NLIC.org

Tanya Said:

Please outline the advantages and disadvantages of a reverse mortgage? Who is it really good for?

We Answered:

I don't think a reverse mortgage would be good in their situation. While it usually is beneficial for older people to get it, they still have a large amount of debt on their house. A reverse mortgage is for people that have little or no debt on their house. They don't want to sell it to get money, because they need a place to live. So the mortgage company pays them monthly dividends, they get extra money, get to stay in the house and then there is just less money from the sale of the house for the estate when they pass away.

Basically, the bank is slowly buying the house back from someone w/ a reverse mortgage. I found this site below, it might prove helpful. I have no ties or knowledge of them, it just looked helpful. From the looks of it, your grandparents would have to bring 90k to the closing table to pay off their existing mortgage before being able to do this!

Roberto Said:

What are the advantages and disadvantages of a reverse mortgage?

We Answered:

The advantages are that you will increase your monthly net disposable income and will never have to make another mortgage payment. Disadvantages include the closing costs and your heirs will get less inheritance...

Rick Lanicek
www.primelendingonline.com

Milton Said:

What would be the advantages and disadvantages of a reverse mortgage.?

We Answered:

advantage:
- allows equity in home to be converted to cash flow by borrowing with no monthly repayment (repayment due at maturity ... presumably by liquidating the collateral) or with interest only payments
- this can be a useful mechanism, particularly for older 'property rich/cash poor' persons to augment their cash flow ... however ...

disadvantage:
- at some point, the equity in the collateral property is fully borrowed and a large balance is owed against it (ie borrower has little or no remaining equity in the property)
- in the case of an older borrower, this means a smaller estate to pass along and the risk of outliving the cash flows from the reverse mortgage ... which translates to no house, no more borrowing capability, no more cash flow, no more,no more, no more

Margie Said:

Anyone ever gotten a "Reverse Mortgage."?

We Answered:

I spent a lot of time looking into reverse mortgages for my mother (we decided against). I put my thoughts about it down here, if you're interested: http://www.reverse-mortgage-information.org/is-a-reverse-mortgage-right-for-me/

1. What should she be aware of?

She should be aware:
- that the costs for reverse mortgages are relatively high (closing costs, mortgage insurance, etc.)

- that to amortize these high costs and make the reverse mortgage a sound financial deal, she will need to remain in the home for at least 5-7 years. If she dies or moves out sooner, it will have been a very expensive way to borrow

- that the amount she can borrow depends largely on her age (older homeowners can get more) as well as the value of her home. As a % of home value, she may not be able to borrow as much as she wants. Be sure to check out one of the many online RM calculators to get a feel for the amount she'll be able to borrow, fees, etc. Here's one: http://nrmla.edthosting.com/index.asp

- that the amount she borrows (and interest thereon) will reduce the amount of any bequest.

- that reverse mortgages are complex and require the borrower to do a fair amount of homework. She'll be required to attend a formal counseling session. Don't make the mistake of blowing this off. It's the best chance you get to have questiuons answered and ensure you understand things.

2. Types of reverse mortgages.

The most common type of reverse mortgage is the HECM (home equity conversion mortgage), insured and regulated by HUD/FHA. HECMs are the best deal around for "average guys" with homes valued $400,000 or less.

Private lenders have developed programs for higher valued homes with a bunch of different confusing options.

In the right situations, reverse mortgages can be wonderful tools to help retirees improve quality of life.

One thing to watch for: the best HECM deals right now have interest rates with a 1% margin. But some lenders still push more costly 1.5% or 1.25% margin loans. Avoid these.

Added:

A reverse mortgage is very much a loan. The difference is you are not required to pay back principal or interest until the homeowners passes away or sells the home. The nice part is you never owe more than the value of the home.

From the sound of your Mom's situation, a RM may be nice fit for her.

Good luck.

Cathy Said:

What are the disadvantages of a Reverse Mortgage?

We Answered:

Your kids will have no inheritance when you die.