How are things like fire/flood insurance handled on houses that have a loan like this? If you can't live in the house because of a fire, what happens?

Are there special insurance policies available to cover such situations?

A HUD slide show, but lots of details I hadn't seen before. It's from a couple of years ago when the maximum loan limit was $822,375. It's been raised to $970,800.

https://www.hud.gov/sites/dfil...ecm_101_06_28_21.pdf

Investopedia also had a good overview, and a list of sources at the end of the article:

https://www.investopedia.com/terms/h/hecm.asp

quote:

Originally posted by Steve Miller:
Pique, if I’m reading you right the sort of reverse mortgage you are talking about is one where you use a reverse mortgage to purchase the new property and the lender uses your equity to essentially make loan payments to themselves. You don’t receive payments directly.

Do I have this right?

correct.

quote:

Originally posted by Steve Miller:
How are things like fire/flood insurance handled on houses that have a loan like this? If you can't live in the house because of a fire, what happens?

Are there special insurance policies available to cover such situations?

you insure it just like you do any house you own. and you are the owner, not a tenant.

your equity gradually goes down instead of up. if the house is worth more than the loan, you get that difference when you sell or move out.

let's say you buy a $1M house and put down $500k to buy it through a reverse mortgage purchase. In 15 years, assuming the loan is at 6 percent interest, your $500k of equity will have been depleted by the reverse mortgage.

However, if the house by then is worth $2M, you still have $1M in equity that is yours.

At least that is how I understand it.

quote:

Originally posted by ShiroKuro:

quote:

Originally posted by Steve Miller:
Pique, if I’m reading you right the sort of reverse mortgage you are talking about is one where you use a reverse mortgage to purchase the new property and the lender uses your equity to essentially make loan payments to themselves. You don’t receive payments directly.

Do I have this right?

This is a super good point/summary, and now that you write this, I guess that's my understanding as well.... But I'm pretty sure I've heard of reverse mortgages that also include payments to the tenants... ?

yes, but they arent tenants.. they are owners. the title to the property is in their name.

let's say we decided to stay where we are, and our house is now worth $500k, and all that is left on our mortgage is $100k.

We can take a reverse mortgage on the $400k of equity (actually I believe they won't lend on the entire amount, but some percentage of it) and receive monthly payments. It's like taking out a HELOC, except we never have to pay it back unless we move out of the house.

Mr Pique thinks he read that you can buy a house with a reverse mortgage AND take payments on the equity, but I don't know about that or how it would work. That seems a lot more risky to me, to do both.

quote:

Originally posted by piqué:

quote:

Originally posted by Steve Miller:
How are things like fire/flood insurance handled on houses that have a loan like this? If you can't live in the house because of a fire, what happens?

Are there special insurance policies available to cover such situations?

you insure it just like you do any house you own. and you are the owner, not a tenant.

your equity gradually goes down instead of up. if the house is worth more than the loan, you get that difference when you sell or move out.

let's say you buy a $1M house and put down $500k to buy it through a reverse mortgage purchase. In 15 years, assuming the loan is at 6 percent interest, your $500k of equity will have been depleted by the reverse mortgage.

However, if the house by then is worth $2M, you still have $1M in equity that is yours.

At least that is how I understand it.

Hmm, this sounds like a “too good to be true” thing — what am I missing?

quote:

Originally posted by ShiroKuro:

Hmm, this sounds like a “too good to be true” thing — what am I missing?

From Steve's earlier post... The Risks of Reverse Mortgages:

http://www.theretirementcafe.c...e-mortgages.html?m=1

quote:

Originally posted by wtg:

quote:

Originally posted by ShiroKuro:

Hmm, this sounds like a “too good to be true” thing — what am I missing?

From Steve's earlier post... The Risks of Reverse Mortgages:

http://www.theretirementcafe.c...e-mortgages.html?m=1

That is a well-done, clear article, and the comments are worth reading, too.

It is important to understand that the borrower is required to pay for mortgage insurance, and that is how the lender is made whole if the cost of the loan ends up exceeding the value of the home.

A reverse mortgage is expensive. If you get one, you want to be sure you want to stay in that house for life, and you need a contingency plan in case that becomes impossible. It's a very forgiving situation until the loan is called due because you can't or don't want to live there any more. Then you'd better have a plan for how to pay off the loan.

It also helps if you have no heirs to leave a house to as the estate part can get messy. I would talk to an estate attorney before signing up.

This is definitely a smart option in highly specific situations. But that means it isn't a good fit for plenty of people.

quote:

It also helps if you have no heirs to leave a house to as the estate part can get messy. I would talk to an estate attorney before signing up.

The hoarder house had a reverse mortgage on it and there was still some equity. It was surprisingly easy to settle with the lender, and surprisingly quick.

This whole arrangement, assuming everything works as advertised, sounds perfect for someone in your situation, Pique. If you decide to ahead with it I hope you let us know how it goes.

quote:

This is definitely a smart option in highly specific situations. But that means it isn't a good fit for plenty of people.

Yes, and as Steve said, it sounds like it might a good fit for you.

Good luck!

I'll try to read that article WTG linked later.

Talked today with our realtor about it. She recommended we talk to our financial planner, in addition to a loan officer and an estate attorney. She is also going to study up, because we are going to need a real estate agent who knows what they are doing with this kind of purchase.

Coincidentally today I talked with a dear friend my age who is separating from her husband in part because he doesn't want to live here any more and she doesn't want to leave (of course there is a lot more to it than that). She loves their beautiful home and would love to stay there. It will be interesting to find out if a reverse mortgage payout of a lump sum would allow her husband to get his share of the house while allowing her to continue to live there.