Does anyone have any experience, either directly or through association, with reverse mortgages? Are they worth it, or are they just another way to steal assets from people who have few choices?
I am 64, 3 months away from Medicare, still about 10 years from retirement (if ever). Everybody tells me how hot the job market is in my area (north of Dallas), but Dice and other tech job boards are not showing me anything for C++ in this area.
I’m starting to feel like a COBOL programmer after Y2K!
Reverse mortgages are pretty much what they look like, a gamble that the holder will die before the value paid out exceeds the value of the asset. (That’s a much safer bet in places where home values are rising rapidly, I have no idea about your area.) They also, of course, involve losing the home as part of the estate to any heirs. Beyond that, the main “gotcha” is that the home needs to be maintained as part of the agreement, and that can become troublesome as you age.
That said, you’re awfully young to be looking at them, and I can’t imagine they’d pay much. I’m surprised that you’re not finding C++ jobs (it’s still among the most used languages out there), but if you know C++ well, learning C#, Java, or Objective-C (all of which are also heavily in demand) should be a matter of a week or two. Mobile apps seem to be where much of the work is these days – learning those APIs will matter a whole lot more than the underlying language.
This sounds like what we call equity release over here. If you are elderly and living in a valuable house, but don’t want to move, it can be a sensible option. Of course it means that your kids won’t inherit but that may be less important than paying today’s bills.
A few years ago they were widely discredited here because they turned out to be a Really Bad Deal. More recently they have become respectable (regulated) and in some circumstances they can make sense. I have never heard of anyone getting one before retirement though. In the OP’s circumstances it would usually be better to downsize, even if it was to a mobile home.
Where I live you can only get a certain percentage of the value of the house, I think 60-70 percent. So your heirs still inherit the house, it’s just no longer fully paid for, leaving them the option of refinancing, or selling and paying out the reverse mortgage then pocketing the difference.
Of course things may be different where you live!
It’s usually considered a bad idea, because it’s a depreciating asset. With regular mortgage (as with whole life insurance), the more you pay, the more asset you build up (in terms of equity.) With reverse mortgage (depending on what you pay), the asset (equity) decreases.
Reverse mortgages are not a great financial deal. That’s because they’re not supposed to be a good investment; they’re a way to get money out of a house while you’re living in it. Do a search; there’s a lot of threads on reverse mortgages on this board.
My parents and grandparents both have/had one. It was wonderful for them - they were able to have a bit of extra cash every month to play with, and there is no risk of them losing the house. I go into a lot more detail on this on some of the older threads, take a look.
As far as jobs, are you willing to work from home, remotely? I’d be surprised if you couldn’t find something as a C++ Dev if you expand your search nationwide. I see 20 listings for C++ developers that allow remote work on careers.stackoverflow.com, for example.
I generally counsel my clients against them except where it’s specifically called for. More come in asking about them that should ever actually deal with one.
But, like annuities and other financial tools, for the right person at the right time they can make sense.
Doesn’t that describe almost every major financial transaction? Which is why financial experts (planners, accountants, tax advisers, brokers, etc.) will always be needed: figuring out which pattern of money movement works best for all parties can get pretty complex.
Well, all parties isn’t generally my part. But my client’s best interests are.
You’re correct that most transactions require customization, but some are more specialized and apply to fewer clients than others.
The specific problem that’s screwed some people with reverse mortgages is where a salesperson gets one member of a couple in whose name the home is registered to do the reverse mortgage in only that person’s name. Then if that person dies first, the, the other member of the couple no longer has a house. That’s a problem with sales practices though seems to me rather than inherent to reverse mortgages.
Other than that, reverse mortgages have been criticized for high fees, but now there seem to be a number of providers (judging from the different commercials using older TV actor spokespeople) and I’d think you’d just have to shop around for the best deal. And if you don’t like any of the deals on offer, that’s your choice, not the providers’ fault. We’d all prefer if all products offered by competitive providers cost less but were just as good. But at a certain point we have decide whether we want a product at the market price or not.
I’ve also seen articles complaining about the situation a RM causes for heirs, but that’s part of the deal.
With the first issue covered, it seems to me the RM is pretty strictly a question of how much one needs the money now (they’ll give a bigger payment the older you are if you wait, because that’s fewer years they’ll probably have to pay you to get the house at your death), and/or how much wants to pass the home on to heirs. If somebody has no desire to leave a home to heirs or a charity on death, and has any use for extra spending money (at a certain point and to a certain type of older person, you might actually not), I don’t see a reason not to a do a reverse mortgage eventually.
They don’t get your house at your death! Up to 60% of it’s value, could be due the bank, to clear the mortgage. (from the sale of the home, or from the heir refinancing with a regular mortgage from their own bank.)
The heirs still get the money left from any sale of the house, since most countries won’t allow the lender to use up more than 50 or 60 percent of the equity in the house.
If you’re a couple and one should grow infirm and need expensive treatments/medicine, or their life is coming to it’s end, why not take the money you need from your house, till the ill spouse dies? The ill one gets to die in their home, together as a couple, and the survivor was likely going to move once alone anyway. Doesn’t seem so bad to me.
