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Old 09-16-2020, 11:22 PM   #41
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How does that work for her taxes when she banks some of the money instead of putting it into another house?
You don't need to buy another house with the money.
The taxable exclusion of $250K per person ($500K per couple) is based on the sale of your home, and not what you do with the money after the sale.
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Old 09-17-2020, 04:25 AM   #42
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You don't need to buy another house with the money.
The taxable exclusion of $250K per person ($500K per couple) is based on the sale of your home, and not what you do with the money after the sale.
Thank you
What if there is more money remaining after the exclusion is taken? I thought that if after the basis and cost of improvements are subtracted and the exclusion is taken then the money remaining would be taxed unless it is used to purchase another house. Not considering selling my house but I would hate to get this wrong if I did. Tax codes change so often.



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Old 09-17-2020, 07:34 AM   #43
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Thank you
What if there is more money remaining after the exclusion is taken? I thought that if after the basis and cost of improvements are subtracted and the exclusion is taken then the money remaining would be taxed unless it is used to purchase another house. Not considering selling my house but I would hate to get this wrong if I did. Tax codes change so often.
Nope, cap gains are paid after the exclusion. The old law had no exclusion but you could avoid/defer the cap gain by buying a new house of equal or greater value. In this case, the change was made 23 years ago.
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Is a Reverse Mortgage a viable planning tool?
Old 09-17-2020, 08:42 AM   #44
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Is a Reverse Mortgage a viable planning tool?

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I just sold my house in CA and am planning to purchase a home in florida with a RM. 600K purchase, 80% RM, so I have a nice house ,no payments for 120K...sounds good to me. let the bank worry about appreciation and future equity.


OP here. Wow, so you effectively kept the balance from your CA sale to use however you like and bought a new $600k house in FL for $120K?

This is the kind of creative RM example I was seeking to learn about as a what-if and a way to activate some otherwise inert home equity in certain situations.
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Old 09-17-2020, 09:08 AM   #45
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How does the math compare to putting $120K down paymentans getting a $480K loan? Now you have a portfolio to live off of. I don't get why anyone would do a reverse mortgage in this scenario. You buy a house for cash, then you set up a complicated way to get cash over time, when you already have what you want... cash!
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Old 09-17-2020, 09:32 AM   #46
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How does the math compare to putting $120K down paymentans getting a $480K loan? Now you have a portfolio to live off of. I don't get why anyone would do a reverse mortgage in this scenario. You buy a house for cash, then you set up a complicated way to get cash over time, when you already have what you want... cash!
There’s no “getting cash over time.” Reverse mortgages for purchase work like a lump sum reverse mortgage, you make the down payment and the rest of the purchase cost is financed by the RM. You don’t need to make payments, but you should expect the growth of the RM to eat away your equity from the down payment.

That said, Davidz247’s example doesn’t make sense to me. Unless he’s maybe 120 years old? Here is HUD’s principal limit factor table; no one is making 80% reverse mortgages under this program. I’d be very curious how he ccould get an 80% mortgage—maybe a private loan of some kind?

https://www.hud.gov/sites/dfiles/SFH...er_10_2_17.xls
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Old 09-17-2020, 11:13 AM   #47
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WADR IMO it is silly to even think about precision planning that far out. There are so many things that can happen to you, your health, your house, your city, your neighborhood, to interest rates, to inflation, .... that you might as well consult the magic 8-ball. The answer will be equivalent quality to any other answer you might get.

With regard to predicting the appreciation rate of your house for the next 30 years, remember Taleb's turkey: https://www.businessinsider.com/nass...turkey-2014-11
Love that piece about the turkey. Poor turkey. But it reinforces my belief that you really need to plan for the future, while simultaneously living for today. It's a tightrope, but you must walk it. Now as I age (I turned 60 today), I am leaning more and more toward living for today, because as much as we don't want to think about it, tomorrow isn't promised. Just ask the turkey.

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Old 09-17-2020, 11:25 AM   #48
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I just sold my house in CA and am planning to purchase a home in florida with a RM. 600K purchase, 80% RM, so I have a nice house ,no payments for 120K...sounds good to me. let the bank worry about appreciation and future equity.
I'm wondering if a person can end up stuck and lose the entire $120K by having to move in a few years ?
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Old 09-17-2020, 02:49 PM   #49
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I'm wondering if a person can end up stuck and lose the entire $120K by having to move in a few years ?
I found this online: "The property is sold or title to the property is transferred. If the home is sold or title transferred, the loan becomes due and payable. Generally, if the property is sold, the escrow company will accept the purchaser's money and pay off the reverse mortgage along with any other liens on the property."

