My mother in law is interested in getting this type of loan. She is in her late 60's she owes about $40k on a mortgage loan she took against her house which was paid off & now is strapped for cash but does not want to sell. She did file bankruptcy several years ago so I don't know if that will affect her. Would this be a good idea for her? From my point of view it might be good for her but not for her heirs since they will owe much more when it comes time to turn it over to them. What suggestions do you have?
Thanks.

*they will owe much more**

The heirs are not obligated for her debt. Your MIL's estate will have to make good on any remaining debts. Her debts won't transfer to anyone else (with the exception if someone co-signed with her for any debt).

I'm sure that many mortgage lenders here will come forward with lots of info for her to consider. One big obvious negative with reverse mortgages is that the closing costs are significant. Secondly, she could make far more with the money from the sale of the house in investments rather than choosing a reverse mortgage, so there is substantial "opportunity cost" in going that route. Another negative is that she will be draining her equity foreseeably for another 10-20 years and may not have anything left for her eventual nursing home care.

A trusted loan officer in my area is now specializing in reverse mortgages. She is hosting seminars to educate agents on the ways a reverse mortgage will help sell real estate!

She informed me of one party she assisted, who owns a lakefront home - reverse mortgage produced $750k in equity line - paying owner approximately $4500 per month. A portion of this income pays for a mortgage insurance policy, which will pay off the reverse at the time of his death. Great situation - income stream, and security for the heirs (they won't have to sell the home after his death to pay off the mortgage).

The benefits of a reverse mortgage are still relatively unknown among real estate agents. I suggest anyone with an interest contact a LO who specializes. With baby boomers turning 60 this year, we may see this as an tool for business in the near future.

zpcsc, Reverse mortgages are great options if your mother is looking at a cash flow possibility. I used to be a direct lender with Wells Fargo, and thier reverse mortgages are backed by AARP. There is an entire process and interview betwen the specialist and the client. I personally do not do them due to the massive amount of paperwork required for a broker. However an interview with a specialist that you can also sit in on would be a great idea. Cash flow is key for your mother or any borrower.

Wells Fargo is obviously a well respected bank, and the last thing they would ever do is put borrowers especially the lederly in a bad position on purpose. I truly believe there is more to lose for a company like wells to even allow something bad to happen. Your local Wells Office will have a specialist they can have contact you. Especially in Florida there should be some options. I know in Nashville we only have a few specialist.

Here is another Option I had posted in a prior thread. If she lives in Florida, that is a highly appreiating market. These are actual figures:

I'm going to take a moment to explain why a Reverse Mortgage may not be a good idea for certain borrowers. For example borrowers with GOOD credit in an APPRECIATING market.

Now we are going to start with the breakdown of the Reverse Mortgage which consists of a couple different options, all are variable:

We will base this scenario on a $365,000 Value with a Zero balance:

Reverse Mortgage to 95% LTV

- The Monthly HECM leaves $205,699 to borrower, figure 6.500% rate w/ cap of 16.5%.
- The Annual HECM leaves $157,886 to borrower, figure 8.10% rate w/ cap of 13.1%.

Now let's look at the fees:

- Loan fees to lender: $7,256
- Closing Costs: $2,334
- PMI: $7,256
- Service Fee (paid monthly): $5,649

TOTAL FEES: $22,495

Rising Interest and PMI will eat up the remaining 5% equity.

Conventional Alternative, Cash Out to 80% LTV: COFI Index

1) $292,000 cash out to borrower at 80% LTV (leaving you with 20% equity).

2) FIR (Fully Indexed Rate) of 6.04%, Minimum rate of 2.4%, difference of 3.64% deferred interest.
- Minimum Monthly payment of $1,138.

3) Invest $100,000 in (I'll use NOIXX as an example) an equity fund or money market fund, this particular equity fund had a return of 5.82% last year.

4) You still have $192,000 in your checking account after investment.

5) Equity gains in the residence(Over 20% total remaining). If we use Arizona's appreciation rate conservatively at 7.2% per quarter, 28.8% annually (based off 2005 numbers), this will give you an additional $105,120 in the initial annual equity gains based on current trend. This alone will take care of ALL deferred interest and the minimum monthly payment.

Now I'll break this down:

1st year- $365,000 value x 28.8% = $105,120 in equity gains + $365,000 = New appreciated value of $470,120

2nd year- $470,120 value x (lets say the appreciation rate cools down) 22.4% = $105,306.88 in equity gains + $470,120 = New appreciated value of $575,426

3rd year- $575,426 value x (lets say the appreciation rate plummets to 4% annually, highly unlikely but for worst case scenario purposes) 4% = $23,170.04 in equity gains + $575,426 = New appreciated Value of $598,443.04.

4th year- $598,443.04 value x 4% = $23,937.72 in equity gains + $598,443.04 = New appreciated Value of $622,380.76.

5th year- $622,380.76 value x 4% = $24,895.23 in equity gains + $622,380.76 = New appreciated Value of $647,275.99 minus deferred interest over 5 years in the amount of $54,020 = $593,255.99 in true appreciated value.

MY ADVICE: SELL NOW (After year 5)BEFORE RECAST.

Let's recap:

1) We have true equity gains over 5 years in the amount of $301,255.99.

2) We have $100,000 invested in (NOIXX example) with a five year total return of $139,988.

3) We have $9,645.48 in checking after mortgage has been paid and $2,000 per month for 5 years = $120,000

Minimum Mortgage Payments (listed annually):

Year1: $13,656
Year2: $14,680.20
Year3: $15,781.20
Year4: $16,964.76
Year5: $18,237.12

TOTAL: $62,354.53

Remaining left in checking after mortgage has been paid for 5 years: $129,645.48

Lets assume you spend an additional $120,000 over and above your mortgage payment and your entire current income for 5 years:

$120,000 + annual income over 5 yrs. (we'll use $40,000 annually for this example) in the amount of $200,000 = $320,000, which leaves you with $9,645.48.

Keep in mind you would have to be spending roughly $8,000 per month over a five year period.

Now let's break this down when all is said and done in 5 years:

Checking: $9,645.48
Investment: $139,988
Equity from sale: $301,255.99

TOTAL RETURN IN 5 YEARS ON CONVENTIONAL LOAN W/ INVESTMENT RETURN: $450,889.47

This program is geared for exactly what is shown. This is why Alan Greenspan has embraced this particular loan for his own financial gains.

I am not by any stretch saying that there is not a place for a Reverse Mortgage, but as I had mentioned in the beginning, if you have good/decent credit and live in an appreciating market, there are certainly much better alternatives.

Thank you, I will give her the info and see what she decides. If she wants to pursue it, I will sit w/her and a loan officer.