Let's not forget the main reason a person would consider a reverse mortgage : they need cash to meet their living expenses.
In the case where a person needs monthly income and is therefore considerin g a reverse mortgage, what cash would there be to invest?
If you are suggesting a large enough home equity loan to meet both their A) monthly cash needs for the rest of their life plus B) their new monthly loan payment, then wha t investment would you suggest that will both 1) off-set the interest and 2) be secure enough that a long term market reversal wouldn't impact their ability to meet requirements A & B?
It's tougher to lose your home with a reverse mortgage than it is if you ca n't make your equity loan payment.
You can get better rates on home equity than reverse mortgages most of the time. You take the case and put most in CD and get about 2.5%. Not much interest but if is a partial offset to your interest versus 0% from a reverse mortgage. From the balance you take enough monthly to cover payments and what you need for expenses.
If you are more tolerant of risk, you can invest in stocks or a mutual fund. There has to be a drop coming up, but Ive been getting a healthy return the past couple of years.
Of course, if you have the ability to do this you probably planned ahead enough not to be in the position of needing beer money from your house equity.
Who is offering 2.5% on a CD that you actually have access to? Even Jumbo ( $100K) CD?s with
60 month terms are paying less than 2.5%. Why would anyone borrow money at a higher rate than the investment rate and then lock it up for 5 years?
The only reason to borrow money and then invest it is to get a *higher* ret urn than the interest rate on the loan. (That's why even the very rich have mortgages, b ut we shouldn't Include them in the reverse mortgage vs. home equity loan discussion.)
...and when the reversal happens and they have to sell investments to cover their expenses
*and* loan payments, they have the pleasure of locking in those losses.
Past performance is not indicative of future results. ;-)
But isn't that the point of this discussion? Weren't you comparing reverse mortgages vs. a home equity loan? Who takes reverse mortgages? People who need the money to meet their living expenses. If a person needs money to meet their living ex penses, why would they borrow more than they need and then lose money by investing it j ust to get a "partial offset" of the interest rate?
I have got to pass this thread on to one of my neighbors. At 87 years old, he is broke. What a dumbass, right? No money left from his retirement acc ount that he put money into for 30 years, and no other fine investments. A ll eaten up in a 12 year battle with his wife's Alzheimer's treatments. Sh e finally died, and he is penniless.
If he only had you guys to guide him. He could have ditched her somewhere along the line, (not his style) or let her suffer so he could invest or han g onto his beer money.
As it was his stupid ass sold everything he owned and he now lives in a hou se that is just a bit above falling down. He doesn't really know how stupid he is... maybe I can get one of you to contact him and share this brillian t illumination on how the world works in your tiny sphere of experience.
As it is, the reverse mortgage was his only hope. He can't qualify for a l oan since he cannot demonstrate the ability to pay it back (good jobs are s carce at his age)and he has no reserves. Maybe he should give the money he got from the reverse mortgage back... I wonder.
As it is, he will get $XXX a month which will allow him to live on his rema ining Social Security and continue with his heart medicines. The way his i s structured, he will get 15 years of payments, and if he makes it that far he will be drawn out. If he expires earlier, then the estate gets a consid eration based on how much was paid out and much time remained.
What an idiot, eh? If only he had queried here first.
I wonder when I read the profound bitterness and closed minded, self righte ous thinking here what in the world happened to this group. Can your world s be so small as to only think of the world as only what exists in your eye sight? For a group that claims such worldly, expansive human experiences i t is stunning how tiny minded so many are.
d, he is broke. What a dumbass, right? No money left from his retirement a ccount that he put money into for 30 years, and no other fine investments. All eaten up in a 12 year battle with his wife's Alzheimer's treatments. She finally died, and he is penniless.
e along the line, (not his style) or let her suffer so he could invest or h ang onto his beer money.
ouse that is just a bit above falling down. He doesn't really know how stup id he is... maybe I can get one of you to contact him and share this brilli ant illumination on how the world works in your tiny sphere of experience.
loan since he cannot demonstrate the ability to pay it back (good jobs are scarce at his age)and he has no reserves. Maybe he should give the money he got from the reverse mortgage back... I wonder.
maining Social Security and continue with his heart medicines. The way his is structured, he will get 15 years of payments, and if he makes it that f ar he will be drawn out. If he expires earlier, then the estate gets a cons ideration based on how much was paid out and much time remained.
teous thinking here what in the world happened to this group. Can your wor lds be so small as to only think of the world as only what exists in your e yesight? For a group that claims such worldly, expansive human experiences it is stunning how tiny minded so many are.
+1 and a lot more.
What some folks seem to be missing is that (in most cases) people don't tak e out a reverse mortgage because they *want* to. It's usually the last option available to them. They are out of funds and don't have enough income for everyday, minimal living expenses .
Take out a home equity loan and invest the cash? Where's the income stream that the bank requires to prove that you can make the payments? In the situations we're t alking about, it doesn't exist, so the loan is a no-go right from the start.
I agree with you. Some folks need that "reality check" that Swingman joked about. It's not all sunshine and happiness in the real world. There is no one-size-fits-all financial strategy. Sometimes life puts people in situations - through no fault of their own - where the options are extremely limited.
Not really. I know of a couple of people doing exactly that. They are doing well and yes, they do have a good working knowledge of how to work with money. Most of us really don't. There are investments that return equal or higher than mortgage rates. I'm not licensed to give financial advice but you can consult with one for more information.
Sure, Robert had a good example of that. Things happen that we have no control over. I was speaking in generalities of the great number of people that just did no planning. The ones that used every bit of home equity for fancy vacations and at retirement age have nothing but inadequate SS to live on. For every comment made here you can find an exception but that does not mean something can be done.
Reverse mortgage is usually a last ditch effort for most of us but just look at the gullible people being targeted and how. Age 62? You can use the money for anything you want. Pay off your mortgage or take a vacation.
Have a structured settlement but need cash now? Call J G Wentworth. Surely you've seen that. JG will take good care of you too.
There are also people that win many million of dollars from a lottery and five years later cannot afford to retire because of poor fiscal behavior.
When you talk about home equity loans vs. a reverse mortgage, you seem to keep going back to "those that can" while I have been continually concentrating on "those that can't."
We're arguing about reverse mortgages from 2 very different perspectives, so there is no sense in continuing.
However, if you can find me a CD paying 2.5% (net) I'll take it. ;-) Secondary market CD's with high coupons but a low net yields don't count.
Life sometimes sucks but that's not the usual case. Most, before retirement couldn't come up with $1000 to repair their car. With that sort of planning, they have no chance after.
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