Hi,
Perhaps you read my other post regarding a kitchen upgrade. Anyway….Family member wants some home improvements, let me rephrase NEEDS home improvement. They are older 85 actually and own their home out right.
They have limited cash but we just heard of a thing called reverse mortgage which in a nut shell as I undertand it means the owner can borrow against the value of the house and NOT have to pay it back as long as they live in the house. Of course the heirs will assume the loan or it will be paid off in probate. Not sure what happens if they move out of the house but it clearly says “not living in the house” not nessasarily deceaced.
The information I have gathered so far is ambivilent providing pros and cons but no real life situations.
Said family member is the type who frets a bit and is more concerned about leaving money to heirs than having money themselves but absolutly needs somewhere in the neighborhood of $5k to $10k in home improvements, the part that involves me about $3k. Water heater on last leg as well as some major appliances so I’m trying to figure if I should suggest such a loan to cover all the bases. Their family is pretty well taken care of so the idea of leaving money or property more a legacy than a concern. They don’t seem to have the concern and are not chiming in either with advice or to help with the work that needs to be done. I’m going to be free in town for about 2 months and will work very cheap so I can save them a LOT of money and assure a quality job.
I just want to be able to contribute a bit of advice instead of leaving it to the banks which I have a feeling will try to talk them into a loan. They have asked me to attend a meeting with the bank tomorrow morning and I’d love some advice to help protect them from the wrong decision.
Any experiences appreciatted,
10saw
Replies
A reverse mortgage is a pretty drastic step to take for a 10k issue.
Reverse Mortgages are more intended to provide a predictable stream of monthly income for folks. I.E.- a check every month for X dollars. Why not just use a Home Equity Loan for $10K? Payment on 10K on a ten year term would be pretty low.
Don't Reverse Mortgage!
High fees upfront and during. Better to HELOC.
Troy Sprout
Socialism in general has a record of failure so blatant that only an intellectual could ignore or evade it."
-- Thomas Sowell
Don't do it! Similar to the insane interest you pay with a mortgage... only do it if you hate your kids, since there will be nothing left.
http://www.garth.ca/columns/050821.shtml
I agree with the don't do it crowd. A reverse mortgage should be the absolute last resort, due to the high fees. If they have a decent income, they can borrow the money out right (try a credit union) or as a home equity loan.
Or a relative could loan them the money.
Fees and unreasonable interest rates can be avoided if the kids are willing to finance the deal. The kids could buy the house and if the parents still don't spend teh money it would be available for an inheritance.
But the main point is, what a pain in the butt with potential emotional trouble, and for what ? 10 grand? Forget it.
heir wont pay the house off. The finace will give a monthly payment and when they die, they take the house. The heir have no claim on the house at all. what they are doing is selling the house to the fiance and finace letting them live in it till they kick the bucket
Wow!I had read a thread and most of the responses were positive and here we have more negative thread....hmmmm...Frankly the Garth Turner article was horrible, bad spelling and a whole bunch of what ifs....plus we're not in Canada so.....But....???Bank meeting tomorrow...thanks for the insights..10saw
lol, Canada aside, the premis of a reverse mortgage is the same.
Check with either her county's or city's housing department. They have these low/no interest loans (up to something like $15K) specially designed for what you describe.
About 15 years ago, my momma got one for new windows and a roof. At no interest and 25 per month, she got it paid off a couple years ago. She then got another for more repairs. This time, no payments, no interest, nothing due until the house is sold. She's 84.
In most cases the loan becomes due when the owner moves out of the house. Can be ticklish if the owner must be in a nursing home for a time but MIGHT return to the house. There can be other fine-print terms that you gotta watch out for.
Better to get a conventional home-improvement loan for the longest term available. Or just get each relative to kick in some money. The money can be in the form of a loan against the estate (thought get a lawyer for that one).
My mother looked into doing a reverse mortgage and since my wife is a Certified Financial Planner we had a close look at the pros and cons. We came out firmly on the side of NOT doing it. The costs/fees associated are far too high to make it attractive. It should without question be a last resort thought.
Danh had a great idea if there is a family member that could lend the money. Simply agree on an interest rate on the money lent, and the estate pays off that debt prior to dividing up the remainder. Petes idea is great also if her county has such a lending plan.
Petes idea is great also if her county has such a lending plan.
Technically, it's not a county plan. They administer it for the federal government. That's why I also said, "city's." Depending upon location, these federal programs are administered by some form of local municipality. Could even be a township.
This is one of those little known programs we all pay for, but is poorly advertised. It's intended for low income senior citizens. The interest rate, loan payments, even the need to repay, are all dependent upon THAT senior's income. It has no bearing upon any kids or other family member's ability to contribute. Believe me, if it did, they would have laughed my momma out of the building. Instead, she makes no payments.
I'm a retired CFP.