Reverse Mortage - ?

[Kev Williams]

I'll be 66 in July, got on medicare last year, and I'll start collecting my pay this year since the income limits are gone. To those who would advise me to wait until I'm 70 because of the higher pay, nope. IMO that's one of the best scams going. First, life holds no guarantees! Second, and most important, I've done the math many times, and just now since I have the current numbers right in front of me. If I wait till I'm 70 I'll get a 38.6% pay increase over taking pay now That sounds great, but is it? First, I get zero pay for 4 years waiting for the increase. But should I start collecting now, in 4 years I'll already have been paid over 100,000! Right now I can just put that pay in the bank, like it never happened. Fast forward 4 years: if I waited I'm now at $0 and just starting to collect my pay + 38.6%... but if I collected early I'm now at +$100,000 and keep adding my regular pay. Running the numbers, the total payments of the wait method won't surpass the pay-now method for 121 months-! Not until I'm 80 years will I actually start making more money. It's my opinion that I'll need the higher income earlier more than later.

Done with the SSI part ;)

This is the year we've planned on "semi" retiring since we started buying our retirement necessities (read: toys ;) ) 14 years ago. "Semi" retiring because being self-employed for 46 years and the powers that be killing off every retirement plan we ever started over those years have left us no choice but to work until we forget how. That, and I'd get bored silly if I didn't have something to do every day. Our financial situation for now is good. The pandemic is whittling down our workload, which is an issue we've trying to figure out how to do, now it's happening by default... every cloud I guess- :)

A big decision to make is whether to get a reverse mortgage. My thoughts about this is simply to have the mortgage make its own payments plus utilities, not looking for any other extra cash per month. Later down the road we can take out more equity if needed... Our main debt load is the house, all work equipment is paid for, no cc debt, and all other debt will be paid off by this time next year. A reverse mortgage paying for basics means our income will cover our lifestyle without touching our savings.

That's the story.

The house is worth about $320k give or take. Current balance is just north of $130k. Mortgage interest is very low at the moment-- Is a reverse mortgage a good or bad idea at the moment? Or at all?

[roger wiegand]

For me the social security decision was easy. I calculated the break-even to be at age 78. Since we have plenty of money to live on should I die sooner and since I have every intention of living longer than that I opted for the higher payout later.

Reverse mortgages are subject to a lot of predatory and underhanded tactics. I'd be sure to have the advice of a good, independent financial advisor before entering into such an arrangement. They sometimes work well for people, but there are pitfalls.

One of the best things I ever did was to get an advisor who neither works on commission nor ever touches my money. I pay by the hour for advice which I implement and it's free from the conflict of interest inherent in advice that is tied to how much the guy gets paid. After watching my wife's mother get repeatedly scammed by terrible but highly remunerative advice from a couple of the largest financial companies in the country (looking at you Wells Fargo) there was no way I was going there.

[Jim Koepke]

Kev, your post seems to indicate you do not currently need SSI income. Do you have a need of income from a reverse mortgage?

None of us know what the future will bring. Currently my situation is no mortgage and no other debt. It would be nice to have a bit more income. In my opinion it is better to not have any strings on our home/property for a little extra income now. If a greater need appears in the future, my feeling is keeping all my options available might be a better way to go.

jtk

[Doug Garson]

Seems to me that if you can do the math for the SSI you can do the math for the reverse mortgage. Hardest part is what assumptions to plug into the formulae. How long will you live? What will interest rates be in 1 year 10 years ? What will the cost of living be? Etc. I always chuckle when I see financial companies claiming they have the magic formula to calculate how much you have to save for retirement. The formulae are not complicated, the assumptions are.

[Jim Koepke]

I always chuckle when I see financial companies claiming they have the magic formula to calculate how much you have to save for retirement. The formulae are not complicated, the assumptions are.

Right!

How can they know what dental work you will need?

They have no idea what health problems may develop.

