also said that they were entitled to recover any unspent monies from their payment... She laughed and informed him that when the court gave her access to her mothers bank account there was exactly $1 left and she found 74 cents in change under the couch cushion and did he want it... He said, no, no, that will just cause me more grief than it is worth..

So she won still holding a buck seventy four...

denny-o
Click to expand...

The reverse mortgage was a good idea for the banks when we had a rising economy and rising home prices. but not so in a declining market, I'm surprised John could find a bank willing to still do it.

I do not believe I would accept any bank prices until I knew the actual selling price of my house and compare the two.

and how would you know the actual selling price?

But John has a very good reason to stay put.. he has great medical services in S.D. and every support he needs there. but for the money he is talking about, he could live here and have bucks left over.

250k will buy you a nearly new 2500 square foot house in OKH on a gas main with in walking distance of down town, and the beaches, plus we have a great medical care here too.

S.D is a great place to live but it costs a lot to be warm in the winter and cool in the summer. It was frosty here this morning :)
 
I tried selling my house last year. It was on the market for six months. I did not get one offer, nada, nothing. Not even a slum lord offer. I had this dream of moving up to Orcas or San Juan Island, but nope, didn't happen.

I guess I could try selling it again, but then, of course, this revers mortgage banker said in a few weeks, all the terms are going to change, and I probably will no longer qualify. Talk about a red flag.

It's a ***** getting old and trying to figure out what to do. I really appreciate all your guys input.

John
 
Things are less expensive in the midwest. Yes the wx sucks, but in winter you put on a coat and in summer you sweat. There are worse things in life.
 
Yea, it's more than obvious the guy is trying to make a sale. He drove all the way to San Diego from Irvin just to bring me th papers to sign. But then, I try to make sales in my business as well. I know it's not a charity, someones making money on the deal.

John
 
John: there's a place for it; you just have to run the numbers and compare it to alternatives available. Usually, it's better for someone that doesn't have a lot of options and not making house payments is very important. As has been said, the fees are high: both up front and monthly servicing. There are also pitfalls: one has to properly maintain the home and keep taxes current. My Mom gets a lot of reminders from the bank that taxes are due; show proof of insurance, etc.

Businesses do what's good and profitable for them. If it's good for you also, great, but don't mistake their motive.

We went through all this with my Mom and it made sense for her. She didn't have much other income or assets and not making a house payment and staying there greatly affected the quality of her financial situation.

If you make a large withdrawal, you have to run the numbers on the return on the side fund money and the risk you take with it. With the amount you are talking about, it sounds like you have better alternatives, but we all approach things differently and you have to do what you are comfortable with. Loan rates are really low today--under 4% for a 15 year fully amortizing mortgage. You might what to just make the calculations on borrowing, investing the proceeds and making payments from them. If you think the house may appreciate, factor that in. $300,000 could fund payments for many years which is what the bank is charging you a lot of money to do. A lot would depend on what the house was worth when the side fund was exhausted. This would at least show you the alternatives.

Consumer's Reports had a good article on it when Mom did it. Might be worth a read. I've kind of gotten where I am cutting out as many middle men as possible; each of which wants to get paid in amounts which may not relate to value added. This is putting a big middle man in the room with you.

Best,

Dave
 
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There is one ironclad rule:

"If a bank wants you to do it, it will not be in your best interest."

It will be in theirs.
 
The reverse mortgage is not as profitable for the Banks now, in the declining market....... but in turn, they will offer less of the appraised value and sock the fees to you.

The banks going to make the money on the house, and you could make the same amount by selling, renting it out, etc. Personally, I think the reverse mortgage option is worse ethically than the sub-prime mortgage and variable rates.

There are very few cases where the home owner is going to come out ahead.
 
TripleZ said:
The reverse mortgage is not as profitable for the Banks now, in the declining market....... but in turn, they will offer less of the appraised value and sock the fees to you.

