Friday, June 3, 2016

Reverse mortgages

My uncle is considering this option and I'm kind of researching it a bit, as he wanted my and my mom's opinion. It seems like it might be a good plan for him and his situation.

He's 72 and retired and owns a home (not sure of it's value but my guess is around $250-300k). He is not married, nor does he have any children. In essence, no one he feels he needs to leave an inheritance to when he dies. He worked until about 2 years ago and is currently living on social security and a small retirement nestegg.

What are your opinions and do any of you (or your parents) have any experience with this type of loan? It seems like he might as well tap into the equity he has built up the last 20 years or so (when he bought the house) while he is alive and can use and enjoy the money. My mom is his next closest relative and she certainly doesn't need the inheritance when he dies. I really don't see any pitfalls that I can find to him doing this kind of loan. He can live there until he dies or needs to go into assisted living. At which point, the house would be sold and the reverse mortgage loan paid off. If there was any equity left over, that would go to his estate. If for some reason his home value is less than owed, his estate is not liable for it.

Just wondering if there are any cons to this, that I haven't thought of or realized in my researching.

10 comments:

  1. Just adding a link to what dave ramsey has to say about reverse mortages -- you may have already read this:
    http://www.daveramsey.com/askdave/posts/121799

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    1. doesn't surprise me that he does not recommend it.

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  2. If it was me and I'm contemplating this, I'd sell now, get a small maintenance free apartment, and spend the equity or give it away while I was still livng. Is he attached to his home?

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    1. He is attached to his home in that fact that it has a garage/shop he uses constantly. His passion is tinkering on cars, fixing up old cars, etc. I know there is no way he would be happy to sell the home and move into an apartment or something similar.

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  3. With his situation (no spouse/children), sounds like it would be the way to go for him. Will give him some extra $ to do a few things that maybe he's been wanting to do (travel, etc.).

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    1. that's what I'm thinking - he doesn't owe it to anybody to leave an inheritance, so why should he?

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  4. If he wants to stay in his home a reverse mortgage would allow him to do that and still have more money to spend. If he owns the house and doesn't care about staying there I would get a smaller place - rental and let someone else take care of the the up keep, taxes, sewer, etc... My mom and my mother in law both did this. My mother in law for all the wrong reasons - she owned the house out right when her husband died and she put a huge remodel into it and blew the rest of the money. My mom did this so she could quit working at 76 and so she could take care of my dad who eventually went on hospice and passed away. Both are still in their homes but my mother in law didn't count the cost of living in hers - upkeep, taxes, utilities, yard, maint. etc... and she spends $ like crazy so she went back to work at 81 years old! My mom figured everything out and kept the money in mutual funds and can live as long as she wants in the (smaller) house that she put the reverse mortgage on. In fact it's cheaper for her to stay there than any other options. My advice. Weigh the costs of home vs other living arrangements and how much you love or want to do to keep up where you live. Hope that helps.

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  5. he does care about staying there, especially because of his garage/workshop that he uses every day. Definitely would need to be smart with the money. Seems like if he did it smartly it would be cheaper than having to pay rent someplace.

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    1. For my mom it is cheaper than rent and she knows all the neighbors so there is a sense of security and not paying a mortgage is nice. She budgets her money and the extra is appreciated from the reverse mortgage but then she's always been a good planner. If the house is in good shape at least he'll know what he's getting into. Running the numbers is key and not spending like there is no tomorrow like my mother in law did. She put about a 100,000.00 into remodeling like granite counter tops and stuff through out the house and it was in great shape before all that. She was just keeping up with the neighbors. Seems silly to put all that into a house you just did a reverse mortgage on but oh well, some people don't have good money sense and she's one of them.

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  6. Thank you for sharing such great information. It was very informative and has help me in finding out more detail about Mortgage Loan!

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