Another “gotcha” is that some RMs require that the owners “live” in the house. E.g., they can’t move out and let someone else rent it, etc. But also the terms of “living” in the house can be quite onerous. E.g., the last surviving spouse has to go into a care facility for 3 months but will move back home once well. The RM company terminates the contract. No more home to live in.
The RM company will use any excuse at all to end the contract as soon as they can.
If you really need money and have equity, just refinance the house and take some cash out. The only thing to be careful of there is to make sure you have enough to maintain payments. But that’s nothing compared to the rules you have to abide by to keep your house under a RM.
RMs are perfect if you are psychic and know you’re going to live a long, long time.
AFAIK the rule in the US is 12 months away from the house means you don’t live there.
And getting somebody to pay you an annuity as long as you live isn’t a bad idea, doesn’t require you be a psychic. Just borrowing against the house could backfire on you if you do live a long time and run out of money to keep up payments on that loan. Then you’re really stuck.
However you can also address the risk of living too long with a simpler type of annuity product from an insurance company, simplest of which is you just pay $X upfront and they pay $Y every month as long as you live. You can add bells and whistles like $Y adjusted for (official) inflation, or where your heirs get something if you die very soon after purchase, but of course those things cut into the initial $Y.
Won’t lending institutions be reticent to refinance when I don’t have a job, and I don’t know if I ever will again?
We refinanced about 10 years ago, only for the amount remaining at the time, but we got a better rate and lowered our payments significantly. If (and that’s a big if!) we make our current payments, we will own the house outright in just over two years, so we really don’t want to be saddled with payments for the next fifteen years.
It’s specifically intended for people without jobs, so no. There are no payments to make so it’s not about your job. But the full amount borrowed becomes due when you leave the house.
So when you move out your kid could get a traditional mortgage, from their own bank, with all the normal qualifications, and that would pay off the amount due. Effectively buying the house for whatever portion of the available equity that you borrowed. Or, you could sell the house, for full value, pay the note, and pocket the difference.
I think the previous comment referred to an earlier comment saying why not just (cash out) refinance the house, the normal way, rather than a reverse mortgage? And among the reasons are more trouble qualifying (for a given amount) on a regular mortgage or HELOC if not working and not intending to. This is the reason for the invention of reverse mortgages, essentially, for people with high home equity and no jobs, relatively late in life. Also as to my previous comment you could buy an annuity rather than do a reverse mortgage, you need money to buy the annuity, and if you have to raise it by borrowing against your house, the reverse mortgage is perhaps the better alternative.
On the situation with heirs, you’re right the RM isn’t typically for the full value of the house (though of course it could be if the house value declines), yet the heirs obviously end up with less than they’d have had without the RM, and various heir complaints about RM’s, such as I’ve read in press articles, sometimes have to do with the exact rules the RM company lays out for heirs who want to pay off the RM rather than have the house be sold. It can get complicated, apparently.
I think the general answer about RM’s is fairly clear. It’s not something you’d do if you can live the way you need/want without it, leaving the home equity ‘in reserve’ as an asset if things gets less favorable later on, and in view of how much you want to spend v how much you want to leave the heirs. It might be best, with all the possible drawbacks, if the home is the only significant asset and you can’t make it at what you consider a reasonable standard of living without tapping the home equity. Despite the lower fees and lesser complication, I would personally tend to reject a regular refinancing/HELOC for retired people who don’t intend to fully repay the loan, ie intend to just use some of the proceeds to make payments on the loan and then die owing the rest. It’s not a moral point I’m making, it’s just actuarially dangerous to do that in case you live longer than you expect. The complexity and fees of the RM aren’t for nothing. You are paying to cover the financial risk that you live a long time, again assuming you don’t have cash to just buy a simple annuity instead.
And if you don’t have any heirs it’s kind of brilliant I’d think.
I’m in my early 50s, my mortgage is paid off, I have no heirs(nor anyone I would want to leave the house to). When I get toward my later 60s, would the RM make any sense for me? A little extra income in my pocket each month, and no concern about planning for what happens to the house once I drop dead.
yea or nay?
Only maybe. I can’t give advice in this forum other than to say that each person’s position and needs are different and should be evaluated individually. Like legal and medical advice, getting financial advice on a message board is a questionable action at best.
If you’re really thinking about it, consult a pro. A reputable one won’t charge you a dime for an evaluation. And don’t go to one that sells reverse mortgages. You want one that will be disinterested if you can find one.
I think a lot of the criticism of reverse mortgages is based on a misunderstanding of what’s going on. You’re not somehow living on money that is yours which you have saved… you’re borrowing money using your home as a security.
So people who list downsides such as that you’re paying interest or not getting “full value” are making a correct observation, but if I said the same thing about a car loan, you’d all look at me like I was stupid. Of course a car loan costs more than paying cash, and of course, the loan is secured by the car! A reverse mortgage is just borrowing money because you didn’t save enough to get through retirement.
Seen in that light, it seems like a pretty simple equation to me. Borrowing is never the ideal scenario, but given a choice of three not-ideal scenarios, a reverse mortgage might be the least bad.