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Dorothy Said:

Is it a good idea to take reverse mortgage?

We Answered:

Your parents are still young. They could easily out live their equity and end up loosing their home. If they had retired 10 years ago this would be an OK idea, but considering their age this could be a disaster.

Lewis Said:

Is doing a reverse mortgage a good idea or are they to costly/?

We Answered:

This is from an article at http://www.reversemortgagepage.com...
Am I comfortable with the disadvantages of a Reverse Mortgage?
This is perhaps the most important question you must ask yourself. You first must know the disadvantages of a reverse mortgage. In a home equity mortgage the borrower pays down the debt over a set term, usually 30 years. Yet, in a reverse mortgage, the borrower builds up debt while they live in the home.
In addition to building up debt, there can be significant up front costs when brokering a reverse mortgage. If you plan on only taking out a small portion of money or plan on living in your home for only a short time then these costs can push the effective rate on the home up considerably.
The last significant disadvantage of a reverse mortgage is that you leave your heirs with a noticeably smaller legacy. While this is uncomfortable to discuss, it is something that needs to be discussed by you and your heirs. When you take out a reverse mortgage, you will have less equity in the home and likewise, the heirs will have a smaller portion of the home’s value. Also, the longer you live in the home, the more interest builds up, which further lessens the equity you have in the home.

The answer, I think, is that reverse mortgages do have up-front fees, but are still a good idea in the right situation.

Mildred Said:

What is a reverse mortgage? Is it a good idea for my parents?

We Answered:

Reverse mortgages are the most regulated and misunderstood mortgage product in America. Many of the posts are incorrect.

The #1 myth is that the bank takes the house. The bank does not take the title of the property. The only way the bank would take title is by foreclosure. As your parents do not make any mortgage payments for as long as they live in the house, the only reasons they can get foreclosed on are: 1) refuse to pay property taxes and hazard insurance, 2) allow the house to go into disrepair and refuse to remedy the problem, 3) the property goes to the estate upon death of all the borrowers and the estate refuses to sell or refinance the property in a reasonable time period – 6 to 12 months, 4) the borrowers permanently move out of the house (do not live there for over 12 months) and refuse to refinance or sell the property.

Reverse mortgages are not really more expensive than regular mortgages in dollar costs. Reverse mortgages cost about the same as a regular FHA loan. The confusion that comes into play is when you get a regular loan, you borrow all the money at the closing. With a reverse mortgage you are borrowing the money over time. The longer you keep the reverse mortgage, the cheaper the costs become as a percent of what you borrowed. Loan costs / loan amount = percentage of costs. So a reverse mortgage can seem expensive at the closing, but is cheap 5, 10 or 20 years down the road.

The answer to “if a reverse mortgage is a good idea for your parents” is does a reverse mortgage help them with their problem. The advantages reverse mortgages offer include:
1) They remain independent - A reverse mortgage allows them to have the money to stay in their home without relying on others for support such as you.
2) They can afford to stay in their home and retain homeownership versus having to sell it.
3) No monthly mortgage payments – they do not pay back the reverse mortgage nor make any monthly mortgage payments until they permanently move out of the home.

They can get the money in several ways:
1) Lump sum - they can receive part or all of you loan amount at closing.
2) Tenure payment - a monthly payment to them for as long as they live in the home.
3) Term payment - monthly payments for a time period they choose. By limiting the time period they receive monthly payments, they can increase the dollar amount of the payments; versus the tenure payment which is for the rest of their lifes. They do not make any payments after the term expires. They can refinance the reverse mortgage with another reverse mortgage if they want to at that time.
4) Line of Credit - similar to a traditional equity line. They pull out money from the line when they need it. The difference is with a traditional equity line they need to make monthly payments. The credit line is a great emergency fund.
5) The Home Equity Conversation Mortgage (HECM) and Home Keeper Mortgage programs allow you to combine these plans.

Reverse mortgages are highly regulated. There are three main Reverse Mortgage programs:
1) the government insured HECM program
2) the government sponsored Home Keeper program
3) the government regulated Cash Account program.
Your parents will have to take mandatory reverse mortgage counseling by law, before the mortgage company can process their loan.

Federal and state government, AARP, National Counsel on Aging, etc., advocate reverse mortgages as a loan product that can keep seniors in their homes – “Aging in Place”. Most people do not realize that they cannot get Medicaid until they are basically broke. So now that the senior gets Medicaid for home care, etc., how do they afford to keep their home? The National Counsel on Aging calls this “Using Your Home to Stay at Home” – a reverse mortgage.
I would recommend meeting with a loan officer that specializes in reverse mortgages to see what a reverse mortgage can do for your parents. How much they qualify for based on their age, location, and the equity of their home.

I would also recommend meeting with an Elder Law attorney about a trust or life estate to protect the equity in your parent’s home. The State is required to try to get as much of any Medicaid money your parents get as possible, by putting a lien on the senior’s home. As reverse mortgages are designed for seniors, they allow for trusts and life estate unlike traditional mortgages. The "look back" period has been increased from 3 years to 5 years.

Some children are happy that their parents are taking care of themselves and others are worried about their inherence. In either case, get the correct facts.

Good luck.

Rick Said:

Are reverse mortgages a good idea ?

We Answered:

please do anything but a reverse mortgage, they are bad news!