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A good friend of mine took out a RM to pay medical expenses for his ill wife. She died and he stayed in the house. A couple of years later, he remarried. He put the current wife on the title to the house. He could not put her on the RM because it was a done deal. 5 years later, he died. The RM company told her she had 60 days to refinance, sell, or leave the house to them. They said when they sold it, if there was any money left over after all the fees, and mortgage was repaid, they would give it to her. She had a few days to tell them what she intended to do. At that time, she had just buried her husband and had 2 broken feet. Fortunately, she was able to refinance because she was on the title. This happened less than 2 years ago.
So, if you have a live-in caregiver, maybe a family member, they will have 60 days to get out. Remember, the person on the RM has to live in the house. That is an absolute must.
Also, if
before taking one out be aware that California does not hold real estate against you when qualifying for a nursing home.
look into all your options and consider hiring someone to help guide you.
one issue is that she would be required to stay in the home. Once she passes or moves out there is often a year grace period to sell the home. Any fees and interest would need to be payed out of the proceeds.
California prices are out of control so it might be better to take out a home equity line of credit where you are only using what you need. She might also want to just do a refinance and take the equity out and just have a payment?
Pretty simple.
The borrower needs to be keenly aware of interest rates on the loan and shop around with different lenders, just like every borrower needs to be. Consulting an Elder Law Attorney may be beneficial.
Second it depends on whether the reverse mortgage meets the needs of the LO. In some cases an elderly person(s) can get the cash needed to remain in their own home by using the equity in their house to fund the payments of a housekeeper, landscape maintenance, and possibly others. If the rates and fees are fully disclosed and the health of the LO(s) are in line with remaining in the home for at least 10 to 15 years this may be a valid option, even if the fees are just a bit higher than a conventional mortgage. There will usually be little or no equity left to pass on to the next generation in this case, but if the contract is studied by a contract specialist and the doctor(s) agree that the health of the individuals are realistic for the plan, this is OK. Again, this is NOT a low risk, low cost option, but it can be right for some people. Probably not for most.
As for how they really work, that is a bit complicated, and varies between companies offering the reverse mortgages. Basically, the house is appraised, and a loan is granted to the owner/resident that will be paid to the owner/resident for their lifetime (or a more limited time). The amounts that have been loaned are debited against the value of the house as well as interest on the loan. Usually monthly statements are sent out. When the owner/resident dies or must move into a NH there is a settlement. The amount of equity that has no debits against it will be paid to the estate of the owner or to their accounts, if they are still living. Normally the interest rates are a bit high and there may be other fees, depending on whether the owner has continued to pay the insurance, taxes, and maintenance or whether there is a holding account set up for these expenses. As long as everything works as described and understood at the beginning this is fine and not a scam. It is only a scam when there are hidden fees, exorbitant interest rates that were not made clear in the presentation, or other lack of honesty or clear dealing. As with any business transaction, it is the duty of the customer/buyer to check the honesty and trustworthiness of the seller. These things become scams when there are huge unexpected expenses and/or the presentation and advertising do not fairly describe what actually happens. Mostly, expect a scam. But read carefully and engage the services of someone who understands the legal and financial implications of all that paperwork.
I understand that if/when she moves to a care facility, she has 6 to 12 months before the loan will come due (if the move is considered temporary). My question is, can she still get the monthly income until such time as the move is deemed permanent. If so, it could mean the difference between placing her in a substandard facility and a much nicer one. She is at the point of really needing more help than we can continue to provide, and it is so hard on her and all of us.
We would eventually sell the home. Home values in this area of Southern California are rising exponentially and when placed on the market, homes go quickly. We think there would be at least some equity left that could fund care for a while. But it would be really helpful to still have that extra income for a few months. Anyone know? Sorry for hijacking the thread! BTW, I have been Googling to get answers and not finding any.
The other complication that I see in your case may be that the amount of money that may or may not be available from the sale of the house might delay applying for medicaid or for obtaining a spot that would transition from a fully paid room/bed to a medicaid room/bed as her funds run out. This is probably something that you should not put off.
A point in your favor, though, is that the mortgage holder probably does not keep a very close eye on the property and you may have time to go through the house and take care of dealing with the contents well beyond the specified time. Although my MIL had a strict 30 day window, which passed before she died in rehab, we were able to take nearly 3 months cleaning out the house before the mortgage company contacted us. I guess they were slow to read the death notices. That could be quite different in this economy when older houses are going for really high prices. In general, though, it does usually take mortgagors time to go through their processes.
For my partner's Mom it was great. Big house in the desert of AZ--carefree. Got a reverse mortgage that with her SS and savings allowed her to stay in her home with in home help until her death.
For others, it doesn't work well. Take a list of your assets, your home, its value, and speak with an elder law attorney. The 350.00 for one hour of time to discuss what would be best for YOU individually would be very well spent.
Do not speak with reverse mortgage people. Do not sign one without running it past your attorney for another hour.
Some people get one, need care, and are told "You get 1,500 from SS and another 700.00 from your reverse mortgage; you make too much to qualify for any help with your LTC facility BUT your LTC facility now wants 5,000 a month from you."
So it can hurt such a person if you see what I mean.
I know there are slick ads for them, that make them to be the perfect solution, but they rarely are the right solution.
Before considering one, it is important to get impartial financial planning advice, preferably from a fee for service planner who is not trying to sell you anything beyond their expertise. Some work on a sliding scale or prepare a certain number of Pro Bono plans each year, otherwise expect to pay around $5000 for a comprehensive plan.
No I am looking for clients, this is not a ad for my services.
A comprehensive financial plan will look at your income, expenses, expected longevity, upcoming expenses and longevity. It will find where the shortfalls are, and include research into government programs that may be available to you. It will run different scenarios to see how long your funds will last depending on which advice your follow.
When one spouse insists my way or the highway, that is a sign of financial abuse.
I checked them out when I turned 62 and was shocked to realize that I needed to earn more monthly income than I've ever earned in my life to even qualify for one. That wasn't the case before the regulations changed.
It will put money in the hand, and the interest rate on such a loan is far less than the fees that will be paid out every month to the reverse mortgage company to access the money. No way. I know several seniors who did reverse mortgage loans and they are a joke. Sometimes up to $300 a month service charges. Reverse mortgages are as bad as student loans. Don't take one.
A bank will not give you a home equity loan for money to live on. We tried that and we tried for a second mortgage and were denied both.
There is a lot of prelimary stuff you have to go through to get a reverse mortgage, including a several-hours-long counseling session mandated by the federal government with an approved counselor who then will provide you with an approved list of lenders.
Am I happy that we have a reverse mortgage? Nope! If I win the lottery or get an inheritance, it will be paid back first -- but I will not close it. If I leave it open and suddenly need a large amount of cash, I can always go back and tap into it.
Looking back, I would have chosen to walk away from everything than get a reverse mortage (if I'd had that option but dh calls the shots). At the rate we are spending it, in three years the reverse mortgage funds will be gone. We'd still be in the house until death or until we sell, but we would not have the income to be able to sustain living in this house.
Start by researching reverse mortgages IN AN INCOGNITO BROWSER at hud.gov. DO NOT CLICK ON THE ADS. Scroll down the search page until you reach a hud.gov link. HECM (Home Equity Conversion Mortgage) is what you want to read about.