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Thread: Reverse Mortage - ?

  1. #1

    Reverse Mortage - ?

    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?
    Last edited by Kev Williams; 05-02-2020 at 1:30 PM.
    ========================================
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  2. #2
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    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.

  3. #3
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    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
    "A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty."
    - Sir Winston Churchill (1874-1965)

  4. #4
    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.

  5. #5
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    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
    "A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty."
    - Sir Winston Churchill (1874-1965)

  6. #6
    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
    Go into the world and do well. But more importantly, go into the world and do good.

  7. #7
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    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.
    --

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  8. #8
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    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.
    Ken

  9. #9
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    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
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  10. #10
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    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

  11. #11
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    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.

    Id sell invest the money in the stock market (now is a good time) and either downsize or rent.
    Regards,

    Tom

  12. #12
    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:

    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-


    --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!
    ========================================
    ELEVEN - rotary cutter tool machines
    FOUR - CO2 lasers
    THREE - fiber lasers
    ONE - vinyl cutter
    CASmate, Corel, Gravostyle


  13. #13
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    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...
    --

    The most expensive tool is the one you buy "cheaply" and often...

  14. #14
    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.

  15. #15
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    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/se...erse+mortgages The only financial blog I read, his ramblings have helped me understand several issues. Hes getting older and unfortunately now comments on social issues but theres lots of info in the linked articles and he says BEWARE.
    My three favorite things are the Oxford comma, irony, and missed opportunities

    The problem with humanity is: we have paleolithic emotions; medieval institutions; and God-like technology

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