One thought that comes to mind over the reverse mortgage is what happens if someone becomes ill and it makes moving closer to a medical facility a major consideration?

jtk

[Mike Henderson]

I would avoid a reverse mortgage if possible. For someone with no other options, they can be good but from what I've read, they're expensive.

Also, if you're out of the house for a year (I believe it is) the reverse mortgage is cancelled and you could be forced to sell the house to pay it off. An example is if you were sick or injured and had to go into a nursing home.

Examine it carefully before you do anything.

An alternate approach might be to just take a mortgage and put the money in some reasonably safe investment - mortgage interest rates are very low right now. Draw off that investment to make the mortgage payments and whatever expenses you need. If you exhaust the fund you will be in trouble, however.

Mike

[Jim Becker]

I'd not consider a reverse mortgage at all...I'll downsize before that would be on the table. But this is certainly a subjective and personal decision.

I opted for SSI at 62. The statistical payout is about the same as waiting, given normal lifespans. I "did the right thing" while I was still working relative to retirement savings...I have about the same take-home pay now (before SSI) as I had pre-retirement, at least for my base salary before commissions. SSI is paying for my new in 2019 vehicle (fast over three years) as well as education expenses for my daughter and for a close friend's adopted daughter's pre-paid plan. (single parent/unemployed for two years now) I'll reduce my income from my IRA once we downsize and I don't have the mortgage payment anymore. There was another important reason I took it at 62...my older daughter is disabled and gets SSDI. My taking SSI at 62 provided her with a benefit from "my" SS retirement which may very well enable her to begin living independently in the near future. that benefit is almost the difference in monthly payment I would have received if I waited until 65, so in effect, I'm not really "out" any money if it helps my daughter reach that goal.

[Ken Fitzgerald]

As Jim stated, the decision is really personal and varies from individual to individual. I had no choice but to go on SSI at age 61 as my sudden deafness rendered me unable to continue my profession. One thing to consider is what type of a lifestyle do you want to enjoy and what do you want to do in your retirement? For 30+ years, I contributed a small monthly amount into a 401K and received matching funds. I kept telling my wife, when we retire that's our play fund. We will use it to go play. We travel a lot, nationally and internationally all on the tab of that 401K. We aren't rich but we lived within our means and planned ahead.

Personally, I don't see us getting a reverse mortgage as long as we are able to care for each other.

[Bruce Volden]

I too started SS @ 62, only because I already have a civil service retirement from the government.
The little I paid in to SS over the years reaps me a grand total of $303 monthly---wowzwa!
ANYTHING I see advertised ad nauseum on the TV I avoid, be it reverse mortgage, auto insurance,
medicare plans, financial/banking institutions, the list goes on.
The only ones making money are the advertisers.

Bruce

[Bill Dufour]

Do you have any children that you would like to give some money to after death? Consider long term care insurance to pay for a nursing home. On average if you go into a long term care home you will live three years more. Cost is around 3,000 per month with a shared room. Sometimes one spouse has to live there and the other spouse moves in to live with them at a lower cost to stay together.
Bill D

[Thomas McCurnin]

I was a banker for a considerable period of time. Reverse mortgages are a rip-off. Run away.

Here is what usually happens, depending on the terms of your deal (which by the way, are biblical in length and technically written):

How much do they pay you? Not much, sometimes as little as 60% of the equity as they measure it.

How long can you stay in the home? That may be a certain age, or measured by years. We were often faced with the sad situation that the reverse mortgage became due before the customer was ready to move out. Read the terms.

How do you repay it? Assuming you or your heirs want to repay it, the formula may be very complicated and one-sided. It may be the loan balance (what they paid you) plus interest at a fairly high rate plus a portion of the value of the home (as they determine it) plus all sorts of administrative fees. Read the terms.

I’d sell invest the money in the stock market (now is a good time) and either downsize or rent.

