Reverse Mortgages to the Rescue (of the FIRE economy)

[cobben]

They want rent from the boomers' inheritance, along with some fees for taking it.

Reverse Mortgages to the Rescue
http://finance.yahoo.com/focus-retir...he-rescue.html

New reverse-mortgage rules let you squeeze more cash from your house and even buy a new home.
Reverse mortgages have been around for nearly 20 years, but it wasn’t until the current financial crisis that they caught on. Seniors are turning to these loans to tap the equity in their homes and generate tax-free income to help them ride out hard times.

. . .

Your personal “bailout plan” won’t come cheap. You’ll pay the usual closing costs, plus loan-servicing fees, an origination fee of up to $6,000 and interest over the life of the loan. But what makes a reverse mortgage really costly is an initial insurance premium equal to 2% of the home’s value (up to the reverse-mortgage loan limit) plus 0.5% per month of the mortgage balance. (The Federal Housing Administration insurance protects you and the lender if your home value declines and ensures that you won’t owe money if the loan balance exceeds the home’s value.)

On a $200,000 loan, the upfront costs could exceed $20,000 . . ."

[santafe2]

Re: Reverse Mortgages to the Rescue (of the FIRE economy)

On a $200,000 loan, the upfront costs could exceed $20,000 . . ."

A fool and his money are soon parted.

[mesyn191]

Re: Reverse Mortgages to the Rescue (of the FIRE economy)

Its mostly old folks I see who are getting these reverse mortgages. They're quite up front about not caring what happens since for many of them this is what is funding their retirement. The ones I talked to all expected to die before the money ran out.

[BK]

Re: Reverse Mortgages to the Rescue (of the FIRE economy)

Sadly, many of these old folks would be better off unloading their home and downsizing.

It sickens me when I see celebrities and financial advisers peddling Reverse Mortgages. If you can't meet your monthly expenses - the fast way to cut expenses is to unload the home with the yard. An apartment will cost much less to heat or cool than most single family homes. No money to be made doling out good advice to people.

Homes need lots of repairs and tending to retain their value.

[GRG55]

Re: Reverse Mortgages to the Rescue (of the FIRE economy)

Sadly, many of these old folks would be better off unloading their home and downsizing.

It sickens me when I see celebrities and financial advisers peddling Reverse Mortgages. If you can't meet your monthly expenses - the fast way to cut expenses is to unload the home with the yard. An apartment will cost much less to heat or cool than most single family homes. No money to be made doling out good advice to people.

Homes need lots of repairs and tending to retain their value.

You look at it as an accountant would...no emotion.

First, from an accountants standpoint you didn't point out that the transaction costs to sell a house and "downsize" are usually not trivial. You can pay for a lot of maintenance with the real estate agent fees and other costs to move residence.

Second, many seniors, unlike us mobile job-hopping Boomers, have been in the same home for most of their adult lives and that means an emotional attachment and memories [to the place, not the structure] the value of which can't be quantified. Before my mother passed away I watched as many of her friends, mostly widows who had lost their husbands, sold their family homes and many of their possessions to downsize into a condo [in some cases more luxurious than the home]. Without exception every one regretted that decision. I counselled my own mother to stay in her [albeit modest] home as long as possible. She was fortunate to live there for all but the last 4 days of her life.

Third, neither of us sees a problem converting the illiquid asset of a home into a liquid cash amount [or income stream]...selling may be the best option for some, but I think there is a place for re-mortgaging at that stage in life as I don't think parents should feel any obligation to pass on an "estate" to their adult kids frankly. I think that's an even bigger scam of the financial services industry with it's advertising [the absolute worst line I've ever seen was a private bank claiming to help you deal with "The Responsibilities of Wealth"]

Just some food for thought...

[metalman]

Re: Reverse Mortgages to the Rescue (of the FIRE economy)

You look at it as an accountant would...no emotion.

First, from an accountants standpoint you didn't point out that the transaction costs to sell a house and "downsize" are usually not trivial. You can pay for a lot of maintenance with the real estate agent fees and other costs to move residence.

Second, many seniors, unlike us mobile job-hopping Boomers, have been in the same home for most of their adult lives and that means an emotional attachment and memories [to the place, not the structure] the value of which can't be quantified. Before my mother passed away I watched as many of her friends, mostly widows who had lost their husbands, sold their family homes and many of their possessions to downsize into a condo [in some cases more luxurious than the home]. Without exception every one regretted that decision. I counselled my own mother to stay in her [albeit modest] home as long as possible. She was fortunate to live there for all but the last 4 days of her life.

Third, neither of us sees a problem converting the illiquid asset of a home into a liquid cash amount [or income stream]...selling may be the best option for some, but I think there is a place for re-mortgaging at that stage in life as I don't think parents should feel any obligation to pass on an "estate" to their adult kids frankly. I think that's an even bigger scam of the financial services industry with it's advertising [the absolute worst line I've ever seen was a private bank claiming to help you deal with "The Responsibilities of Wealth"]

Just some food for thought...

per usual, great thought food... a reverse mortgage is the best revenge.