Utilizing Home Equity. Reverse Mortgage? HELOC?

[eleighj416]

Sorry guys, I am from the totally debt free school, i.e. Dave Ramsey, Mary Hunt, Humberto Cruz, my parents etc. Why would I want to do this at all?

 

[mountainsoft]

Sorry guys, I am from the totally debt free school, i.e. Dave Ramsey, Mary Hunt, Humberto Cruz, my parents etc. Why would I want to do this at all?

Hey, I'm right there with you. We are totally debt free, haven't owed a dime in over 15 years, and only a small mortgage payment before that.

I would never consider a HELOC or Reverse Mortgage unless it was the only solution I had left to remain in my home. I've learned enough about reverse mortgages now to know that's not even an option. It would defeat the whole goal, borrowing on the equity, but still being able to pass the home to our daughter.

Regardless, I was just researching for the future. I hope it's something I never need to use, but want to understand the options should the need ever arise.

 

[ER2B]

OP - You could take out a regular loan basically like a cash out refinance. It would have the costs of a regular loan and then you would make payments on it like a regular mortgage (not all interest would be deductible in this scenario). The advantage of this versus a reverse mortgage is that the fees are surely less. On the other hand, you have to make payments like with any other mortgage.

You could also tap equity by selling the house and buying something less expensive.

As for reverse mortgages, I used to be very down on them. Wade Pfau has written a lot about them and believes in some circumstances they do make sense. He advocates in some instances that you should open the reverse mortgage early before you are a situation of desperation.

https://retirementresearcher.com/using-reverse-mortgages-responsible-retirement-income-plan/

I vaguely recall reading something where he indicated that people do better who obtain the mortgage early and make it part of their retirement plan early on.

He also has a book on the subject. I haven't read it, but I note that I can borrow free on Kindle Unlimited.

https://www.amazon.com/Reverse-Mort...LZG7FCA/ref=mt_kindle?_encoding=UTF8&me=&qid=

+1
I will use reverse mortgage as a last resort. I will start the application process early too. I remember when my aunt was doing hers. Her application wouldn't move along unless she was cleared by a HUD approved counselor. Luckily, she just had mild dementia. I had to be on the speaker phone with the counselor and with her by my side.

 

[JillPill]

I can't understand her rather blunt refusal to even consider an RM. No eligible family member wants to live in our piece of paradise, & we plan to stay in it until they bury us, so where is the downside?



Hi catii - most children who inherit on death are not really interested in actually living in the home -(relocating to HI for instance) but they would be certainly happy to sell the home after your passing and enjoy the 1.5 million..

The downside for parents is they do not like the idea of a bank earning interest against their property - resulting in less money passing on to children when the children sell home after parents death. The upfront costs are expensive also.

 

[JillPill]

Sorry guys, I am from the totally debt free school, i.e. Dave Ramsey, Mary Hunt, Humberto Cruz, my parents etc. Why would I want to do this at all?

In my case DH and I (no children) are sitting on over 600K in equity in a home. I love my nieces and nephews but don't feel the need to give them 600K plus on my death. I will be very happy to set up a 300K credit line that I can tap tax free and that any portion unused will increase at the interest rate of the loan.

If you have children and want them to get all the equity on your death it's not a great option for you.

 

[Big_Hitter]

Sorry guys, I am from the totally debt free school, i.e. Dave Ramsey, Mary Hunt, Humberto Cruz, my parents etc. Why would I want to do this at all?

to avoid actuarial ruin

 

[REWahoo]

Here is a troubling aspect of reverse mortgages I wasn't aware existed:

Even heirs who want to pay off reverse mortgages to hold onto a family home, and have the means to do so, can find themselves stymied by a seemingly endless cycle of conflicting messages that stretch out for years.

As reverse mortgages end, heirs are left with heartache

 

[Katsmeow]

In my case DH and I (no children) are sitting on over 600K in equity in a home. I love my nieces and nephews but don't feel the need to give them 600K plus on my death. I will be very happy to set up a 300K credit line that I can tap tax free and that any portion unused will increase at the interest rate of the loan.

If you have children and want them to get all the equity on your death it's not a great option for you.

I think this is the point. If you have a loot of equity in a house and would like to spend more money on yourself, then I could see that doing something to access the equity makes sense. One could, theoretically, sell the house and rent an apartment and spend the equity (or buy an inexpensive new place with plenty of equity left to spend).

I don't see doing a reverse mortgage or a HELOC or a cash out refinances as being inherently that different. Yes, it comes with costs but they are all ways to get equity out of the house so it can be used by the person who owns. I do have kids but I don't feel that I have an obligation to constrain my own lifestyle so they can have an inheritance. If they do have one, that's fine, but I would never live in privation too insure it.

 

[james22]

Single, no children, I've thought about a reverse mortgage (Pfau's book was helpful).

But TX allows me to defer property tax after 65, so that seems (net) preferable in that I can expect some remaining home equity to pay for assisted living if necessary.