If on the other hand, they failed to maintain insurance or pay property taxes, the lender could foreclose. If foreclosed upon, I think that the house's occupant would get back what they put in, less interest and lender costs to date, but that might not be accurate, depending on the contract. I've watched RM stories on TV where RM holders lost their properties (and income streams) due to non-payment of HOA dues, property taxes, or insurance. This is especially easy to have happen when someone's older and their mental acuity isn't adequate to keep up.

My other concern would the the Medicaid look-back period, and the lack of the ability to use the house value to pay for long term care. There would likely be no house to tap in the event the person needed long term care, and didn't want to accept what Medicaid would pay for.
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Old 09-17-2020, 07:27 PM   #50
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A friend of mine depleted all his savings, sold his coin collection and anything else of value he had just to get by. He is living on SS and food stamps. All he had left was his house so he obtained a RM. He has no heirs so the company will just take ownership of the house when he dies. As a last resort, for him this move may have made sense. This gave him some income that he sorely needed. For most anyone else, these expensive loans don't make much sense at all IMO.
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Old 09-17-2020, 11:49 PM   #51
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https://www.early-retirement.org/for....php?p=1214332

Here is a good example from our dearly departed friend imoldernu on what can happen if you have a spouse and don't protect some money in house equity and need Medicaid help.
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Old 09-18-2020, 03:35 PM   #52
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A friend of mine depleted all his savings, sold his coin collection and anything else of value he had just to get by. He is living on SS and food stamps. All he had left was his house so he obtained a RM. He has no heirs so the company will just take ownership of the house when he dies. As a last resort, for him this move may have made sense. This gave him some income that he sorely needed. For most anyone else, these expensive loans don't make much sense at all IMO.
This scenario makes perfect sense....someone needs living expenses, so they tap their home equity. Their asset allocation is 100% house, 0% cash, 0% investments, sure, tap your home equity, it's your only choice besides cat food.

The OP's asset allocation, will have $600K in cash after he sells his first house, so not cash strapped. Even after dropping a down payment on a house, not cash strapped. I just don't see a reason for a reverse mortgage in this scenario. Possibly some misguided fear of owing something to the bank?
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Is a Reverse Mortgage a viable planning tool?
Old 09-20-2020, 06:19 AM   #53
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Is a Reverse Mortgage a viable planning tool?

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This scenario makes perfect sense....someone needs living expenses, so they tap their home equity. Their asset allocation is 100% house, 0% cash, 0% investments, sure, tap your home equity, it's your only choice besides cat food.

The OP's asset allocation, will have $600K in cash after he sells his first house, so not cash strapped. Even after dropping a down payment on a house, not cash strapped. I just don't see a reason for a reverse mortgage in this scenario. Possibly some misguided fear of owing something to the bank?


No, my question isn’t coming from a place of fear but rather slyness 🦊. I just wondered what folks thought about the idea, 13 years from now, to use 1/3 of our projected home equity in the form of a reverse mortgage loan to pay off the first mortgage balance and thus add $1,500/month to our spending. It’s just a hypothesis and would be a nice-to-have in our situation with no heirs, not a necessity.

I think I’m learning from this string that RMs are complicated; suspicious as is anything sold on late night TV by washed up celebrities; there are better ways to accomplish the same goal; and 13 years is a long time with a lot that can and will happen in the meantime. However, it would still be interesting to learn if people are using these things satisfactorily as an optional, creative, financial planning tool vs. a desperate last-ditch effort to create cash, which is not the scenario I’m asking about.
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Old 09-20-2020, 03:46 PM   #54
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No, my question isn’t coming from a place of fear but rather slyness 🦊. I just wondered what folks thought about the idea, 13 years from now, to use 1/3 of our projected home equity in the form of a reverse mortgage loan to pay off the first mortgage balance and thus add $1,500/month to our spending. It’s just a hypothesis and would be a nice-to-have in our situation with no heirs, not a necessity.

