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Reverse Mortgages?

48thStreetCustom

48thStreetCustom

Inactive
Nov 30, 2005
3,236
15,651
57
Colorado
#1
Dumb but honest question... If you don't have any intention of ever having kids, why not spend all your savings to buy the biggest house you can and then turn around and take out a reverse mortgage and get all your money back?

So if you have $1m, buy a $1m house, get a reverse mortgage and then live off your $1m rent-free until you die?
 
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#5
Legit reverse mortgages have their pros and cons, like any other transaction. An obvious con is that you are losing equity rather than building it. A financial advisor could explain all that stuff better than I.

A concern I've heard is that there are certain perfectly legal but ethically sketchy versions of them. Some of these reverse mortgage companies may be preying on vulnerable folks who don't really understand what they're getting into. Not that that doesn't happen in other financial transactions, of course ...
 
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#8
May barely cover your property tax and maintenance. You’re spreading out your money over monthly payments and they’re betting on your dying before they pay you out.

Prob better off buying the house and getting a HELOC and drawing on that money as needed. Then you can take chunks out as large as you need. Have a 10 year draw period and then refinance whatever you’ve spent. They can take the house to pay off whatever you haven’t paid back by the time you croak.
 
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#10
Just remember this:

Financial institutions provide their services for a fee. That's how free market capitalism works.

If you enter into a reverse mortgage with a bank, then that means they expect to profit from the transaction.

Since there are clearly only two parties involved in the contract (you and the bank), then obviously their profit comes out of the equity in your property. Essentially, they're giving you X amount of money now, in exchange for X+ money later.

That's not necessarily a bad thing. And if you have no heirs and truly don't care if a bank is profiting at your expense because you expect to die before your money is gone (hey, you can't take it with you), then it might be a perfectly acceptable idea.

But, by the same logic, if I have no heirs and truly don't care about what happens to my assets after I die, then it might also be an acceptable idea to gather together all of my belongings that I don't expect to use anymore and just set them on fire for the fun if it.
 
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#11
I used to sell cars for a living (please don't hate me). My advice to customers about leases was they're not for most people, but they might be good for some, under the right circumstances.

1) If you know that you aren't paying cash, but will need to finance in order to be able to afford the vehicle you want.

AND

2) If you're sure that you'll be trading in the vehicle on a new one before you reach the point where you'd no longer be "upside down" (when you owe more than the car is worth) if you financed it, which is typically about half way through a 5 year loan.

Other than in these circumstances, it's foolish to lease.
 
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#12
We have elderly family members who don't have any savings and not much in the way of Social Security coming in... but they do have a house they paid off years ago.

The extra monthly income from a reverse mortgage is going to make a big difference in their quality of life.

They won't be a financial burden on their kids and when their time on Earth is done there will still be some equity left to pass on. For their circumstances it seems like a win-win.
 
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#13
There's a legitimate use for them. As BadSanta said, some older people are house-rich but cash-poor, and still want to live in their house. It's a good solution for them. Just remember, as others have said, it's a loan and the bank is making money from the interest and fees. And to the OP, if the house is worth $1M today, they aren't going to lend you anywhere near $1M, probably more like $350k depending on your age.
 
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