Reverse home loan

cannylass · Senior Member

Reverse home loan

Dougwe · Chief one feather

I havn't heard of that CL, what is it please?

Ma · Guru

Not something I would consider CL. But then my circumstances are very different to yours I would say.

Just make sure you read all the fine print though.

Happywanderer · The Master

Its quite a common thing to do I understand, They are often talking about it on TV.
Its where you receive money back out of your home, rather than paying a mortgage, its the reverse.
I'm sure I read on here someone talking about theirs as well.

Ma · Guru

and then whatever the balance due is upon your death comes out of your estate. Most times the home has to be sold to pay the reverse mortgage back.

Dougwe · Chief one feather

Could be anotherway of "SKI"ing.

Gerty Dancer · Guru

People do this to fund nursing-home or hostel care, but I believe the deal doesnt favour the home-owner and needs very careful consideration. Do lotsa research before deciding Cannylass.

milo · Guru

isn't that like using the equity in your house , ??

Happywanderer · The Master

Yes thats right milo.
Then when you die the money is paid back from the sale of that house.

_wombat_ · Master (of Mischief)

I had a look at this a few years ago when it first came out, just out of interest, after read so fine print I would not touch it with a barge pole.

If you are going to to do it get a very good solicitor to go over the paperwork, sorry cannylass I do not know anybody that has gone down this track.

neilnruth · Guru

I'd agree with wombat, cannylass. I do know of someone who has done this and now they both have cancer and need to go into care there will be nothing left after selling their house to fund going into care. Read the fine print would be the very best advice that so many have given you.

Landfall · Guru

Have to whole heartedly agree with Wombat and NeilnRuth.

We looked into it along with some retirement villages, would not even give it a second thought.

Two people only benefit, the solicitors and the bank.

If you are lucky enough to enjoy good health and live a long time before requiring the nursing home bit, there will be no money left in the kitty.

If the housing market should be in a slump, the sale price of the property may not even cover your debt.

This type of loan is big in the USA, that's why you see so many retirees on the cruise liners.

Dusty

Peter_n_Margaret · Guru

I believe it is a very good plan to allow those who own and live in their home to enjoy the asset value that they have accumulated.

You simply draw cash as you need it to do whatever you wish.
I understand that your pension is NOT affected.
The bank charges interest on what you owe, but you never have to pay the interest or what you draw. The interest is typically about 1% more than a normal morgage.
As you draw cash from the property, the capital gains continue to be yours, not the banks.

All of this can be done on any morgage loan using the house as security.
The difference with the reverse morgage is that the bank CAN NOT repossess the property while you still wish to live in it, even if you owe them much more than it is worth.

If you are 70 years old with only the pension, but owning your house, you could easily DOUBLE your spending rate (and travel or do whatever you wanted) for the rest of your life, without ever selling or moving out of your home.
There is little point in living on a pension for years and years and then dying leaving a $500,000 house for someone else to enjoy.

My sister & BiL recently did this. It has changed their lives, for the better.

Cheers,
Peter

Ma · Guru

I suppose it depends on where your priorities are for me I couldn't in all good conscience be self indulgent which is how I see it. Just my opinion not meant to be defamatory or anything else.

Firefly · Guru

So the interest just accrues all the years you sit in it? Is that right, and you don't pay a penny till your estate is looked at?

Ma · Guru

That's my understanding. They do it a lot in the USA. They are also "refinance" mad over there and that IMHO is why they have so many repossessions/foreclosures and why there are VERY few average Job Blow's that get to own their own home.

Firefly · Guru

I'm not trying to sound totally dumb here, it just comes natural for me.

If you to a RM and say live for another 20 years or so and in that time, the amount you have re drawn has gained enough interest to suck the value of your home when sold, plus some, the bank sells it and say you are $50,000.00 in the red, how does the bank re claim those dollars?

Blue Orchid · Senior Member

Not sure if this is a reverse mortgage under the true definition.

A friend of mine purchased an old house in England, then took out an "Interest only" equity loan to do the necessary renovations. When the house is sold, either by the owner or the estate, the bank has claim on the amount of the loan at settlement.

But there is a clause in the contract that reads something like "if there is a slump in the market and the house value drops to the level of the loan, the bank has the right to sell the house and evict the owner."

READ THE FINE PRINT....

Ma · Guru

I would say FF that it would depend on the wording of the contract. Can you honestly see any bank in Australia entering into a contract where in all feasibility they could end up loosing....I DON'T THINK SO.....then again I could be wrong.

Like Blue said and others READ THE FINE PRINT!!!

