Thursday, September 16, 2010

My dad is thinking of getting a “reverse mortgage” .

One advantage of a reverse mortgage is that your dad would be able to stay in his current home while being guaranteed a tax-free income for the rest of his life.

The amount of monthly income would be dependent on your father’s age and the amount of home equity at the time the loan is originated. There is a minimum age for getting a reverse mortgage. Your dad has to be at least 62 to qualify.

The disadvantages include the fees involved and the fact that there might be no remaining equity in the home for his heirs by the time of his death.

RAM= Reverse Amortization Mortgage… One risk in a RAM is the fact that he could out live the payments. After the term of the RAM, the house belongs to the company. All equity is exhausted, this is the very nature of a RAM. Another risk is passing before the RAM is exhausted. Any reaming equity in the house can be passed to heirs, but they are held liable for the value of the payments already paid. In most cases the company ends up with the house. If it were me, I would sell the house, pay cash for something less with the proceeds, and enjoy my travels…… Oh yeah, and most RAM are paid annually at the beginning of the fiscal term, so budgeting is a must.
First off, the house does not belong to the company after he passes. The title of the house goes to the heirs regardless of how much the loan amount is. Second, if he goes with the most common reverse mortgage (HECM) it is government insured and your father will receive payments for the rest of his life. Third, this loan does not create out of pocket debt to any of the heirs. The HECM is insured to where if the loan amount grew to be more then the value of the house, HUD comes in and takes care of the difference.

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