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Reverse Mortgage, what is it?

Discussion in 'The Okie Corral' started by 1985 4Runner, Jan 22, 2010.

  1. 1985 4Runner

    1985 4Runner Agitator

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    My folks called asking me what I knew about a reverse mortgage. They are retired on a fixed income & are living week to week and are thinking about a reverse mortgage.

    Any help would be appreciated.

    Thanks.
     
  2. vafish

    vafish

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    You have a paid off home.

    You take out a mortgage on your home.

    Instead of the bank giving them the full money up front and your parents making payments the bank pays them a check every month.

    Pretty much at the end of the term the bank owns their house.

    Depending upon how the contract is written it can be very good for them or very bad.

    It can be good for someone who is "House Rich and Cash Poor"
     

  3. skeetbum

    skeetbum

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    a reverse mortgage is where the lending institution send your parents a monthly check (based on the value of the property) for the duration of their lives or end of the contract, whichever comes first.

    to you it means that the property must be sold after your parents are gone to satisfy the debt or you/your siblings pay it off and keep the property.

    that's basically it in a nutshell. good luck. personally, i don't like the rev mtge idea but that's just me.

    ymmv,

    skeet
     
  4. FL2NV

    FL2NV

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    It's basically a home equity loan for older people.

    Pro: They never have to pay it off as long as they own the house.
    Con: You will.
     
  5. dave333

    dave333

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    Typically the fees involved to do a reverse mortgage are very high. Many times there are much better alternatives.
     
  6. 1sharpedge

    1sharpedge

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    It is where you would basically sell your house to a company they would be paying you a monthly payment, and you still get to live in the house till they both pass away then these company's own the house, great for people on a fixed income that own their own home to have extra money each month. Downfall is house is not passed on or giving to you when they pass. Not sure of any other PRO's or CON's.
     
  7. RichJ

    RichJ

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    It's a good way of getting paid and screwing your children out of your estate at the same time.

    Instead of making payments on your house, the bank figures out how much it's worth and pays you that amount. The catch is, when the occupants die the bank gets the house.

    Lets say you have a house that's worth $150,000. Mortgage payments are $750 a month. Instead of making that payment to the bank, the bank pays you $750 as long as you are alive. But at the end of the "term" the house may now be worth $195,000. You die and now the bank owns a $195,000 house. They made $45,000 off of one customer. Multiply that times the number of all the other fools who were suckered into the deal and you have a lot of free money for doing essentially nothing. The bank is gambling on two things: 1. the house is going to appreciate, and 2. you will die before they pay you the equivilent of the amount of the loan. That why these loans are "serviced" to the elderly; they won't live long enough for the banks to loose money on the deal. If you are a healthy 40 year old, go to your bank and tell them you want to get a reverse mortgage and see what they say.
     
  8. TurboRocket

    TurboRocket

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    There are inaccuracies in this thread. You should do your own research. Perhaps start here.

    http://www.fhasecure.gov/offices/hsg/sfh/hecm/rmtopten.cfm
     
  9. RichJ

    RichJ

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    probably so. My description is from how it was explained to me by a guy I work with. His mom had a reverse mortgage and he was completely unaware of how it worked. He was pretty pi**ed when he found out he wasn't getting her house.
     
  10. Ribbler

    Ribbler

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    A reverse mortgage will also often be an actual mortgage where the payment is not enough to cover the interest. The difference is added to the outstanding balance. There are better ways to obtain financing.
     
  11. 1985 4Runner

    1985 4Runner Agitator

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  12. TurboRocket

    TurboRocket

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    He may not have been getting the house but it was not because the bank is taking it. More than likely, there would be no equity left to give.

    The owner retains title to the house; there is just a lien and mortgage attached, similar to a regular mortgage - the difference is the direction in which funds flow (in this case, funds go from bank to home owner, instead of home owner to bank in the regular mortgage).

    The estate, however that is handled in your state, would take care of the assets afterward. The bank does not get the house, nor does some other third party company take ownership of the house at the beginning of the reverse mortgage.
     
  13. TurboRocket

    TurboRocket

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    Sounds like you are talking about an option ARM, not reverse mortgage. There is no payment made by the home owner in a reverse mortgage.
     
  14. 3glkdog

    3glkdog

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    And why should he get the house, it belong to his parents, they paid for it and they should get something for it.

    Everybody situation is different, RM can be a good thing but they need to do some research. It's not a scam, it's perfectly legal and a lot of people are happy with it.

    For me since I don't have any kids, this plan could work out toward my advantage to get some cash each month. I can't take the house with me when I die anyway.
     
  15. Glenn129

    Glenn129

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    Another way for a bank to steal a home from an old person.
     
  16. RichJ

    RichJ

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    In this example a paid off house has a new lien and mortgage attached to it. Part of the deal is that the house has to be paid for already. So you're paying for a house twice? That doesn't make sense.
     
  17. HollowHead

    HollowHead Firm member

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    This is what I'm thinking. It seems like a good solution for those with no heirs and a paid house. HH
     
  18. StoneDog

    StoneDog

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    Exactly. The banks wouldn't have invented the concept if it wasn't highly profitable for them.
     
  19. Glock!9

    Glock!9

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    Why would someone who owns the home not just take out a home equity loan or home equity line of credit?
     
  20. Rabbi

    Rabbi The Bombdiggity Lifetime Member

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    1. It never ceases to amaze me just how strong the socialism is in some people.

    2. It is nothing more than a way to annuitize the(a) value of real property. You must first understand what an annuity is, then expolore the implications of using your home to fund such a thing.

    3. Why oh why do so few people understand finance?