Reverse mortgage etc? ? ?

[Ray]

This isn't really a "home repair" question, but some readers of the newsgroup might help, based on experience.

I have a sister, single and living alone, who needs to begin drawing down the equity in her home. She's 81, not in the best of health. The appraised value of the home is $500,000, with no mortgage at this time.

I've looked into "reverse mortgages" a bit and there are aspects of these that bother me -- not the least being substantial activation costs.

We are considering an alternative of simply taking a 30-year mortgage for the maximum we can in such a loan. We would then invest the proceeds in an ETF muni-bond fund and begin drawing down the principal at $30,000 a year.

My question is, how much can we expect to borrow? I would hope to get $400,000, which would be 80 percent of the appraised value. Is that a realistic possibility?

[Tony Hwang]

Hi, No family lawyer, accountant, bank manager/financial planner to consult with? Start with them.

[Pete C.]

Have you looked into reverse mortgages from a real reputable bank, not a TV advertising reverse mortgage scammer?

[EXT]

The amount that can be borrowed is based on how much you can pay. For her that would probably be zero. Any mortgage money borrowed would most likely cost more that it would earn on secure bonds. She should probably sell the house to a family member and then rent back with a secure lease.

[dpb]

EXT wrote: ...

Not w/o serious discussion w/ estate planner, etc., ...

If nothing else, the potential heir(s) lose basis step-up in that scenario.

This ain't the forum for such discussions, not just that it's off-topic but that there's far too much at stake and too many personal details required to make a rational decision that one should even consider sharing in such a public forum.

[Ralph Mowery]

I am not sure what legal way to do it, but it may be possiable to rent the house to a family member for one month at the normal rental rate. This turns the house into a rental property. Then she can give it to a family member. That is sort of what a lawyer explained it to me about one way we could have done my dad's house when he went to the VA hospital. There are many ways to protect the property if you talk to a lawyer.

[DerbyDad03]

Simple answer to the question you didn't ask:

Go see an Estate Planning Attorney.

Not a Real Estate attorney that also does wills. Not a "Hurt In A Car? Call William Mattar" guy that also "plans estates".

Go see a firm that specializes in Elder Care and Estate Planning.

The issues are bigger than just the fact that your sister needs some cash. What if she has to go into a nursing home? "She's 81, not in the best of health" The time to deal with this is not as she lying in the hospital waiting for the ambulance ride to Hillcrest Haven. It's right now.

But "Wait!" you say. "Attorneys cost money!"

Do you think an Attorney is going to cost you $500K? Well, that's what it's going to cost if something happens to your sister and she ends up in a nursing home and they take the house as payment. There may be things that a good Estate Planning attorney can do, right now, to avoid that. Even if it costs you (her) something, it'll be way less than losing the house. Don't be afraid of the "look-back" time frames and say it's too late. You'll never really know the answer to that question until you talk to someone who deals with these matter on a daily basis.

[DerbyDad03]

re: "I would hope to get $400,000...begin drawing down the principal at $30,000 a year"

$400,000 /$30,000 per year gets her 13.33 years of income.

re: "She's 81..."

81 + 13.33 =3D 94.33

re: "...not in the best of health"

81 + 13.33 =3D 94.33

Why would you borrow so much?

re: "invest the proceeds in an ETF muni-bond fund"

Which way are interest rates going to go in the fairly near future? Hint: They sure can't go much lower!

What happens to bond prices when interest rates go up? Hint: If you have a $1000 bond paying 5% and new $1000 bonds are paying 6%, do you think anyone will give you $1000 for your bond?

Do you think your sister is going to realize enough gain to make the payments on the loan as well as meet her living expenses?

Run your plan by the bank and see if they'll lend you $400,000 using a muni-bond fund as the source of income to be used to pay it back.

As I suggested in another thread, go see an Estate Planning Attorney and put together a solid plan to protect your sister and her assets.