I think I’m learning from this string that RMs are complicated; suspicious as is anything sold on late night TV by washed up celebrities; there are better ways to accomplish the same goal; and 13 years is a long time with a lot that can and will happen in the meantime. However, it would still be interesting to learn if people are using these things satisfactorily as an optional, creative, financial planning tool vs. a desperate last-ditch effort to create cash, which is not the scenario I’m asking about.
Thanks for the clarification. To be honest, I would put RMs in the category of "if all else fails." I'm certain that shows my bias. But, IOW, I would not retire if I had any other use for an RM than as a last resort. Sorry if that sounds judgmental. It is not meant to be. (Heh, heh, by the way, I still love Tom Sellek and, believe it or don't, I WATCH his RM commercials just to see him again! I watch Blue Bloods which is still a current show - along with reruns.) YMMV
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Old 09-20-2020, 04:20 PM   #55
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But, IOW, I would not retire if I had any other use for an RM than as a last resort.
The discussion is getting a bit confusing (at least for me) because some folks are generalizing RM's to the broader category of any type of equity harvesting from a home. Are you saying you wouldn't retire if you needed to include the use of an RM (specifically) as part of your planning or are you saying you wouldn't retire if you needed to use any home equity (regardless of how made available) as part of your planning?
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Old 09-20-2020, 04:41 PM   #56
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13 years from now, to use 1/3 of our projected home equity in the form of a reverse mortgage loan to pay off the first mortgage balance and thus add $1,500/month to our spending.

there are better ways to accomplish the same goal
Bottom line is you'd increase spending by spending some of your home equity every month. There are likely other ways to do this than using an RM.

We used an RM for my MIL when she needed a boost in spending money late in life and it worked out very well. It cost several kilobux more over the several years it was in place than other alternatives we considered. But, it was "arm's length" in terms of family dynamics with her being independently in control of the situation and nobody else in the family affected by value fluctuations of her condo, etc.

RM's are like annuities. Some are OK, even helpful, in specific circumstances.
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Old 09-20-2020, 06:09 PM   #57
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This scenario makes perfect sense....someone needs living expenses, so they tap their home equity. Their asset allocation is 100% house, 0% cash, 0% investments, sure, tap your home equity, it's your only choice besides cat food.
This works but only for as long as one's health remains good enough to live independently. It was the situation with FIL years ago. He had about 10k in cc debt (almost all from prescription medications) virtually no savings, but a paid-for house with a market value of a bit over $250k. SIL suggested a RM but fortunately the banker FIL was dealing with (a guy right out of Jimmy Stewart's character in "It's a Wonderful Life") had some horror stories to set her straight, and as a result he said "We won't even sell that product". While they may be scarce, there are ethical bankers out there. Anyhow....

In FIL's case he did in fact have a severe health crisis and had no choice but to go into full time nursing care about six or eight months later. Had he taken out a RM his options would have been severely more limited than they were, and we were able to get him into a very nice, albeit expensive, nursing home for the final ten months of his life. I shudder to think of what would have happened had he not had that equity to make use of.

Most of us hope that when "That Time" comes, we can pass away peacefully in our sleep. Few are that lucky and without a large wad of cold hard cash the end can be pretty miserable. In my job I saw some examples of how miserable that existence can be.
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Is a Reverse Mortgage a viable planning tool?
Old 09-21-2020, 05:47 AM   #58
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Is a Reverse Mortgage a viable planning tool?

Thanks for these thoughtful comments, which are enough to dissuade me from thinking these things are a viable planning tool for all situations except the most dire, which I hope to avoid, of course. The analogy for RMs above with annuities seems about right, given this discussion, with their efficacy ranging from “helpful as a very last resort” to “dangerous Voodoo to avoid at all costs.”

I’m glad to learn that Tom Sellek still has other side hustles going besides hawking dangerous products. More power to him and caveat emptor to everyone else.
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Old 09-22-2020, 10:01 AM   #59
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Wait ten years, then re-assess. Time can change everything.

There is a reason why selling RM's yield high commissions for their sellers.
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Old 09-22-2020, 12:36 PM   #60
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Markola,

Have you tried out this reverse mortgage calculator? To understand the RM product, I just tried it on our home and the fees, which essentially discount the home value, are pretty high--$20K on a $600K home. Home values in our area have increase on average >6 percent/year since 2000, so the bank would definitely be the winner on a RM here.

https://www.reversemortgage.org/abou...ge-calculator/
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