Firefly · Guru

I have an American friend who has one and been in it for about a year now.

I have sent her an email to see what she thinks of it now its down the track a bit.

She took it out when the country was going down the gurgler, it was a necessity thing for her.

Heard them talked about but never really understood them.

Cruising Granny · Guru

DON'T DO IT!!!!!
If you can find a copy of the latest National Seniors mag there's a lot of information about it. Or.... Google it and study everything you can find on it before you do anything.
It looks like a good idea to start, with but it has unpleasant affects at the end when you may want to sell your house on which you have the reverse mortgage.
Apparently people are doing the reverse mortgage to get into retirement villages etc. but it seems the idea has backfired.

Two Strays · Senior Member

CL, I can see the reason for it, however, too many people have been sucked in by the idea and have had to live with the consequences. I have heard of one couple who sold their house to payback the money owed in an effort to get out of contract. They regreted their decision to reverse mortgage.

The amount of money available to reverse mortgage depends an agreed percentage of you home value. Get an independent appraisal of the property. Use it as data to show them that you have done you research. Dont take the mortgage company's valuation as gospel. They only want you to loan more money.

From the time you receive the agreed amount, the interest rate kicks in, normally above the current bank rate. The rate is normally fixed with review updates. You pay interest on interest, on interest. After all it is a very good avenue to make large amounts of money for some company taking advantage of people needing cash to keep living.

Do extensive reseach on the subject. Seek independent advice and READ the very fine print. Keep your family informed of you intentions, because if you live longer than expected your children or estate will be up for the outstanding costs. The sale price may not cover the costs of the mortgage.

I would not do it. Its your decision.

Landfall · Guru

As i said, we looked into it and didn't like the stink.

It made more sense if a need was there, to sell the property. There by getting the FULL value of the property, not just a percentage.

Rent from then on, if you are on a pension, you may be able to get rent assistance.

You then have no outgoings on rates, repairs and maintenance. You do on reverse mortgage.

If you think that the need should arise, then plan well ahead and get your name down on a government housing list.

We have been lookng at the housing market in the USA and the foreclosures are horrendous.

Mainly from people who have had reverse mortgages and have been refinancing, hoping for an improvement in the market while the interest rates and outgoings have sucked then dry.

Dusty confuse

jules47 · The Happy Helper

The Bendigo Bank have a scheme in Victoria and New South Wales - sililar to reverse mortgage - don't know all that much about it - might look into it myself, if my house doesn't sell quickly enough - have to read the fine print and get all the why's and wherefores sorted.

tonyd · Guru

Agree with our Cruisin Granny. RMs are not a good idea, unless you are a bank. I looked into them a while ago, and it seems you don't get access to a lot of money either, but more like $15-20,000. The banks keep that information very quiet.
Cheers, Tony

Zoomtopz · Guru

Not something I would do .

Seem as only Accountants , Solicitors & banks would do ok out of it .

Sounds Too complicated .

Richo

fireheart · Senior Member

I asked a friend of mine who is a PA for the top level suits at one of the big banks, a few months ago. She nearly came at me through the phone. DON'T DO IT. It all sounds good until one looks at the fine print, apparently the consquences are diabolic and as tonyd said you are only able to access a very small amount of money in relation to the market value of your home. Your family are left with the mess to clean up after you are gone.
I never went any further with it so don't know a lot about it really, only I do trust this lady who has a good business head on her and has worked in the finance world for a number of years at a senior level.
Courses for horses though.

jimricho · Guru

I'm inclined to agree with Peter and Margaret but I add the rider that you take advice from an independent accountant. I'd also suggest that the money spent having a solicitor go over any contract "with a fine tooth comb" would be well spent.

I've never discharged the mortgage on my home so I'm "keeping my powder dry" in case I need to do something like this.

BobnBev · Senior Member

Our Daughter is a bank manager, she said ,good for banks not good for you in the long run, We own the little home and thats how it will be , like jimricho said keep the powered dry just incase.
They screw you when you buy a home, now they try to do the same when you die..
Sell and buy a small home in a small town, that way you are still the boss..

Bob n Bev

cannylass · Senior Member

Wow lots off opposition but its just a thought at the moment, the reason I asked we did meet someone who had do it , and bought a better caravan and car all with his family's blessing As Peter and Margaret said why leave all your assents to the kids lol, what the difference of selling the house and using it to buy the big rig at least you do have a home to come back to...WE were considering to down size our home but the markets not the best at the moment.Its all in the mix .As some one said the Bendigo bank has a new scream out We will be taken advice and will be doing a lot of research we before we act and talk to our kids