Pulling money out of paid off house

This is using Rocket Mortgage reverse mortgage calculator for a $1.8M home, with younger spouse age of 75. For the purpose of estimate, I have used no existing mortgage as a parameter. Basically, reverse mortgage yields about 25% of home value.

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In this example are you losing the equity above the max claim? The insurance (MIP) and other fees is what makes thr product unattractive.
 
In this example are you losing the equity above the max claim? The insurance (MIP) and other fees is what makes thr product unattractive.
Exactly! My friend still has a $350K mortgage on their $1.8M home and when I ran the calculator, they could only get about $100K in reverse mortgage. I told them to sell their home.

The difference between the home value and the maximum claim is the the buffer for the lender to cover the mortgage interests on the reverse mortgage, cost of the sale of the home and also in the case of where value of the home goes down.
 
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As others have kind of mentioned, it is a little confusing.

Is their financial situation such that they need the money that is locked up in the house? Or they simply don't like having a large portion of their net worth illiquid?

If it's the case that they need the money, I would say to sell it, take their $250k/$500k capital gains exclusion, and then downsize, or maybe rent. No matter what, they will have unlocked all the equity, freed themselves of the ongoing costs/taxes/etc.

If they don't need the money, then I'm not understanding what the concern is about having the money locked up in equity. If there is no concern about leaving an inheritance, then who cares if it's locked up in the house? As you mention, they are happy there.

No matter what approach they use to take money out of the house, there are going to be initial fees today, and they are going to have to be paying interest, and/or more fees for getting their money out. This is the primary reason I say to either just leave the equity in the home if they don't "need" the money, or to simply sell and move on.
They don't "need" the money. They do have other savings/pensions. But I think they would like to use some of the equity in the house to do more traveling, etc.
 
They don't "need" the money. They do have other savings/pensions. But I think they would like to use some of the equity in the house to do more traveling, etc.
I suppose if they are willing to die with debt on the house, it's okay. I just don't think I'd want that hanging over me as I age out. If I had other assets, I'd spend those down for traveling, but I am not them.
 
I suppose if they are willing to die with debt on the house, it's okay. I just don't think I'd want that hanging over me as I age out. If I had other assets, I'd spend those down for traveling, but I am not them.
I agree. However, if it is straight sale of current home and purchase of a smaller and cheaper home, there will not be a debt.
 
I was researching this exact thing this morning. The DW and I are "once again" thinking of moving away from the open county :( to a mid size city :ermm:as we are getting older and could benefit from being closer to "things" and downsizing too. We "think" we want a nice new (or nearly new) 1500 to 2000sq ft home. Probably looking at an over 55 community and something in the ~300k range. Our current home/property is easily worth more than that. I'm wondering how common it is to find a realtor that will sell us our new home "contingent" on them selling our current home/property. For them they would be making money on both properties.

I could buy the new home outright, (and I might do that) and just list the current home and "wait" for a sale but would prefer not to for a number of reasons.
At one point it was very common for a real estate purchase to be contingent on you selling your home. As a practical reality that was the only way people could upgrade. I'm guessing that it is less so today given more wealth but it would still be necessary for most (like my kids )unless the tapped into the bank of Dad).

When we moved, I used a pledged asset line of credit on my brokerage account to buy the new home. Then when we sold the old home I used the proceeds from the sale to pay off the pledged asset line of credit. It was very easy. Cost was about 8% interest but there were no fees.

Also, paying 8% when we haven't had a mortgage for year incentivized us to move rapidly in selling the old home to be able to pay the pledged asset line of credit and stop the interest cost.
 
Exactly! My friend still has a $350K mortgage on their $1.8M home and when I ran the calculator, they could only get about $100K in reverse mortgage. I told them to sell their home.

The difference between the home value and the maximum claim is the the buffer for the lender to cover the mortgage interests on the reverse mortgage, cost of the sale of the home and also in the case of where value of the home goes down.

While the RM may be useful in some circumstances, when you ran the figures, I admit the phrase "the juice ain't worth the squeeze ran through my head."
 
They don't "need" the money. They do have other savings/pensions. But I think they would like to use some of the equity in the house to do more traveling, etc.
I only know of 2 ways to get equity out of a home, which are to sell it, or take a mortgage/heloc.

Trying to read into your description of what's going on, seems to me the HELOC is the best approach. They can tap it when needed for what they want and only make interest payments until the bank wants some principal back. This gives them more flexibility than a cash out mortgage.
 
I agree. However, if it is straight sale of current home and purchase of a smaller and cheaper home, there will not be a debt.