The banks going to make the money on the house, and you could make the same amount by selling, renting it out, etc. Personally, I think the reverse mortgage option is worse ethically than the sub-prime mortgage and variable rates.

There are very few cases where the home owner is going to come out ahead.
Click to expand...

Leads to two questions, how much will it cost you and what is not having to do the bolded above worth. It's a service and you will pay for it. The value must be weighed by each individual.
 
This is a good thread, and best wishes to John. It's been several years but I remember the parameters of a Reverse mortgage story. Without ALL of the details at hand, there was an aging lady who was faced with the RM option. She had a rather nice property. Not only was she aging, but there were some physical problems about her self. She MAY have been in her 70s at that time and proceeded to enter into the Reverse Mortgage.

Whether it was medical technology or her will-power, who's to know, but when she was turning somewhere in the 101-102 years of age factor her friendly bank was, shall we say, concerned about their "investment." I didn't "Snopes" this, but it's fairly "on."

HR
 
Talk to an accountant or tax lawyer first. They will tell you how long you need to live to recoup the expenses.

IMHO, cash in the bank is usually better. It gives you more options.
 
Would selling it for whatever you can, and, renting your next home make financial sense? IE get out of mortgages period?
 
John Baker said:
...
I guess I could try selling it again, but then, of course, this revers mortgage banker said in a few weeks, all the terms are going to change, and I probably will no longer qualify. Talk about a red flag.

....
Click to expand...

That.

There's nothing per se "wrong" with a reverse mortgage. There is certainly a place for them, and if it fits your needs it's worth considering. But, you need to make 100% sure that you understand exactly what you're agreeing to, and that includes what you'd have to do to get out of it.

Out of curiousity, you mentioned an existing mortgage. How would the reverse mortgage interact with that (I've never seen it, either personally or professionally)?
 
Jay Honeck said:
There is one ironclad rule:

"If a bank wants you to do it, it will not be in your best interest."

It will be in theirs.
Click to expand...

That's not necessarily the case.

Often both parties can come to a mutually beneficial arrangement, which is the purpose behind all negotiations. It's not a zero-sum game, the bank can further their interests while at the same time furthering the homeowner's interests.

This is in no way making any comment on the merits of the particular offer in question. The "terms are changing next week" is a major league red-flag for me.
 
For some people reverse mortgages work, for others they do not. Like my financial advisor said - reverse mortgages carry some cost but if you know what you are getting into and fully understand the product it is OK to consider them. It is not a scam, it is a legitimate product but you have to do your homework.
 
Obi Heed Kenobi said:
Out of curiousity, you mentioned an existing mortgage. How would the reverse mortgage interact with that (I've never seen it, either personally or professionally)?
Click to expand...

When I helped Mom with hers, the reverse paid off the existing loan and the terms were geared to that. That seems the most common scenario.

Best,

Dave
 
A real red flag is how much tv advertising is now going into reverse mortgages, just like all the tv ads for getting home equity loans a few years back. It seems like an overall objective is to keep most people from actually owning their homes.
 
In general, selling your house and renting is smarter, and you will clear more in the end.

If you want to liquidate your assets so that the nursing home can't get paid for its services (?), maybe try setting up an offshore account in Nauru, or maybe Liechtenstein, although that's getting harder to do. Then you can plead poverty and get your cheap nursing home care without having to pay as much, and still vacation on the Riviera.:rolleyes:
 
rpadula said:
John, was this your idea, or is your bank rep trying to sell you on it? My philosophy is this: "Don’t buy what someone wants to sell to you. Buy what you have researched, and what you think has value."




What that guy says doesn't mean squat. What's in the documents?



I haven't done it, but from what I've heard, the fees can be outrageous, and the business attracts unethical characters when seniors & money are involved.

Here's a few links I culled from a quick search on clarkhoward.com:

http://www.clarkhoward.com/news/cla...tgages-offer-last-option-seniors-stay-t/nFp5/

http://reverse.org/

http://www.ftc.gov/bcp/edu/pubs/consumer/homes/rea13.shtm
Click to expand...