[Van Chocstraw]

You can get a reverse mortgage with a lump sum payment and monthly payments. Invest the lump sum.

The best thing is to get a power of attorney and sell her property, invest the money and let her live with you until it becomes unbearable. Then put her in a home. Hopefully by then the profit from investment has increased her worth since it's $60,000 a year to stay in a nursing home.

[DerbyDad03]

Hide quoted text -

re: "since it's $60,000 a year to stay in a nursing home"

$60K would be nice! It's at least $110K where I live, and I'm not talking NYC or LA.

$60K? Do they feed you?

[dpb]

Van Chocstraw wrote: ...

There's absolutely _no_way_ this can be determined to be "the best thing" from the almost complete lack of knowledge in the specific situation... :(

--

[BetaB4]

I would suggest going to this website as a starting point:

You can probably also f> This isn't really a "home repair" question, but some readers of the

[Ray]

You're right -- a simple question, and you're the only one who gave the simple answer I was looking for. Many thanks.

re: "I would hope to get $400,000...begin drawing down the principal at $30,000 a year"

$400,000 /$30,000 per year gets her 13.33 years of income.

re: "She's 81..."

81 + 13.33 = 94.33

re: "...not in the best of health"

81 + 13.33 = 94.33

Why would you borrow so much?

re: "invest the proceeds in an ETF muni-bond fund"

Which way are interest rates going to go in the fairly near future? Hint: They sure can't go much lower!

What happens to bond prices when interest rates go up? Hint: If you have a $1000 bond paying 5% and new $1000 bonds are paying 6%, do you think anyone will give you $1000 for your bond?

Do you think your sister is going to realize enough gain to make the payments on the loan as well as meet her living expenses?

Run your plan by the bank and see if they'll lend you $400,000 using a muni-bond fund as the source of income to be used to pay it back.

As I suggested in another thread, go see an Estate Planning Attorney and put together a solid plan to protect your sister and her assets.

[Phisherman]

This is a foolish investment because of the risk, even with the safest AAA-rated bonds. One should not use home equity for investments. Your sister's best bet is to get the reverse mortgage or sell the house, but it should be her choice.

If she sells, then use part of the money to buy a AAA-rated low-cost bond fund such as Vanguard Ginnie Mae. It's kind of expensive right now, due to what happened to Fannie and Freddie, but the price fluctuates between $9.50 and $10.50, pays (taxable) monthy dividends. With the other half I'd recommend laddering CDs with half the money, making sure they are government guaranteed. No need for an ETF, unless you want your broker to steal a profit.

[Ed Pawlowski]

There are so many possible problems with nursing homes, inheritance taxes, gift taxes and so forth, it is impossible to get a good answer from a bunch of newsgroup junkies. See a good estate planner that does this every day. The lawyer will save, not cost, you money.

[DerbyDad03]

e quoted text -

re: "You're right -- a simple question..."

I hope you're not talking to me!

In no way did I imply that it was a simple question. Infact, I hope I implied that it was uts the opposite.

Don't ask questions of this importance in a friggin' home repair newsgroup. Get your sister's 81 YO butt to an Elder Care attorney and get the right answers for her specific situation.

[Walter R.]

Some more guidance:

[John Grabowski]

*Don't borrow money to invest. The reverse mortgage should only be used as a last resort. The fees are very high and you don't get anywhere near what the property is actually worth. Selling the house and moving to a senior's only community is my suggestion, though I realize it is not always desirable. Perhaps selling the house to someone with the stipulation that she will live there as a rental tenant is a possibility.

[Yadda]

on 8/10/09 9:06 AM Ray said the following:

Sell the house and rent it back?

[FlavorFlav]

Yadda wrote in news: [e-mail]:

There was a report on scammer-types about reverse mortgages. It was a while ago, don't remember much about it. Just to beware and make sure you know what you're getting in to. One thing I remember is somehow the customers wound up having to pay back the company more than what they received from the "reverse". Beware and deal with a well known company.