By Admin on Aug 28, 2010 in Financial Services
My family owns their home & my dad is thinking of doing the Reverse Mortgage. I was wondering how it worked, & I wanted to know "What is the catch?" How do these people make money from us? are they hopeing that we won’t be able to pay it back & they get to keep our house? or what? Or how does it work? please let me know. I am trying to talk my dad out of doing this, so I am trying to find some really good reasons why he shouldn’t do it. Pretty much I want to go to my dad with a report of all the reasons why doing so would be Very bad. thank you guys ,please help me.
The following definition of a reverse mortgage was obtained from:
http://www.themortgagebrat.com/?page_id=79
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Reverse mortgage:
A financial tool which provides seniors with funds from the equity in their homes. Generally, no payments are made on a reverse mortgage until the borrower moves or the property is sold. The final repayment obligation is designed to not exceed the proceeds from the sale of the home.
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Each month the bank sends a check (or does a direct deposit) to the home owner. Generally, the bank calculates interest on the outstanding principle balance and capitalizes (adds) that interest to the loan balance.
I do not believe it is a bad loan type, for a retired person with little retirement funds and alot of equity in their home.
Of course, make sure any loan documents are reviewed by a lawyer and that you fully understand how the loan works.
QsAs | Aug 28, 2010 | Reply
As the name implies, it works exactly opposite of regular mortgage. Instead of borrowing a lot of money up front and paying it back over time, you start out with a zero balance and borrow more and more each month. In either case your property is the security fur the loan.
SDD | Aug 28, 2010 | Reply
1. A reverse mortgage is no free lunch. They can be extremely
expensive transactions. Many come with high closing costs, monthly compounding of interest, servicing fees and mortgage insurance that rises with the loan balance. These fees can be financed, but these costs will then be tacked on to your loan.
2. This type of loan can also reduce the size of the estate your heirs will receive.
3. Low-income borrowers need to be careful. A reverse home mortgage might make it difficult to qualify for other badly needed aid such as Supplemental Security Income or Medicaid.
4. Finally, reverse home mortgages are so complex that you are required to receive counseling before applying for one. The confusion is caused by there being three basic types of reverse mortgages: the HUD backed mortgage, the lender-insured mortgage, and the uninsured mortgage. The most popular is the Home Equity Conversion Mortgage, which is insured by the Federal Housing Administration
ceece911 | Aug 28, 2010 | Reply
A reverse mortgage is a money making scheme. Take out a normal mortgage and invest it in a money market account, you are much better of. You have the money, you pay no fees and you can draw out any amount you want.
In my opinion, reverse mortgages should be illegal.
bonsai | Aug 28, 2010 | Reply
I am a Realtor and I think RAM mortgages are the way to go for older people that need the extra monthly income. Pretty much the catch is if the person dies the bank sells the house and makes all the money they have paid out plus interest. The left over money from the sale goes to the heirs. Where I am from the RAM mortgages still have to be paid even if they’ve given more money than what the home is worth. In those cases the bank takes the hit and no one gets any inheritance from the proceeds of the sale. That’s usually why they don’t want there parents to get one.
Jonathon S | Aug 28, 2010 | Reply