On 9/25/2019 4:58 PM, dpb wrote:


I know an older couple that had modest retirement income.Â* They had a
big expense for the septic system and took a reverse mortgage.Â* Took
care of that an a few other little things that made them more
comfortable.Â* They are gone and the house, AFAIK, was left to the
nurse that took care of her near the end.

They are made to sound good by the purveyors, but ever wonder what is in
it for them?Â* As with annuities what you get is an actuarially adjusted
amount based on the equity held in the property at the time and your
age.Â* Virtually always one would be far better off financially to just
sell the property on the open market, take the lump sum payout of the
equity and live in a less expensive location while investing part of the
proceeds.

Specific downsides include

- If youve not paid off your mortgage the interest on the reverse
mortgage loan compounds with the original interest and it can quickly
balloon out of control.

- Unlike a traditional home equity loan, you are not making payments on
the principle and interest. So while your heirs are not on the hook for
the loan, compound interest, fees, and fluctuations in the market can
increase the likelihood they will be unable to retain the home when you
are gone.

- You must remain there and continue to pay property taxes, maintenance
and insurance.Â* If you change your mind and want to move to FL or need
assisted living or any number of other potentially unforeseen
circumstances, if you break the covenant you lose the house and the
reverse mortgage cash flow besides.

Verdict:

Reverse mortgages may be a way to get financial relief if you have no
one to pass your house to when youre gone.Â* Otherwise, almost certainly
a bad idea and as noted, virtually always one could come out better by
simply selling the property straight out.

--

Depends on circumstances. If you die shortly after and the house is
sold, the mortgage is paid off and the balance, if any, goes to the
heirs. Naturally, the mortgage company already got their fees and costs
out of it.

If you live well beyond the actuarial age of death you come out ahead
and the mortgage company eats the loss from time. I have no idea what
age they use in their determination, but if it is 80 and you live to 95,
you did good.

I'm sure people make poor decisions and take the money when they should
not and get in fiscal trouble down the road. Especially bad if you
cannot pay the upkeep and have to bail out. Just as you point out if
the original mortgage is no already paid it can be a bad decision. I
always figured by retirement time you should have paid off your house,
but a lot of peole have not.