Reverse mortgage?
Hi
my husband and I are considering getting a reverse mortgage and wondering what others think about them. We are 55 and 65 and would want to rent out a studio in back. Hoping to have money for our daughters too rather than giving House to the bank. Our cash flow is low currently butwe have good equity in the house
-need advice ASAP about others experiences with reverse mortgage
do we pay a lot of interest?
Thx!!!
Jun 6, 2018
Parent Replies
Reverse mortgages are not as simple as those selling them would have you believe. Here’s a good resource for evaluating the suitability for you:
http://canhr.org/factsheets/abuse_fs/PDFs/FS_RevMortSuitability.pdf
http://canhr.org/factsheets/abuse_fs/PDFs/fs_RevMortSuitabilityWorksheet.pdf
Please do research the product known as Reverse Mortgages very carefully before you sign up. There are likely other forums with more experience in this area, since BPN members are often younger families. As an estate planning attorney I have observed clients with these products, and sometimes had to probate estates burdened by them. The upfront fees are high. Sites such as Kiplinger, the Motley Fool, and others may be able to give you the pros and cons of this "last resort" option.
Hopefully someone who knows details can reply, but I’ve always heard “stay far, far away” from reverse mortgages. From your post it sounds like you’ll be renting your studio? That can bring in pretty good money these days, and since your cash flow is good, it doesn’t seem like you’d have to go the route of a reverse mortgage. If you did, the house wouldn’t be yours to leave to your kids, I don’t think...
I don't have any personal experience with reverse mortgages. There's a high probability of scams and preying on older people. https://www.fbi.gov/scams-and-safety/common-fraud-schemes/reverse-mortg…. Just be very careful if you decide to go through the process. Also, know that if you are unable to repay the loan, your daughters don't get the house. Can you refinance your mortgage? Current rates are 4.3-5%. There are also other alternatives to reverse mortgage.
https://www.investopedia.com/mortgage/reverse-mortgage/5-top-alternativ…
https://www.moneytalksnews.com/looking-reverse-mortgage-explore-these-1…
I'm puzzled by part of your question. You say you don't want to give the house to the bank. But that's exactly what a reverse mortgage is doing.
One problem many people who use a reverse mortgage don't realize is that it's a really bad idea if you want to keep the house in the family after you pass away. The mortgage company will want their money and often the amount of equity left on the house makes it impossible for the children to get a new regular mortgage to be able to pay off their parents' reverse mortgage and they have to sell the house.
I would really talk to a financial advisor (not from the bank you are trying to get a reverse mortgage from) to make sure you understand all the implications of a reverse mortgage.
A reverse mortgage can be an excellent way to use your home equity to fund your retirement, but it is very expensive, and therefore not the first resource most people should consider. And if you want to leave money to your daughters, a reverse mortgage is almost certainly not the right strategy. Renting your studio and using that income to make the payments on a regular mortgage or home equity line is likely to be a better choice, especially given your current ages. Talk to a mortgage broker and get some specifics on what sort of loans you could qualify for and what the associated costs are.