Tuesday, December 29, 2009

Reverse mortgage - approach with CAUTION!!!

A friend recently helped her mother get a reverse mortgage on her home.  Though I'd hear of them, I didn't know the specifics until she shared some details with me.  Some company offers to give you money for "ownership" of the home.  The home owner gets to live in the home for as long as they wish - but I believe there's a 10 year maximum on this one - and when they move or pass away, the bank sells the house to recover the amount.   It all sounds terrific until she told me about the $11,000 in fees and that her mom was still responsible for upkeep and property taxes.  I suppose the fees are no different than a standard mortage one would take out to buy a house.  By the time you add realtor fees, "points" and a down payment, it could be more than $11,000.  BUT to take it for something like this; from elderly people who need the money, just seems mean and WRONG.

I have another concern about this situation.  I learned later that my friend's mom used $40,000 of the $100,000 she received for cosmetic "fixes" to the house.  This really disturbs me because the only one to really benefit from the beautification is the bank; they'll reap the added equity and the elder won't.  She will be more comfortable with her surroundings and will worry less about what the neighbors think.   Some of the $40,000 went for "real" repairs to keep it safer and cleaner which is readily understandable.  If it were my mom, I'd try to be very cautious and to maintain as much of the original principle as possible.  The remaining $60,000 or so will only pay for  2 to 2.5 years in a quality assisted living center and much less in a nursing home.   That $40,000 might be greatly missed later.