Dave Siciliano said:
John: there's a place for it; you just have to run the numbers and compare it to alternatives available. Usually, it's better for someone that doesn't have a lot of options and not making house payments is very important. As has been said, the fees are high: both up front and monthly servicing. There are also pitfalls: one has to properly maintain the home and keep taxes current. My Mom gets a lot of reminders from the bank that taxes are due; show proof of insurance, etc.

Businesses do what's good and profitable for them. If it's good for you also, great, but don't mistake their motive.

We went through all this with my Mom and it made sense for her. She didn't have much other income or assets and not making a house payment and staying there greatly affected the quality of her financial situation.

If you make a large withdrawal, you have to run the numbers on the return on the side fund money and the risk you take with it. With the amount you are talking about, it sounds like you have better alternatives, but we all approach things differently and you have to do what you are comfortable with. Loan rates are really low today--under 4% for a 15 year fully amortizing mortgage. You might what to just make the calculations on borrowing, investing the proceeds and making payments from them. If you think the house may appreciate, factor that in. $300,000 could fund payments for many years which is what the bank is charging you a lot of money to do. A lot would depend on what the house was worth when the side fund was exhausted. This would at least show you the alternatives.

Consumer's Reports had a good article on it when Mom did it. Might be worth a read. I've kind of gotten where I am cutting out as many middle men as possible; each of which wants to get paid in amounts which may not relate to value added. This is putting a big middle man in the room with you.

Best,

Dave
Click to expand...

All excellent advice.

There's a place for the product, but you really need to understand the options. The "you won't qualify tomorrow" should make you run, not walk, away from this lender. It's like life insurance, annuities, or any other financial product.

I'd suggest that you get some good, local advice from a financial planner, a financial counslor (some churches or local organizations often have low-cost services) or a lawyer. All need to understand the long-term financial & tax implications and the state/local laws.

Selling is often the best option - some folks even auction their houses (but be prepared for lowball bids).
 
The most dangerous thing I've seen with RM are cases where the only occupant becomes ill enough to be hospitalized, then moved to a care facility. The RM usually has a clock that starts ticking if you aren't living in the residence. Go over that timeframe, get well enough to be released from care, you're not going "home". This all requires some special circumstances like the Docs must have told the bank it's unlikely you'll ever go home, etc. But I've personally seen it happen once. Bank takes possession of the house, elderly patient gets "miraculously" better.
 
I can't recommend them. Having assisted my mother with one (her insistence) and many, many clients.

But, if you are a savvy businessman, you can no doubt run the numbers and determine your own risk tolerance. Some questions I would know the answer to are:

1. TOTAL of origination fees and transaction costs. These are almost all federally backstopped, which means origination charges are allowed and expected. Can get pretty high.

2. Cost per withdrawal of cash

3. Maximum and minimum frequency of withdrawals

4. Maximum and minimum withdrawal amounts

5. How often the lender can re-appraise the home's value and what method of appraisal will be used. Also if there is an appeal mechanism (you are limited in borrowing to a percentage of AV, less reserve, so if they suddenly plummet the AV 6 months in you can find yourself with less available equity than you planned).

DO NOT TRUST THE GUY WHO SAID LIVING THERE 1 DAY PER YEAR = PRINCIPAL RESIDENCE. NOT TRUE. NOT LIVING THERE IS AN EVENT OF DEFAULT AND THE LOAN WILL BE ACCELERATED. There are only a handful of large servicers and they all use field agent companies to verify occupancy - you'll get annual affidavits, periodic soft inquiries on your credit panel, mailings designed to discover mail forwarding, etc.
 
It's just way too much like a feeding frenzy, and I'm the chum. I have two reverse mortgage companies involved. One company got me started, then another called up and led me to believe he was with the first company. He was the one who set a tone of urgency or I won't qualify. Last night I got home and I end up in a conference call with the first company saleslady and the president of her company.