I also believe that OP's friends would potentially clear a lot more cash, which they could then invest how they choose, and spend how and when they choose.
 
Not sure where you live but another thing to consider is property taxes...
Another thing is insurance. My mom's Medicare and auto went through the roof when she moved. Something else to consider that might be a surprise. Of course insurance and property tax rate could be less, but it's something to know before moving.

I'd be inclined to stay near the good friends across the street and do a cash-out refi if I needed money. That is, unless I knew the new place was a LOT cheaper living expenses, and I still could be around my people.
 
I was researching this exact thing this morning. The DW and I are "once again" thinking of moving away from the open county :( to a mid size city :ermm:as we are getting older and could benefit from being closer to "things" and downsizing too. We "think" we want a nice new (or nearly new) 1500 to 2000sq ft home. Probably looking at an over 55 community and something in the ~300k range. Our current home/property is easily worth more than that. I'm wondering how common it is to find a realtor that will sell us our new home "contingent" on them selling our current home/property. For them they would be making money on both properties.

I could buy the new home outright, (and I might do that) and just list the current home and "wait" for a sale but would prefer not to for a number of reasons.
It's common to have a sale contingent on you selling your house. Does not have to be the same agent, you can have your listing agent different than the agent you have for buying new place. The downfall is if the seller gets another offer without contingency, you either remove contingency and have two houses for a while (and have to come up with money to buy new place, or you end the sale contract. Back to looking for another place to get under contract.

But another way to maybe get around the problem of contingency is to have a set period of rent back your current house from the new buyer. Usually for 1-3 months after closing and not long term. Another option is delayed closing date, but that gives more time for potential deal to fall through, and you are trying to time selling old house and buying new to have the cash from current sale. I would try to do the rent back, and the typical rate is whatever the buyer's monthly payment is. Although like most things negotiable.
 
I agree. I tend to not get involved. If I found something I thought they could consider, I would bring it up one evening with the small group we have over a beer as something like: Have you ever considered xxx? I would also say my free advice was worth everything they are paying for it.
I would not do this unless directly asked, and not in the group, but one-on-one only.

My primary reason? Most people gloss over things and paint a nice story, they don't divulge financial hardships or challenges and fib a little on the topic. "We want to downsize" can mean exactly that, or, for all you know, they are in a pickle financially, or have a family member in need of support, or something else - things we rarely disclose to anyone other than family.

By proposing alternate solutions to a problem you don't really know, you could put your friend in an awkward situation.

Having read that, if you're still interested in making suggestions, at least do it in private. Because the others will also "whaddabout" and chime in with their less-considered thoughts, muddying any ideas you might plant, and poke and pry a bit more as well - especially over a beer, it's only natural.
 
I'm wondering how common it is to find a realtor that will sell us our new home "contingent" on them selling our current home/property. For them they would be making money on both properties.

Besides what others have said, if you are moving more than a short distance, the agents will cover different areas. We moved 150 miles and had 2 agents, one at each end. Managed to close the sale and purchase on the same day, moved the next day, and received the moving truck and our stuff on day 2.

Was there any tension involved? :LOL:
 
Besides what others have said, if you are moving more than a short distance, the agents will cover different areas. We moved 150 miles and had 2 agents, one at each end. Managed to close the sale and purchase on the same day, moved the next day, and received the moving truck and our stuff on day 2.

Was there any tension involved? :LOL:
I know of a couple of agents that cover the area we live in now and where we are "planning" to move to, so that shouldn't be a problem.
 
I know of a couple of agents that cover the area we live in now and where we are "planning" to move to, so that shouldn't be a problem.
After my wife died in December 2022, I sold the big house in June, 2023 and moved into a smaller one in September 2023 (downsized and got rid of 1/2 of all the "stuff"). At 80 years old at the time, I said if I ever do this again, it will be with no "stuff". I'll call the Salvation Army and have them take it all and buy new stuff at the next place (an apartment, I hope). Or if the next place is the great beyond, my daughter can make the call to them.
 
Our good friends and neighbors are thinking of selling their house and moving to lower cost, more senior friends area. One of the driving factors seems to be the amount of money that have tied up in the house. They have no children, so they are not worried about leaving an inheritance. This got me thinking about the best way to pull money out of a house. HAs anyone done a reverse mortgage or taken out a mortgage in their 70s?


Edited to clarify: I am looking for options where they can stay in this house and not move. They are not concerned about owing money on the property when they pass.
Reverse mortgage are a great option for the right circumstances…they are not the Reverses of the past…def should look into
 
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