Reverse mortgages

  • Thread starter HW \Skip\ Weldon
  • Start date

H

HW \Skip\ Weldon

I've always thought of RM as a last-ditch option by homeowners who had
failed to save enough for retirement. My opinion is based on the
long-held view that *planning* to consume principal should be avoided.

It appears that RMs are enjoying something of a renaissance and would
enjoy reading what others thought of them today. Any comments?

-HW "Skip" Weldon
Columbia, SC
 
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J

John A. Weeks III

HW \"Skip\" said:
I've always thought of RM as a last-ditch option by homeowners who had
failed to save enough for retirement. My opinion is based on the
long-held view that *planning* to consume principal should be avoided.

It appears that RMs are enjoying something of a renaissance and would
enjoy reading what others thought of them today. Any comments?
The issue that I have with reverse mortgages is that they often have
high fees associated with them. They are also somewhat of a craps
shoot in that you might die early and the home goes to the mortgage
company before you get much cash out, or you could hang on forever
and the mortgage company takes a bath.

I would think that someone who is planning ahead and has relatively
good credit would take out a home equity loan on the home. These
usually have low fees, good rates (at the moment), and they are
fair for both parties. When the homeowners pass on or move out,
the house would sell, and the mortgages would be settled up. No
one takes a bath in the process.

The only issue is that the home owners might outlive their money.
That is the one time that a reverse mortgage works in the home
owners advantage. It sort of works like an insurance policy that
rides on top of the reverse mortgage, and the high fees of the
reverse mortgage fund the insurance part. In this case, I would
think that there would be other better sources of insurance that
would do the same thing.

-john-
 
R

Ron Peterson

HW \"Skip\" Weldon said:
I've always thought of RM as a last-ditch option by homeowners who had
failed to save enough for retirement. My opinion is based on the
long-held view that *planning* to consume principal should be avoided.
I thought that the idea was to die broke.
It appears that RMs are enjoying something of a renaissance and would
enjoy reading what others thought of them today. Any comments?
I think that the RM can only work if you have a standardized property
like a condominium where a precise resale value is known.

Because of the uncertainities involved, I wouldn't want a RM for myself.
 
C

Cal Lester

I think that the RM can only work if you have a standardized property
like a condominium where a precise resale value is known.

Because of the uncertainities involved, I wouldn't want a RM for myself.
What pray tell would a sub=-standard property be?

The R/M concept works equally well for ANY Home
that is OWNED (or in conjunction with a bank ! ! !).
The property is valued at today's market, less any
outstanding loans & the service fees. The balance
is the payable to the OWNER either as an Income
(which IMHO is preferable) or lump sum.

AFAIK, there should be NO uncertainties. You KNOW
that you no longer have to make mortgage payments,
and you KNOW that you can live in the property as
long as YOU LIVE (or wish to). You KNOW that YOU
will receive an INCOME as long as YOU wish. You KNOW
that the balance after the sale (if any) will be payable to your HEIRS.

Cal Lester CLU
 
T

Tad Borek

HW said:
I've always thought of RM as a last-ditch option by homeowners who had
failed to save enough for retirement. My opinion is based on the
long-held view that *planning* to consume principal should be avoided.

It appears that RMs are enjoying something of a renaissance and would
enjoy reading what others thought of them today. Any comments?
Skip,
I think the rhetorical question every retired homeowner should ask is,
"what's the value in dying with a home you own outright?" For some
that's part of the estate plan. But others don't want/need to have that
leftover for heirs. There may not even be any heirs.

And it doesn't necessarily indicate deficient retirement savings.
Whether it's saved in stocks or in home equity, the money is still
there. It's just that home equity is only accessible through borrowing
or sale.

And of course, $300k can be annuitized into a lot of really enjoyable
travel!

-Tad
 
R

Ron Peterson

Cal Lester said:
What pray tell would a sub=-standard property be?
Your indenting style makes replies difficult.

I wasn't referring to sub-standard. If a person has a unique home, it
may be difficult to get an idea of what its market value will be.
The R/M concept works equally well for ANY Home
that is OWNED (or in conjunction with a bank ! ! !).
The property is valued at today's market, less any
outstanding loans & the service fees. The balance
is the payable to the OWNER either as an Income
(which IMHO is preferable) or lump sum.
But, what happens if the home has a loan that is larger than the market
price of the home. The home owner may have to dig into other savings to
close out the position.
 
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B

beliavsky

HW \"Skip\" Weldon said:
I've always thought of RM as a last-ditch option by homeowners who had
failed to save enough for retirement. My opinion is based on the
long-held view that *planning* to consume principal should be avoided.
This view is wrong. The older you are, the more willing you should be
to consume principal, unless your bequest motive is strong. The
purpose of saving now is to spend (more) later. By following the
supposedly conservative "don't touch principal" rule, investors can
make bad investments. They might invest in the longest-term,
lowest-quality bonds to maximize income, but they risk losing the
ENTIRE principal. Or they could avoid stocks entirely because the
current income from dividends is lower. Principal is usually viewed in
nominal terms, which is another blunder. Ignoring taxes, if inflation
is 10% and bond yields are 15%, should you spend 3 times as much
savings as if inflation were zero and bond yields were 5%? Of course
not.

A reverse mortgage partly hedges mortality risk (the risk of outliving
your money). I don't know what the current fees look like, but in
theory a reverse mortgage makes a lot of sense for retirees with no
bequest motive. Ideally, it could be used to fund an inflation-indexed
immediate annuity.
 
C

Cal Lester

A reverse mortgage partly hedges mortality risk (the risk of outliving
your money). I don't know what the current fees look like, but in
theory a reverse mortgage makes a lot of sense for retirees with no
bequest motive.

Ideally, it could be used to fund an inflation-indexed
immediate annuity.
EXCELLENT concept ! ! ! ! ! !
Cal Lester CLU
 
C

Cal Lester

Ron Peterson said:
But, what happens if the home has a loan that is larger than the market
price of the home. The home owner may have to dig into other savings to
close out the position.
That is very simple, that person would NOT qualify for the R/M. One of the most important qualifications required to apply for a
R/M, is that there be sufficient equity in the home. There needs to be some sort of guarantee of return to the lender.
Cal Lester CLU

(do you really think that this method of reply is superior to indenting???)
 
B

BMS

It's not the same reverse mortgages of the '80's which got people in a lot
of trouble. Federal regs require an outside credit counselor advise the
homeowner.

In a long term care situation, using is one way to protect the
non-institutional spouse from Medicaid liens since, by law the, RM is first.
One of the requirements is that any mortgage has to be paid off.

Check out the site http://www.hud.gov/buying/rvrsmort.cfm to get the latest
on this program.
 
R

Ron Peterson

That is very simple, that person would NOT qualify for the R/M. One
of the most important qualifications required to apply for a
R/M, is that there be sufficient equity in the home. There needs to
be some sort of guarantee of return to the lender.
I was thinking of the situation where a community has a collapse in
housing prices because of loss of industry.
(do you really think that this method of reply is superior to indenting???)
Yes. But your line wrap needs to be fixed.
 
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C

Cal Lester

I was thinking of the situation where a community has a collapse in
housing prices because of loss of industry.


Yes. But your line wrap needs to be fixed.
Regardless of the reason why the housing market became depressed,
we still have the problem of "PROFIT". IF it is NOT profitable for
a lender to enter the arrangement, then there will be NO R/M.
If however the situation that you describe happens AFTER the
R/M is issued, then the home owner is a WINNER

Cal Lester CLU
 

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