To meet the government requirements I must go through a counseling session, which I paid for, and will take place at five pm today. Both companies want me to ask the councilor to fax them a copy of my completion certificate as quickly as possible. They will mail my original certificate.

After the high pressure call last night, two calls at work yesterday, what I have gleaned from this board, I've decided to just have the certificate mailed to me in case I change my mind. but no, I'm not going to do it at this time.

I want to look at other options more closely before I consider a reverse mortgage.

John
 
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Good.

Being rushed into a decision is always bad. If after a bunch of research and number crunching, it still looks like a good deal for you...... by all means go for it.
 
John Baker said:
It's just way too much like a feeding frenzy, and I'm the chum. I have two reverse mortgage companies involved. One company got me started, then another called up and led me to believe he was with the first company. He was the one who set a tone of urgency or I won't qualify. Last night I got home and I end up in a conference call with the first company saleslady and the president of her company.

To meet the government requirements I must go through a counseling session, which I paid for, and will take place at five pm today. Both companies want me to ask the councilor to fax them a copy of my completion certificate as quickly as possible. They will mail my original certificate.

After the high pressure call last night, two calls at work yesterday, what I have gleaned from this board, I've decided to just have the certificate mailed to me in case I change my mind. but no, I'm not going to do it at this time.

I want to look at other options more closely before I consider a reverse mortgage.

John
Click to expand...

"Hurry, hurry, hurry" in business, especially if I suspect always triggers my "Who's about to bend me over?" warnings in my headset. :)

I think I'd tell both of them to back off or you won't do business with them, and then take as much time as you need.
 
denverpilot said:
"Hurry, hurry, hurry" in business, especially if I suspect always triggers my "Who's about to bend me over?" warnings in my headset. :)

I think I'd tell both of them to back off or you won't do business with them, and then take as much time as you need.
Click to expand...

That's a pretty good rule of thumb. Unless you can be pointed to some specific reason why the situation will change in the immediate future, doing things hastily is usually a bad idea.

John, I wish I could give you more specific advice, but the best I can do is to say "read, read, read" whatever contract is involved. Don't rely whatsoever on any representations made, as I can guarantee that there is a clause in contract that says "what is written here is our agreement, and you agree that anything we've told you is not a part of this agreement." That includes asking them what a particular provision means.
 
John, fer gawds sake, before you sign anything, HIRE A LAWYER to review it!

You don't need be among the ones that hear, "Who held a gun to your head..?"
 
John Baker said:
It's just way too much like a feeding frenzy, and I'm the chum.
Click to expand...

Yup.

The reason you are their wet dream is that your property is not a sagging shack in Flint,MI but something of value they hope to get their hands on 5 years from now. They take a percentage, a nice home in SD is going to be a nice number for them.

If you thought a reverse mortgage is a good deal, I could have gotten you in contact with some people who have a great investment opportunity in vacation timeshares.

The TV ads interspersed with the disability lawyers and the pressure sales tactics are probably the best tip-off that it is a shady business.

If your house is on the market and hasn't sold, the asking price is too high. Nothing more, nothing less to it.
 
weilke said:
If your house is on the market and hasn't sold, the asking price is too high. Nothing more, nothing less to it.
Click to expand...

And if you lower the price to sell in this market, you'll have no EQ.
 
Well, after having the required counseling, I'm not so sure about not doing it anymore. I think I probably am going to go ahead with it, but not with the aggressive salesman that stepped in when another company was working with me. He is the one who did all he could into try to scare me into acting right now. According to the councilor, there is no rush at all, I will still qualify whenever I want to do it.

Here are a few pics of my modest cabin in a very expensive neighborhood.

John
 

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Go talk to an uninterested lawyer who specializes in elderly/geriatric issues.
 
John,

Put your place somewhere in the CO rockies within an hour commute of Denver, and I'd be interested in it someday.

Very nice.
 
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