[Kev Williams]

So I could be just as well or better off to refi with some extra cash or just to lower the payments.
So I just now went to a bank website, they're showing this as today's rates:
http://www.engraver1.com/erase2/trate.jpg
Notice the HIGHEST rate listed is 3.125%... However, when loading my info- home's worth, loan balance,
where is it, simple refi, credit score, etc, I get this-

http://www.engraver1.com/erase2/trate2.jpg
--What happened to the 2.5% 15 year rate? And their 30 rate is higher than my current 30 year rate! Closing costs seem outrageous too. Guess it stands to reason if plain & simple refi info goes south within 2 pages of the same bank website, that a reverse mortgage could easily turn into a flaming sack of ____... ;


(Jim Koepke)
Kev, your post seems to indicate you do not currently need SSI income. Do you have a need of income from a reverse mortgage?
We actually don't need any extra income at the moment, but depending on what the looming economy does to our customers, that could suddenly change. I'm just trying to get a read on all our options! :)

[Jim Becker]

I you want to wait a little longer before taking your SSI, you can do that knowing that if circumstances change and you need that income, you'll be able to start receiving it within two months of getting yourself to the SSA office and signing up. It's often slightly less than that, but what day you apply vs what day of the month you would be receiving your benefit varies and can affect first payment timing.

I actually physically signed up on my 62nd birthday because I was already at the SSA office dealing with a matter for my mother. It was painless...

[Bruce Wrenn]

I signed up for SS online. Because of bi lateral knee replacement, I started at 65. I would have to be 84 before total payments would have been equil if I waited till 70 to start drawing.

[Michael Weber]

Taking SS early or late is a crap shoot. You might be interested in what this blogger says about reverse mortgages. https://livingstingy.blogspot.com/search?q=Reverse+mortgages The only financial blog I read, his ramblings have helped me understand several issues. He’s getting older and unfortunately now comments on social issues but there’s lots of info in the linked articles and he says BEWARE.

[Jim Becker]

Taking SS early or late is a crap shoot.

Very true for the individual, but statistically/actuarially, the payout over lifetime is about the same. The amounts one gets with each choice relative to their particular participation are set with that in mind. So someone like myself who opts to take it at 62 will "most likely" take about the same amount of money over my lifetime as I would if I waited for 65 or even for 70.

[Gary Ragatz]

If you're married, another factor to consider when thinking about when to start drawing social security is the spousal benefit. Under current rules, if one spouse dies, the other can claim the larger of their two benefits, going forward. Particularly in a household where there are two earners, but a significant difference in their earnings, there's a case to be made for the lower-earning spouse to claim SS earlier while the higher-earning spouse waits until age 70. These days, there's a pretty good chance that at least one out of a relatively healthy couple will live beyond that 79- or 80-year old breakeven point.

Our plan is for LOML to claim when she hits "full retirement" age in a couple of years. I'll wait until 70 to claim a benefit that will probably be about twice hers - and she'll have that if she outlives me. We have no major health issues at this point, and maybe have genetics on our side. My parents lived to 80 and 97. Wife's Mom died at 88, and her Dad is still truckin' along at 92.

[John K Jordan]

Very true for the individual, but statistically/actuarially, the payout over lifetime is about the same. The amounts one gets with each choice relative to their particular participation are set with that in mind. So someone like myself who opts to take it at 62 will "most likely" take about the same amount of money over my lifetime as I would if I waited for 65 or even for 70.

I agree that not one plan fits all.

In what would be insane for some situations, I retired at 56 and signed up for SS at some point (don't remember when), but my Lovely Bride waited until a more traditional age to retire and has yet to sign up for SS, in the mean time getting a SS spouse benefit. We were both fortunate to have pensions and those needed to be considered too.

i made spreadsheets to calculate the break-even points for both of us with estimates on cost of living, inflation, real estate, and estimated life expectancy. All these are guesses but better than guessing blind. Our financial adviser agreed our plan was not unreasonable.

