Reverse Mortgage

Hawaii 001-A

Hawaii.

A friend of mine asked me if I would discuss the reverse mortgage we have.  So, here goes:

When David’s salary was cut, we called Central Pacific Bank and asked to speak to their reverse mortgage specialist.

She came over and discussed what we needed to know.

She arranged for an independent appraiser to come to our house and inspect it.  His appraisal was $xxx.

Our two mortgages totaled $xxx.  The equity qualified us for the reverse mortgage.

The reverse mortgage specialist gave us a list of banks and their interest rates.  We chose the lowest rate of 4.99% (MetLife Bank).  This interest rate is fixed for life.

We waited until both David and I were 62 years of age or older to qualify for the reverse mortgage (required by federal law).  When that happened, we signed the papers the reverse mortgage specialist presented.

MetLife Bank paid off the two mortgages.  They also gave us a check for $xxx lump sum cash.

We are allowed to live in this house until we both die without paying a mortgage of any kind.  We do have to pay the property tax and home insurance premium on a timely basis.  We also have to maintain our home so that it still looks nice.

If we vacate the house for more than 6 months or sell the house, we will have to pay the bank what we owe (principle plus interest).

But if we live in this house until we die, our heirs will have to decide whether to buy the house from the bank for their own use, or whether to sell the house, pay off the loan, and keep the cash balance, if any.  If the selling price is less than the loan, our heirs will NOT have to pay the balance.

You should google for more information, as some of the rules have changed.

15 Responses to “Reverse Mortgage”

  1. Olga Says:

    Fortunately for me, Mike and I managed to pay off our mortgage over ten years ago. That is how we could retire early. Mike left me in good financial shape because he was a planner like that.

  2. SchmidleysScribbling Says:

    Goodness, it all seems scary to me. Good luck with this mortgage. Last year, we refinanced the residual we owe the bank and that was scary enough although it lowered our monthly interest considerably. Dianne

  3. Christine Says:

    Interesting!

  4. granny annie Says:

    There is a good side and a bad side to all things. What would you say was the bad side of a Reverse Mortgage? Somehow I’ve always heard that it benefits the banker much more than the individuals.

    • gigihawaii Says:

      The bad side is that you will have to pay the bank back if BOTH you and your spouse vacate the house for 6 or more months. But if only one of you does, no problem for the other spouse.

  5. Denise Says:

    That’s very interesting Gigi, thank you.

  6. L...w Says:

    Thank you for sharing the terms of your reverse mortgage. Is the 4.99% variable or fixed? Sounds like an insurance product more than a loan since the loan (principal + interest) is theoretical. It seems to me only in extreme situations would the loan value matter ( if you vacate prematurely or if there is rampant inflation for example). Otherwise I would think of a reverse mortgage as selling your house today and renting it back (less upkeep, taxes and insurance) using the residual equity above the value of your loan. Not a bad deal if you plan to live in the home for the next 20 years (using David’s statistical number). Seems like a pretty fair deal to me.

    • L...w Says:

      I don’t know the interest rate piece so this remark is just off the cuff.

      • L...w Says:

        Not just the interest rate of the loan, but the interest rate environment for the next 20 years. I don’t think even insurance companies have crystal balls.

    • gigihawaii Says:

      The interest rate is fixed for life. Reverse mortgages are ideal for people who cannot pay their regular mortgage due to job loss, pay cut, etc. I would have preferred to own my house outright, like Olga above.

      • L...w Says:

        That’s an even better deal…because even though no one knows for sure, long term rates are trying to break higher these past few months and sooner or later it just might. Some people would even cash out their home value at record low interest rates just to arbitrage the interest rate difference. (However, we are not in normal times (pre Great Recession) and interest rates are manipulated IMHO.) So what you have may be a very good thing, although I agree having this arrangement comes with some risk.

    • Juicy J Says:

      The principal and interest aren’t theoretical at all (the principal is the value of the house at the time of the reverse mortage, and the interest rate is 5%). Eventually the note will be repaid in full (plus interest) one way or the other, there are just no payments until the maturity date (whever that is). Its sorta like a zero coupon bond.

      • gigihawaii Says:

        No, the principal amounted to much less than the appraised value of the house. The principal was: the 2 mortgages that were paid off, the fees incurred, and a small lump sum payment. The principal was around half the appraisal. And, as I said, if our heirs choose to sell the house, they will not have to pay the balance if the selling price is less than the loan.

  7. L...w Says:

    Maybe bad choice of word…theoretical. but what I meant was staying in the home a good span of 20 years would make the loan issue less relevant. .and more so since the rate is fixed. No worry should interest rates climb.

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