Question about reverse mortgage from Mrs. Pizza

DrPizza

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Since Dr. Pizza says you can find out about anything on here, Mrs. Pizza has a question for you.

My parents are talking about a reverse mortgage on their house. From what I am understanding about this,
a loan is made against their home that they do not have to repay (basically they spend down their homes equity) correct???
they live in their home until they die (which I hope is not anytime soon)
upon the time of their death the home is sold and the debt on the house is repaid.

They presently have a mortgage on their home that they cannot afford to keep up with let alone keep up on their other bills* with their limited SS income (didn't invest for the future). Is this a "wayout" for them. I don't want to see them make a mistake and they are looking to me for direction.

*Mrs. Pizza cannot keep giving them money to meet their debts or Dr's eyes are going to roll out of his head :roll: but I also would never let them lose their home.

Thanks.
 

Amused

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Apr 14, 2001
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Reverse mortgages don't usually give a lump sum, but instead pay monthly payments back to the owner until the house is paid for by the bank. Then the bank owns the house and takes possession upon an agreed upon occasion or date.

Not a bad idea for someone who has a fair amount of equity, but has not planed well for retirement.

More info from a fairly unbiased site:

http://www.aarp.org/money/revmort/

The government's info site on them:

http://www.ftc.gov/bcp/conline/pubs/homes/rms.htm

More info:

http://www.reversemortgage.org/

Consumer Reports take on them:

http://www.consumersunion.org/finance/rmbwc798.htm
 

Golgatha

Lifer
Jul 18, 2003
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http://www.aarp.org/money/revmort/revmort_basics/a2003-03-21-newloan.html

Basically they're borrowing against the equity they have in their home. They will eat away their equity much faster because each reverse loan payment charges interest on the money and the interest compounds year to year until the equity is used up. They can end up oweing more than the home is worth if property values decrease over the life of the loan as well.
 

Golgatha

Lifer
Jul 18, 2003
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Is there any chance they could sell their present home and move into something smaller? Also, if they are able to get a lump sum payment have them put it in a money market account so that they're at least getting 5% or so interest on the lump sum and have them make payments to themselves out of that. Once the reverse mortgage loan comes due though, they'll need more money than they have to pay it back. I have no idea how long the terms are for these reverse mortgages either, but I would hope they're longer than your parents expect to live.
 

allisolm

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How much do they still owe on the house? The way I understand it, they would have to take out that much in a lump sum and pay off the original mortgage, which could significantly lower the monthly payment from the reverse mortgage.
 

Golgatha

Lifer
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Originally posted by: allisolm
How much do they still owe on the house? The way I understand it, they would have to take out that much in a lump sum and pay off the original mortgage, which could significantly lower the monthly payment from the reverse mortgage.

That's correct. If they're dependant already on SSI, any payments from the reverse mortgage could be counted as an asset and lower their SSI income as well. I'd recommend they get a reputable councelor to go over all the details with them before they sign anything.
 

allisolm

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Originally posted by: Golgatha
Originally posted by: allisolm
How much do they still owe on the house? The way I understand it, they would have to take out that much in a lump sum and pay off the original mortgage, which could significantly lower the monthly payment from the reverse mortgage.

That's correct. If they're dependant already on SSI, any payments from the reverse mortgage could be counted as an asset and lower their SSI income as well. I'd recommend they get a reputable councelor to go over all the details with them before they sign anything.

I don't believe the reverse mortgage payments affect SSI or Medicare benefits and they're not taxable. Good info here.
 

DrPizza

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Originally posted by: allisolm
How much do they still owe on the house? The way I understand it, they would have to take out that much in a lump sum and pay off the original mortgage, which could significantly lower the monthly payment from the reverse mortgage.



Not sure, I think they have about 8 years left on their mortgage. Retired. Sold their place in Florida. Moved to NY so they could be closer to my sister and I and the grandkids. They had a good down payment plus what they put in with their retirement savings, so I can't imagine it's too much. But they cannot afford the $875 / month payment (took the mortgage for 15 years, mistake one) The home is an older farm house that sits on 50 acres so I am sure the equity is there, however from Drs and my own experience when homes with an + amount of acerage are appraised for a mortage the standard is the value of the home plus 5 acres. the remaining acreage is not included.

My suggestion to them was sell you house pay cash for a mobile home put it up here with Tom and I and be done with it. Of course, Drs comment to that was "why couldn't you tell them to put it on your sister's land, it's closer to town" LOL. However, dad wouldn't hear it.

I suppose the reverse mortgage thing wouldn't be that bad. The one downfall is to the heirs but my sister and I have our own lives and neither of us wants the house, so not like it would worry either of us if the bank took posession. Of couse selling the house with 5 acres and keeping the other 45 wouldn't be half bad either. LOL
 

DrPizza

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Originally posted by: allisolm
Originally posted by: Golgatha
Originally posted by: allisolm
How much do they still owe on the house? The way I understand it, they would have to take out that much in a lump sum and pay off the original mortgage, which could significantly lower the monthly payment from the reverse mortgage.

That's correct. If they're dependant already on SSI, any payments from the reverse mortgage could be counted as an asset and lower their SSI income as well. I'd recommend they get a reputable councelor to go over all the details with them before they sign anything.

I don't believe the reverse mortgage payments affect SSI or Medicare benefits and they're not taxable. Good info here.



