Reverse Mortgage.

[highland145]

About 90% of all reverse mortgages are federally guaranteed – backed by the Federal Housing Administration.

Does this mean that if/when the banks takes possession of the house and sells it for less than the amount owed on the loan that the FHA/taxpayers covers the difference?

If so, who thought this was a bright idea?

http://www.tudorfinancial.com/wm_real-estate-reverse-mortgages.php

 

[IceBergSLiM]

reverse mortgages are for old people that need to get money out of their house without selling it. In a typical scenario the old people die long before all their equity has been returned.

 

[edro]

reverse mortgages are for old people that need to get money out of their house without selling it.

irrelevant to OP

 

[dullard]

irrelevant to OP

It is highly relevant to the OP. In fact the entire terms of the reverse mortgage change as you get older since the age is crucial to the whole concept.

With a reverse mortgage, you own a house outright but have no money to keep living with the lifestyle you need/want. So, you borrow a little money each month from your house equity. If you are 40 years old and wanted to do that, you probably don't have enough equity in the house for the idea to work. You'll use up your equity before you die and then you'll owe as much as the house is worth and the FHA would be liable for any losses.

But, if you start at the median age in the mid-70s, you will likely only be borrowing for a decade or so. At a reasonable loan rate of ~$1k per month, you'll likely die or move to a nursing home (or assisted living home or similar) with tons of equity left. Thus, the FHA has almost no chance of losing.

 

[highland145]

reverse mortgages are for old people that need to get money out of their house without selling it. In a typical scenario the old people die long before all their equity has been returned.

It is highly relevant to the OP. In fact the entire terms of the reverse mortgage change as you get older since the age is crucial to the whole concept.

With a reverse mortgage, you own a house outright but have no money to keep living with the lifestyle you need/want. So, you borrow a little money each month from your house equity. If you are 40 years old and wanted to do that, you probably don't have enough equity in the house for the idea to work. You'll use up your equity before you die and then you'll owe as much as the house is worth and the FHA would be liable for any losses.

But, if you start at the median age in the mid-70s, you will likely only be borrowing for a decade or so. At a reasonable loan rate of ~$1k per month, you'll likely die or move to a nursing home (or assisted living home or similar) with tons of equity left. Thus, the FHA has almost no chance of losing.

I understand the age/bucket kicking argument but if the lender takes a loss on any loan, are we on the hook for it irregardless of the large portion that they made $$ on? If so, sounds like a loss/loss for the taxpayer.

 

[nick1985]

These commercials on TV all look like scams. Are they not scams?

 

[highland145]

These commercials on TV all look like scams. Are they not scams?

In-laws did one. Great for them (74 and 70). They were on a limited income. Got $300K and they can live in the house until they die. The loan values were based on 10 years so if they die in 20, the bank takes it in the butt. Or is it the FHA/taxpayer? 10 years of additional interest on the total note would be substantial.

 

[dullard]

I understand the age/bucket kicking argument but if the lender takes a loss on any loan, are we on the hook for it irregardless of the large portion that they made $$ on? If so, sounds like a loss/loss for the taxpayer.

I'm no expert on the subject. But I assume the government charges banks a pretty penny for this guarantee. Reverse mortgages come with tons of fees, the government should be getting a cut of that which should offset any possible miniscule losses. That said, I used the word "should", I don't know if it is actually happening.

And, in the end, it is probably far cheaper for the government to lose a tiny bit on homes that were given reverse mortgages that were too large than for the government to have to support a bunch of old people even more than they already do.

 

[dullard]

In-laws did one. Great for them (74 and 70). They were on a limited income. Got $300K and they can live in the house until they die. The loan values were based on 10 years so if they die in 20, the bank takes it in the butt. Or is it the FHA/taxpayer? 10 years of additional interest on the total note would be substantial.

Did they borrow more than the house is worth? Or will they die in 20 years, the bank sells the house for $300k and no one lost a penny?

 

[highland145]

I'm no expert on the subject. But I assume the government charges banks a pretty penny for this guarantee. Reverse mortgages come with tons of fees, the government should be getting a cut of that which should offset any possible miniscule losses. That said, I used the word "should", I don't know if it is actually happening.

And, in the end, it is probably far cheaper for the government to lose a tiny bit on homes that were given reverse mortgages that were too large than for the government to have to support a bunch of old people even more than they already do.

Thanks.

My in-laws would have just struggled along until they die. There's no other way, that I know of, for them to get additional income from the government.

 

[Scarpozzi]

These commercials on TV all look like scams. Are they not scams?

Of course! Everything these days pertaining to someone trying to sell you something is a scam. That's not to say the scam is illegal... Reverse mortgages are basically a cheap way out for people who didn't plan thier retirement properly and want to cash out their assets slowly while still using them.

In all honesty, there are few exceptions where it makes sense to do one. The scam comes from the terms that you may have to sign to when doing one of these deals. There are a bunch of fees you have to pay and it basically negates a large percentage of your equity...not to mention, they get the house in the end.

http://www.allrmc.com/articles/Reverse_Mortgages_-_Pros_and_Cons.php

 

[highland145]

Did they borrow more than the house is worth? Or will they die in 20 years, the bank sells the house for $300k and no one lost a penny?

House was worth $500K and the terms were for 10 years. They got ~$300K. The issue would be the 10 years of interest that the bank would earn on the loan, totaling to $500K. Would expect the interest to continue to accrue if they live 20 years. Looks like the FHA would be on the hook for the other $200K.

people who didn't plan thier retirement properly

this

 

[dullard]

House was worth $500K and the terms were for 10 years. They got ~$300K. The issue would be the 10 years of interest that the bank would earn on the loan, totaling to $500K. Would expect the interest to continue to accrue if they live 20 years. Looks like the FHA would be on the hook for the other $200K.

Doesn't seem too bad for the bank or the government. If they live in the homes until the mid 90s, then the loan would ballon to a value of about $666k (I assumed 4% interest which is typical about now). The home's value would be about $745k then (assuming a typical 2% growth in homes value). The bank still has an $79,000 profit not including the interest or the fees.

Of course, housing could keep falling in value and then someone would be on the hook for the difference. Does the FHA insure the loan amount ($300k) or the interest amount?

 

[highland145]

Doesn't seem too bad for the bank or the government. If they live in the homes until the mid 90s, then the loan would ballon to a value of about $666k (I assumed 4% interest which is typical about now). The home's value would be about $745k then (assuming a typical 2% growth in homes value). The bank still has an $79,000 profit not including the interest or the fees.

Of course, housing could keep falling in value and then someone would be on the hook for the difference. Does the FHA insure the loan amount ($300k) or the interest amount?

That's the question. I could see the bank making out on 90% and the FHA eating 10%. Win/win for the bank.

In their case the value should climb (overlooks 2 holes on a golf course) assuming that they keep it in good repair like the contract says and taking into account his questionable "handy man skills."

 

[TheSlamma]

Sounds like a good deal for people without anyone to hand it down to

 

[edro]

It is highly relevant to the OP.

Hmmm... good point.

Still, why would the government back a private loan unless it was a form of welfare (new home buyers, low income, etc.).