Our place is paid for but from what I've read and studied some years ago I would have NEVER considered a reverse mortgage. Doing the calculations they didn't make any financial sense to me, even considering accelerating inflation and a depressed real estate market. Might be reasonable for some people, I don't know, someone in a bind?

For almost everyone I would recommend trying to find a trustworthy financial adviser to at least get a sanity check on things like this.

JKJ

[Nike Nihiser]

You should keep I'm mind that a reverse mortgage is really just a home equity loan with some different requirements, with the biggest difference being you don't pay it back but they own your house in the end. you will lose a lot for the luxury of not making payments, run the math to see how much that costs. Plus,if you get one now, you may not be able to get a home equity loan later, either because the terms of the reverse mortgage won't let you, or because you have no equity at that point

[Bill Dufour]

I remember a tv segment about a French Lady who got a reverse mortgage on her house when she was about 60. I think her husband had died. This was probably in the 1970's wehn reverse mortgages were not common in North America but I understood they were common in France at that time. The folks who had bought he reverse mortgage dies and their children took over the payments to her rather then lose the rights to the house. She stayed in the house until she got too old and had to move out about 120 years old. She collected a monthly reverse mortgage check for around 60 years.
So they can be a good deal. She had no children left alive to give her house to anyway.
John Nance Garner got tired of being vice president and waiting 12 years for FDR to die so Truman got the job for 100 days before becoming president.
Bill D.

https://en.wikipedia.org/wiki/Jeanne_Calment

[Mike Henderson]

I remember a tv segment about a French Lady who got a reverse mortgage on her house when she was about 60. I think her husband had died. This was probably in the 1970's wehn reverse mortgages were not common in North America but I understood they were common in France at that time. The folks who had bought he reverse mortgage dies and their children took over the payments to her rather then lose the rights to the house. She stayed in the house until she got too old and had to move out about 120 years old. She collected a monthly reverse mortgage check for around 60 years.
So they can be a good deal. She had no children left alive to give her house to anyway.
John Nance Garner got tired of being vice president and waiting 12 years for FDR to die so Truman got the job for 100 days before becoming president.
Bill D.

https://en.wikipedia.org/wiki/Jeanne_Calment

If I recall correctly, the government picks up the loss from a reverse mortgage that pays out beyond the value of the house. I don't know the details but I suspect the lender pays an "insurance fee" to the government for each reverse mortgage so that the government can cover the few situations where the owner outlives the value of the reverse mortgage.

It's been a while since I looked at reverse mortgages but if you get a monthly payment the amount your heirs have to pay to pay off the mortgage will be the sum of the monthly payments, plus the interest. If you live long enough, that amount may exceed the value of the house. In that case, the heirs can pay off the mortgage (purchase the house) for 95% of the appraised value of the house and the government pays the rest to the loan holder.

That's why reverse mortgages were so limited in size for many years. I don't remember the details but the limit was something like $250,000, so in many places the house would be worth more than that. There's been some increase in the size of the mortgage but I don't know what it is now. There are also "jumbo" reverse mortgages but those have slightly different rules and I don't know the details.

I doubt if there are many "success stories" like the one you mentioned, however.

Mike

[Kev Williams]

As to the 'crap shoot' in our situation: My wife's been collecting SS for 19 years; medically disabled, and unable to hold a job. That problem got exacerbated 4 years ago after surviving a sub-arachnoid hemorrhage, the source of which was never found. So if for any reason I 'go away', she's stuck with her SS payments, our savings, life insurance proceeds and selling off assets to survive. So in my mind, it makes sense to start collecting now and banking it just because it may be more necessary in the NEAR future rather than the distant future. Better to have it and not need it than need it and not have it, as they say-?

Reverse mortgage...http://www.engraver1.com/gifs/thinking.gif --I need to research a bit more but positive opinions are hard to find...

