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Reverse mortgages

Discussion in 'Off Topic Threads' started by senior smoke, Oct 19, 2010.

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  1. senior smoke

    senior smoke Well-Known Member

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    Hello:
    I have an elderly aunt that is over extended with charge cards debt. She is on a fixed income and does not qualify for a refinance to pull cash out of her equity to pay off these bills. Do any of you have any knowledge about reverse mortgages? What should she know about reverse mortgages before she decides to enter into one?
    Steve Balistreri
     
  2. hrosik123

    hrosik123 Member

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    Look into it carefully. I personally don't know too much about them, but I'm sure the mortgage companies wouldn't offer them unless they could make a good profit. Good luck Chuck Hrosik
     
  3. southjblue

    southjblue Active Member

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    If the house is free and clear,turn it over to someone she trust and take out a 4% mortage to clear her expenses---You will make the profit not the bank---You pay the mortage pmts with the arrangement that the house will be yours or her heirs with some profit to you---This happens a-lot and better you get the profit than the bank--I am not sure I have this all right but I know of people that did something like I am expressing-JMT---SJB---
     
  4. Barrelbulge(Fl)

    Barrelbulge(Fl) TS Supporters TS Supporters

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    SJB has a good idea there, When the heirs sell it they can pay you off and split the rest. Of course you should get a small profit for putting out up front. Bulge.
     
  5. phirel

    phirel TS Member

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    The good part of a reverse mortgage is that it will provide a monthly income to the owner that she will not have to pay back. It simply reduces what others may inherit after she dies.

    The bad part is that the rates are a little high. Absolutely, do not use an "internet lender" if you elect to utilize a reverse mortgage. An internet lender can quote a 4.8% rate that is actually much higher than a quote from a local bank of 5.5%. They add on a lot of junk fees that are excluded from the rate.

    She could sell the house to a relative but it is critical that she retain a life estate in the property. This is a good idea for many, perhaps most, elderly people. It prevents a nursing home from getting the property is she has to become a nursing home resident.

    I know you live in Virginia. If the property is close enough to my VA home, I could organize a sale with her retaining a life estate in 2-3 days. This would give her immediate cash and she would retain the right to use the home as she now does for the remainder of her life.

    Pat Ireland
     
  6. halfmile

    halfmile Well-Known Member

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    Pat, I am curious. What happens with a reverse mortgage if you live longer than the amount of the payments justifies?

    In other words, if I get $1K a month from a reverse mortgage on a $100K house and live more than 10 years, who makes up the difference? Or do they simply structure such a device as to make it imposible?

    HM
     
  7. tj303

    tj303 Member

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    The lenders undervalue the house. They are buying the house cheap
     
  8. senior smoke

    senior smoke Well-Known Member

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    Pat:
    I live in Milwaukee Wisconsin and my aunt lives in a suburb nearby. She purchased the condo in 2004 for $162,900.00. She has a $38,000.00 balance on her loan and needs to pay off around $25,000.00 in credit card debt as well as pay up the remaining lease payments for her car. She has very good credit, pays on time an as agreed. BY paying this debt off she will free up some cash for her to live more comfortable. Her income is $1675.00 per month. I have taken her to one lender that says they are not competitive with making such a low balance loan. After work today I have an appointment with another lender to see if she can refinance. I work for a bank but we don't offer reverse mortgages and I don't know much about them. Hopefully she can get a lender today who will make a loan for the $38,000.00 plus 25,000.00 to clear up her bills.
    Thanks,
    Steve Balistreri
     
  9. kfbagt

    kfbagt Member

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    you shouldnt even be thinking about a reverse mortgage in this case. you simply need to refinance. grab a $63,000 mortgage and pay off the bills. probably wouldnt change the mortgage payment much at all and you will get rid of the credit card debt. HOWEVER; the majority of people who consolidate loans to pay off credit cards wind up running them up again. if your aunt isnt capable of living within her means and not using the credit cards again, then you will not be helping her in the long run.

