Paradise in Default...Oops

Man you're on a mission today. You're a blogging machine. :)

I think when the economy gets to a certain point it starts affecting everything and everyone. It's sad that has hit these folks. Most are probably on a fixed income too.

Jon,

I'm a big fan of the reverse mortgage. Not so much for cash out, but rather as a purchas money mortgage!  40% down and you only have to worry about taxes and insurance!

This lets retirees retain their liquidy with no more cost than if they'd paid cash!

The Orlando Sentinel should be used to wrap fish! Having to pay your taxes and insurance has nothing to do with any one mortgage.

Bill

Depending on when they purchased their home makes all the difference. If they have purchased 10-20 years ago, they may still have sufficient equity to do a reverse mortgage. If they did a reverse mortgage in 2007 they are substantially ahead of the game.

Not to mention just how expensive reverse mortgages are.  There are a lot of fees built in to those products.

Jon, but it all sounded so.... good...

Disaster is looming for many...

Jon - in my view reverse mortgages are not for everyone - but I do not fault reverse mortgages for those who have a problem with maintaining property taxes and insurances as owners have to pay those obligations regardless of what financing or ownership method they use. 

Nor do I agree with Gabe, above, that reverse mortgages are unreasonably expensive.  It is difficult to compare the costs of a conventional mortgage with those of a reverse mortgage because they are not the same sort of product.  There is an insurance component that guarentees the payment of the debt in the event the value at the time of sale in the future is not sufficient to cover the debt.  In addition, since is it a negative amortization product, the interest cost will increase over time because the amount owed is increasing.

A senior who is a potential candidate for a reverse mortgage is typically required to meet with a HUD counsellor who explains the mechanics of the product without being a salesman.  Where I feel the senior and spouse should take a close look at the product is to evaluate how it impacts their estate planning.  This requires frank discussion with their family and their tax planner.  The senior maintains ownership of the house.  But when neither the senior nor spouse occupy the property - for reasons of death or relocation to another home or a nursing home - the mortgage must be paid.  And the payoff will be higher than the original loan because of accumulated interest and fees.   If children want to keep the house - they must find financing to pay off the reverse mortgage.  If children do not want to keep the house, there is no problem - they just sell the house and look to the insurance to cover a deficiency, if any, or any surplus after the sale benefits the heirs or the seniors if they have merely relocated.  

Bill, above, is spot on (as usual).  As a purchase money mortgage, the reverse is an excellent product particularly for seniors selling larger homes and relocating to retirement homes (coming to Florida, of course).  For the senior with sufficient equity in their existing home, the ability to create cash flow over time with annuity type payouts of the equity may be a useful feature to, for example, pay for long term care insurance.

The reverse mortgage is, in my view, an excellent product for the right circumstances and deserves serious consideration if it fits your personal situation.  Discuss with family members, deal with a vendor you trust, discuss with your tax advisors and decide if the product fits your needs.  The reverse mortgage is not for everybody, but it is a creative answer for the needs of many.  And by the way, there is no credit qualification - only the property is looked at for qualification purposes.

Two side comments... the enabling legislation for the original HECM loans was signed during the later years of the Reagan administration - Happy 100th birthday, Mr President.

Second, one of the TV pitchmen offering reverse mortgage information is Henry Winkler.  It makes me feel very old indeed to think that I am getting mortgage advice from The Fonz.  If you do not recognize the reference, you are not old enough to qualify for a reverse mortgage.

Very scary with everything else happening to our seniors in housing Jon...thanks

Jon, I just hope to have a nest egg so I never need a reverse mortgage.

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Jon - I suspect that the final verdict on reverse mortgages in this economy is still out.  I can't imagine any product being "insulated" from the economic woes ... the only issue is likely to be the degree of difficulty they will experience.  Thanks for bringing up another consideration in today's market ...

Jon, this is bad news for seniors who thought they had finally figured out a way to live a comfortable life without going into debt. Sad to hear this, especially in our state...again!

I agree that this is a bad time for a reverse mortgage.  The compounding interest you have to pay will suck whatever equity is left in your home.

Jon, two good points you do need significant equity for reverse mortgages AND you can get in trouble with them.