Many thanks to all for the input, it's been enlightening :) (keep it coming)

[Jim Becker]

Kev, if your spouse is officially disabled and receiving SS disability, she may be able get an additional monthly financial benefit from you starting to take your SSI payment. That was the case with my daughter, but it may have been because she was officially disabled before a certain age....I forget now as it's been over a year. I don't know if that applies to disabled adult spouses, but it's worth investigating.

[Rick Potter]

I can give you a positive report, with lots of caveats.

My brother got a reverse mortgage on his house about two years ago. He was a self employed 40 year insurance broker, and fully capable of completely researching this subject.

In his situation, he was able to change many of the standard clauses in the contract, much to the chagrin of the various agents, until he finally accepted a product that would meet his needs.


His suggestions: Almost EVERYTHING in the contract is negotiable.
Play one company against another.
Do not be hesitant about going over the agent's head to change or get proper explanation of any
clause that is not clear.
Be willing to walk away, if not satisfied.
If you still have doubts, it is probably not for you.


Now, he was in a perfect situation to be able to read and process the contracts. He also walked away from some, as well as doing all the above. He ended up with a contract that serves HIS needs, not a one fits all policy.

Most policies require inspections, and/or maintenance contracts, to ensure the owner does not allow the property to deteriorate. His policy includes a maintenance contract at a fixed price which fixes or replaces appliances, and household
problems.


As for me? Wouldn't touch it with a ten foot pole.

I know he spent many months, had many meetings, many agents, many company higher ups and lawyer meetings. I know it took him a year or more. I know he is one of the smartest insurance guys around....and I know he would not want to be a go between for anyone else, including me. Waay too many variables, waay to much work to do it right.

[Wade Lippman]

I'll be 66 in July, got on medicare last year, and I'll start collecting my pay this year since the income limits are gone. To those who would advise me to wait until I'm 70 because of the higher pay, nope. IMO that's one of the best scams going. First, life holds no guarantees! Second, and most important, I've done the math many times, and just now since I have the current numbers right in front of me. If I wait till I'm 70 I'll get a 38.6% pay increase over taking pay now That sounds great, but is it? First, I get zero pay for 4 years waiting for the increase. But should I start collecting now, in 4 years I'll already have been paid over 100,000! Right now I can just put that pay in the bank, like it never happened. Fast forward 4 years: if I waited I'm now at $0 and just starting to collect my pay + 38.6%... but if I collected early I'm now at +$100,000 and keep adding my regular pay. Running the numbers, the total payments of the wait method won't surpass the pay-now method for 121 months-! Not until I'm 80 years will I actually start making more money. It's my opinion that I'll need the higher income earlier more than later.


You have to figure the present value of the cash flow; not just the cash flow. I found I would break even at 83. Since my Grandparents made it to 87 despite obesity, smoking and no exercise, I figure I should make to 100. But the thing that makes waiting worthwhile is that I signed up to get half my wife's SS at 66 until I signed up for my own at 70. You might be too young to get that; cut off was sometime in 1954.

I don't know anything about reverse mortgages, but interest rates are really low now.

[Jim Koepke]

Our place is paid for but from what I've read and studied some years ago I would have NEVER considered a reverse mortgage. Doing the calculations they didn't make any financial sense to me, even considering accelerating inflation and a depressed real estate market. Might be reasonable for some people, I don't know, someone in a bind?

It sounds like the RM might just delay being in a bind.

My public service pension may be too high for me to ever collect from SS. Thankfully that doesn't put me in a bind.

jtk

[Mike Henderson]

I'd just like to add about Reverse Mortgages: For some people in certain situations they can be a life saver. Specifically, someone who has a lot of equity in their house and very little cash flow (pensions, social security, investments, etc.). It can provide the monthly income that will allow that person, or persons, to live a decent life without having to sell their house and move into rental property.

Yes, they have a negative aspect but those negatives are a reasonable tradeoff to those in the situation I mentioned above.

Mike