    if she gives the house away to a relative as suggested above, she may be subject to look back periods for medicare if she were to need a nursing home. any assets that you transfer out of your name are subject to a lookback period. here in ky its 5 years, dont know about where you live.

    good luck
     
  10. schutzemgud

    schutzemgud TS Member

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    Steve,

    You may want to investigate the Reverse mortgage a little further. They are very good products in the right situation. Your aunt sounds like a perfect prospect for one. Reverse mortgages are FHA mortgages although there were some private products out there a few years ago. Most people have thorough mis-understanding of them. The thing to remember is that they are negative amortizing balances which is to say the balance goes up every month. There are never any payments to be made and cash can be taken up front or every month or kept in a reserve that can be drawn on. If your aunt survives long enough the balance may exceed the value but she will never owe more than the appraised value at the time of sale. The pmi will cover the bank for the shortfall if there is one. I don't recommend one for everyone but I do like the product. I also am retired from mortgages and have no horse in this race. I will send you a PM so that if you have questions I can answer them for you more directly. There is a lot more for you to know about them. I would also be happy to recommend an lender in your area if you need one.

    Best,

    Mike Sudz
     
  11. abbielew

    abbielew TS Member

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    Senior Smoke, I do not know a whole lot about reverse mortgages, but what I do know about them, this is not the time to get one for your Aunt.

    You say Auntie purchased it in 2004 for $162900.00 So what. Today maybe it
    is worth only $125,000.00. If she needs to borrow $63000.00 to pay things up.
    $63,000.00 should put her monthly payments at around $550.00 or so a month.
    This will bepend on how many years she can get at a fixed rate.

    At 40% of $1675.00 monthly income means she can go up to $670.00 per month payments.

    LAST. Tear up Aunties Credit Cards, except for the best one, for emergencies,
    travel etc. and no more.

    Also, putting the house in the childrens name with life time estate is also
    an excelant idea for this situation.

    Birddog
     
  12. Big Heap

    Big Heap TS Member

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    http://reversemortgagedaily.com/

    The borrower must take a course that explains the product before they can sign-up. Every situation is different.
     
  13. phirel

    phirel TS Member

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    Steve- With only $38,000 balance it will be harder to find a lender who will want to refinance her mortgage and give a good rate. Have you considered just getting an equity line? Find a good lender, explain her situation and ask for advice.

    Pat Ireland
     
  14. dmarbell

    dmarbell Active Member

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    halfmile,

    There is a lending limit based on the age of the applicant and the value of the house. They assume a certain appreciation in the house, and either a fixed interest rate on the reverse mortgage or a variable rate. If the owner lives too long, the equity in the house will be used up, in most cases. These are HUD-backed programs, and HUD and mortgage insurance guarantee that the banks don't lose money on the deals.

    Use google, and be careful which sites come up. These is a wealth of information out there.

    All,

    The private deals discussed can be ok, but the family or purchaser assumes the risk of the owner living too long. That's what the banks and insurance carriers, and HUD, assumes. The fees might be considered high, but there is no risk to the family if the house fails to appreciate or the rates rise, except that the equity in the house could be all used up.

    Danny
     
  15. JayLC

    JayLC TS Member

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    Senior Smoke: I am a real estate broker and attorney who owns a large real estate brokerage, mortgage company, and title company. Both Pat Ireland and Mike Sudz are giving you good advice. In addition to their thoughts I would suggest you speak with a CPA or attorney that does estate planning and get advice that specifically applies to your aunt's situation. Reverse mortgages are like everything else, it's not an all or never.

    Jay Cutler
     
  16. E. Beaver

    E. Beaver Member

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    I'm not a fan of AARP but they have good information on reverse mortgages on thier website.