My understand as well. The reverse mortgage payments don't affect the SSI or Medicare benefits. Actually in the long run as far a Medicare and Medicaid are concerned say in the end one or both have to go into a NH (god forbid) by spending down their equity in the home it would be less money they would have to shell out to private pay for thier care in a home (having to be forced to sell their home to pay for nursing care)
 

Golgatha

Lifer
Jul 18, 2003
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Originally posted by: allisolm
Originally posted by: Golgatha
Originally posted by: allisolm
How much do they still owe on the house? The way I understand it, they would have to take out that much in a lump sum and pay off the original mortgage, which could significantly lower the monthly payment from the reverse mortgage.

That's correct. If they're dependant already on SSI, any payments from the reverse mortgage could be counted as an asset and lower their SSI income as well. I'd recommend they get a reputable councelor to go over all the details with them before they sign anything.

I don't believe the reverse mortgage payments affect SSI or Medicare benefits and they're not taxable. Good info here.

You're right and I'm wrong. Here's what I was thinking of....

http://www.reversemortgage.org/Default.aspx?tabid=230

It can affect Medicaid not SSI or Medicare. My bad.

Will I Lose My Government Assistance If I Get a Reverse Mortgage?

A reverse mortgage does not affect regular Social Security or Medicare benefits. However, if you are on Medicaid, any reverse mortgage proceeds that you receive must be used immediately. Funds that you retain would count as an asset and could impact Medicaid eligibility. For example, if you receive $4,000 in a lump sum for home repairs and spend it all the same calendar month, everything is fine. Any residual funds remaining in your bank account the following month would count as an asset. If the total liquid resources (including other bank funds and savings bonds) exceed $2,000 for an individual or $3,000 for a couple, you would be ineligible for Medicaid. To be safe, you should contact the local Area Agency on Aging or a Medicaid expert.

 

woowoo

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Feb 17, 2003
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Originally posted by: DrPizza
Not sure, I think they have about 8 years left on their mortgage. . They had a good down payment plus what they put in with their retirement savings, so I can't imagine it's too much. But they cannot afford the $875 / month payment (took the mortgage for 15 years, mistake one)

Refinance?
 

Golgatha

Lifer
Jul 18, 2003
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BTW. I'm totally with you on the parents not saving for retirement issue. My dad has done pretty well with it and my paternal grandma did even better. My mother's side of the family is another story however. My mom has a 2nd mortgage and probably owes more on the loan than the home is worth and my aunt (she has no descendants except me) owes back taxes and lives with my grandma with no assets to speak of. My grandma recently took out a mortgage against her home to pay for a vehicle, which is really sad because she is the one who is actually pretty good with money, but she couldn't afford the transportation due to her limited SSI. She was widowed back in 1978, which really fubared her finances at the time due to medical bills for my late grandpa (never knew him as I was also born in 1978). To be honest my mom drained a lot of her disposable income while I was growing up, so I'll gladly pay for her funeral. My aunt is a piece of work however and I'll most likely foot the bill to bury her as well.:disgust:
 

Golgatha

Lifer
Jul 18, 2003
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Originally posted by: woowoo
Originally posted by: DrPizza
Not sure, I think they have about 8 years left on their mortgage. . They had a good down payment plus what they put in with their retirement savings, so I can't imagine it's too much. But they cannot afford the $875 / month payment (took the mortgage for 15 years, mistake one)

Refinance?

Yeah, that changes a lot. If they have good credit they could refinance at around 6% on a 30year mortgage to lower their payment a lot.
 

radioouman

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Nov 4, 2002
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If they are sitting on 50 acres, could they sell off part of the land to pay the remainded on their mortgage? That way they could keep the house....
 

rivan

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Jul 8, 2003
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You've got most or all of the facts out there already, from the links provided earlier.

My mother set one of these up earlier this year, against my advice. I was against it from the standpoint that it's a highly inefficient use of the equity in a home. I'd offered even to take over the house payments for her to give her the monthly cashflow she was after, but she decided in the long run the reverse mortgage was her best bet.

My opinion was that it was my job to educate my mother on her options, and that it'd be her decision from there.
 

DrPizza

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Originally posted by: woowoo
Originally posted by: DrPizza
Not sure, I think they have about 8 years left on their mortgage. . They had a good down payment plus what they put in with their retirement savings, so I can't imagine it's too much. But they cannot afford the $875 / month payment (took the mortgage for 15 years, mistake one)

Refinance?

ahhh ha... my suggestion to them as well but not sure if that will work they filed bankruptcy and it was just recently discharged in July. reaffirmation of debt for the mortgage on the home. So not sure if that is an option. They could refinance for 30 years putting them at 101 years old before the mortgage is paid, but would a bank even look at that.
 

DrPizza

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well, i've forwarded the links to their e-mail and I am going to go down to their house tomorrow and sit down with them. I was just on the phone with them and my insight to this is they are overwhelmed with no sense of organization as to what is going on. They couldn't answer the simple questions.

so, their assignment for today is to write down all their bills, outstanding balances etc and we are going to see where they stand together. They are in agreement to this, but I'm almost afraid to see what we end up with. Hopefully I can work out a budget for them and they can stick to it. I suppose as their Power of Attorney and executor of their estate I should be aware of whats going on. I just hate surprises and I want to know where the money I'm giving them is going.

I've also adivised them to make a call to our local aging dept. and seek some advice as far as the reverse mortgage is concerned.
 

mugs

Lifer
Apr 29, 2003
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Originally posted by: DrPizza
My suggestion to them was sell you house pay cash for a mobile home put it up here with Tom and I and be done with it. Of course, Drs comment to that was "why couldn't you tell them to put it on your sister's land, it's closer to town" LOL. However, dad wouldn't hear it.

I like that idea

Except well... living that close to your in-laws could be annoying.