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Reverse Mortgage when kids/grandkids not interested?
Old 09-15-2020, 05:14 PM   #1
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Reverse Mortgage when kids/grandkids not interested?

DW & I are happily retired, with enough income to live comfortably. Both house & rental properties are mortgage-free, & living on Oahu is a HCOL area. Our real estate assets have been increasing in value since we bought them, as are our property taxes. Bought the house for $325K in 1993, & it's appreciated $1,167,000 since then. Even with the pandemic, the chances of a local market collapse is zero

None of our 3 kids or 3 grandkids is the least-bit interested in living out here in Hawaii, let alone in our lovely custom home, with a walkway to the ocean. Okay, so be it.

Wife & I are at odds on a reverse mortgage. She hates the idea, while I'm for it. With a current market value of about $1.5 million, a RM would give us about $765,000 as a lump sum. We've already heavily updated the house for our old age (74/67), & plan to stay here until the bitter end. We're both active martial artists (once we're out of lockdown), so we aren't on our last legs.

So, where is the downside to a RM? When we pass, our son (who lives in Japan) will be the Executor, he will just sell the house, & the RM will be paid off, with any excess funds going to our estate. So, less money for the estate distribution, but a nice chunk of change for us to use, while we're still young enough to enjoy it. That use may include long-term care, but at least we wouldn't have to sell the house or rentals.

BTW, with the sale of the rental properties, there will still be several million in the estate, not including our other liquid & non-liquid assets, so it's not like we're shorting anyone's inheritance.

Pros? Cons?
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Old 09-15-2020, 05:39 PM   #2
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I'm not sure an the details of how RM's work. I do know that we looked a a home that was being sold by the children of a deceased . We were told that the children had 6 months to sell the house and pay back the RM from the bank, or the house would be foreclosed. We didn't end up buying the house as there were several major things that needed to be addressed. A flipper, bought it much below the asking price as the children felt it was better than letting it drag on as the bank foreclosed.

I don't know how many RM's end up foreclosed in situations like this.
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Old 09-15-2020, 06:36 PM   #3
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Good point, but there will be more than money in the estate to pay back RM, if it doesn't sell quickly. Right now, houses in our neighborhood are selling in an average of 11 days, for cash. Of course, that doesn't predict the future, but ocean-view property, with access, has always been at a premium on Oahu.
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Old 09-15-2020, 07:41 PM   #4
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Can you adopt me as your child? Lol. Sounds like a reasonable plan if you truly intend to love in your house your remaining years. Downside may be if something should happen to either of you that prevents that from being reality as your primary residence.
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Old 09-16-2020, 04:43 AM   #5
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Do you need the $765,000 to live on? If not, I wouldn't do it. What is the interest rate on the mortgage?
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Old 09-16-2020, 05:15 AM   #6
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Quote:
Originally Posted by Golden sunsets View Post
Do you need thie $765,000 to live on? If not, I wouldn't do it. What is the interest rate on the mortgage?
^^^^This

It's a loan, and do you really need a loan to remain happy in retirement?
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Old 09-16-2020, 08:07 AM   #7
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Reverse mortgages sound good in principle, but are generally to be avoided because they are a costly and complicated product (high fees, unfriendly rules, etc). See this recent and active thread https://www.early-retirement.org/for...ml#post2480404



I'd certainly sell existing assets or get a HELOC before I'd do the reverse mortgage.
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Old 09-16-2020, 08:39 AM   #8
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I agree with your wife.
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Old 09-16-2020, 08:42 AM   #9
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There are practical realities that you are not considering. Your kids will have a limited time to come up with a very large amount of money or else the house gets foreclosed on the reverse mortgage, and there's no telling when the rental houses will sell. Do the kids have to go through probate to get title to the rental houses? That will take time, especially if done from far away. How many kids are there? Will all of the kids agree to sell the rental houses, or will at least one want to keep them? All will have to agree to sell or else none can sell. If so, where's the money coming from to pay off the reverse mortgage? And who pays for the reverse mortgage? What if one kid wants to keep the house but the other kid doesn't care if it gets foreclosed, then what? One kid may feel resentful that he/she has to pay for the whole mortgage while the other doesn't pay anything but yet gets the benefit of owning half the house. Think about that. And things will take longer than you realize to settle after you are gone, and your kids will have a limited amount of time to pay off the very large reverse mortgage and they may not have the funds in time so the house will be foreclosed. And your kids will not be happy that they lost the house.

I would not want my kids to be grieving my death with a ticking clock hanging over their heads putting pressure on them to act quickly to come up with a very large amount of money or else the house gets foreclosed, and forcing them to agree or else resentment will ensue.
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Old 09-16-2020, 09:31 AM   #10
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When I looked at RMs a couple of years ago, their rates were significantly higher than either a HELOC or a conventional cash-out mortgage. Seemed to me that it was a product only for people who didn't qualify for either of the latter.

So since you seem to be able to qualify for something better, I'd suggest going with a HELOC or a conventional (jumbo I'll assume, so not technically conventional) loan.
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