    Charlie
     
  17. senior smoke

    senior smoke Well-Known Member

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    I got out of work early today and took my aunt to her credit union for a refinance application. Her income totals $1,664.57, and monthly bills total $1,650.94. I told the loan counselor that my aunt wanted to pay off two charge cards balances totaling 15,200.00. Also she has an auto lease that has 31 more payments on it of $199.98 per month. My aunt said if the bank would payoff the two credit cards and give her an additional $6,200.00 so she could pay the 31 remaining auto lease payments her spending amount would increase from $13.63 per month to $547.61. They offered her a 30 year fixed rate mortgage at 4.35%, the pay off on her condo is $38,297.80, plus the added amount of $21,400.00, her new mortgage balance would be $59,697.80. She purchased this condo in 2004 for $162,900.00. Recently the exact same condo in her unit sold for $155,000.00. The new monthly payment totaled $656.79, giving her an $434.61 spending per month. My aunt also agreed to cut up her two credit cards. My aunts credit score was 785, never missed a payment, the woman said that's a very good credit score. My aunt was ready to withdraw $475.00 for the application fee, and the woman said everything looks great. All I need is to have a mortgage underwriter check my figures. My aunt say's thank you so much to me for helping her out and that this loan should really help her. The loan counselor comes back into her office and said the underwriter says your aunt does not qualify for the loan. I said what's wrong? She said if this auto lease was a car loan we could just pay the loan off. Because your aunts debt ratio is 48% the loan won't be approved. I said after the credit cards are paid off, after you give her $6200.00 at the closing she is sending the auto company this money to pay up all the monthly payments and her debt ratio goes down to 39.46%. You stated it has to be under 40% to get the loan. She said we would be selling this loan to a government agency. She said the government agency wants customers debt ratio under 40% before these bills are paid off. She said even though your aunt is paying up all 31 lease payments the lease still has a buy out of $16,000.00. I said she wants to pay all remaining lease payments and she has no intention of buying the vehicle. She said I am sorry the loan is not approved. She is an 80 year old woman who has a 785 credit score, has never missed a payment, who has $111,707.20 in equity and she can't get a bank or credit union to give her $21,400.00 loan to pay off 2 charge cards and pay up her lease monthly payments. The loan counselor said with the government bailing out the financial institutions, things are more stringent nowadays. My aunt is devastated now. I looked up on the internet reverse mortgages and they say be careful as a reverse mortgage can affect SSI, Medicaid, and Medi-Cal. I will respond to the people who sent me PM's. I ended the conversation with this woman by saying so what you are telling me is in this present day economic climate, people that need loans to pay off bills are out of luck unless their debt ratio is under 40% before the loan is made? she said yes.
    Thanks for all your advice,
    Steve
     
  18. 221

    221 Banned User Banned TS Supporters

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    My wife inherited a reverse mortgage....It's just about the worst thing you could do to your children, short of not having a will at all. Your parents die, and a week later they tell you your up to your ears in someone else's debt. It's no different than our government creating debt that will be passed on to our children. This is just another indicator of how bad off our country is, people living a fantasy on someones else's money.

    Never trust anyone for advice that's in the real estate business.....NEVER
     
  19. dmarbell

    dmarbell Active Member

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    221,

    Leaving a home with a mortgage attached is somehow worse than living in a paid-up house without enough monthly income to pay bills, buy medicine, and live with dignity? Kids are not entitled to an inheritance. Folks the age of Steve's aunt have been trained by financial institutions to pay off mortgages on a house as quickly as possible. As you may be finding out, houses are not all that liquid.

    I deal with retired people all the time who are house poor. Reverse mortgages allow them to tap the equity in their homes, continue to live there, and enjoy their lives without worries of mortgage payments. Some of the options discussed on this thread transfer risk to the family members.

    I'm sure there are members of this community who have reverse mortgages. Why don't we hear from some of them about how they feel about them?

    Danny
     
  20. senior smoke

    senior smoke Well-Known Member

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    I now have two possible options for my aunt. I found a fellow trap shooter who works at a lending company and he is willing to refi her loan. The other option is a man from one of the major banks is seeing us on Tuesday after work about a reverse mortgage. My aunt and I want to thank everyone that gave us some good advice.
    Steve Balistreri
     
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