How can you bolster your retirement income using your house as collateral?
December 14, 2005 5:31 AM Subscribe
My in-laws are in their late sixties and have recently retired. They own their house outright and it is worth about £150,000. What is the best way for them to obtain an additional income (or a lump sum) to bolster their pensions, using their house as collateral? How much could they expect to get?
They have heard that they could sign the house over to a mortgage company in exchange for a lifelong income (or lump sum) - i.e. they would own the property when she and her husband have both died.
Is anyone familiar with this system? What are the issues my in-laws need to consider? Incidentally, their children are all comfortably off and do not need to inherit the house. They just want to see their parents make the most out of their asset.
They have heard that they could sign the house over to a mortgage company in exchange for a lifelong income (or lump sum) - i.e. they would own the property when she and her husband have both died.
Is anyone familiar with this system? What are the issues my in-laws need to consider? Incidentally, their children are all comfortably off and do not need to inherit the house. They just want to see their parents make the most out of their asset.
What you're looking for is a "reverse mortgage"
. The way it works is that they get a loan against the house, and either get money in a lump sum or as monthly payments. From the above-linked website:
" * The older you are, the more cash you can get; and
* The more your home is worth, the more cash you can get.
All reverse mortgages are due and payable when the last surviving borrower dies, sells the home, or permanently moves out of the home."
Based on their "Reverse mortgage calculator" and one 68 year old living in area code 94115 (the default):
A single lump sum advance of $79,188
OR a monthly loan advance for
as long as you live in your home $489
posted by gilgul at 5:42 AM on December 14, 2005
. The way it works is that they get a loan against the house, and either get money in a lump sum or as monthly payments. From the above-linked website:
" * The older you are, the more cash you can get; and
* The more your home is worth, the more cash you can get.
All reverse mortgages are due and payable when the last surviving borrower dies, sells the home, or permanently moves out of the home."
Based on their "Reverse mortgage calculator" and one 68 year old living in area code 94115 (the default):
A single lump sum advance of $79,188
OR a monthly loan advance for
as long as you live in your home $489
posted by gilgul at 5:42 AM on December 14, 2005
Personally, I would:
(a) find a smaller house that is less expensive, especially in regard to upkeep,
(b) sell enough items inside large house until they can fit into smaller house,
(c) sell large house,
(c) move to smaller house,
(d) thus now possess less living expenses in addition to less potential loss (such as if there were a terrible storm, one would not lose 150k worth of property).
Live cheaper, have more money to work with. I have a small house, small bills, and a stready income -- I have no intention of moving into a bigger house and thus have bigger expenses, even if my income jumps tremendously.
posted by vanoakenfold at 6:40 AM on December 14, 2005
(a) find a smaller house that is less expensive, especially in regard to upkeep,
(b) sell enough items inside large house until they can fit into smaller house,
(c) sell large house,
(c) move to smaller house,
(d) thus now possess less living expenses in addition to less potential loss (such as if there were a terrible storm, one would not lose 150k worth of property).
Live cheaper, have more money to work with. I have a small house, small bills, and a stready income -- I have no intention of moving into a bigger house and thus have bigger expenses, even if my income jumps tremendously.
posted by vanoakenfold at 6:40 AM on December 14, 2005
vanoakenfold makes a good point. Downsizing to a smaller abode, or perhaps even a condo, is an option your folks may want to explore. It certainly is a trend among retirees where I live (midwest U.S.). Folks trade in their large suburban estates and buy condos in the city where they are closer to entertainment and restaurants, don't have to shovel snow or take care of yards and don't have to mess with stairs. Plus, utilities are less and condo boards usually have staff to take care of maintenance issues.
As for the reverse mortgages, the AARP has a lot of information on its Web site. However, I'm not sure how much of it only pertains to the U.S. Where is your parents' home located?
posted by Sully6 at 7:46 AM on December 14, 2005
As for the reverse mortgages, the AARP has a lot of information on its Web site. However, I'm not sure how much of it only pertains to the U.S. Where is your parents' home located?
posted by Sully6 at 7:46 AM on December 14, 2005
Reverse Mortgages always sounded a bit dodgy to me. I would second vanoakenfold idea. A condominium is easy to maintain, they can find a very accessible unit (no stairs, etc.), and you can probably get one for much less than 150K pounds. The remaining money they can put in a annuity (?) they could draw from monthly.
posted by chunking express at 8:12 AM on December 14, 2005
posted by chunking express at 8:12 AM on December 14, 2005
For those US commentators, it's probably worth noting that it is almost inconceivable to "downsize" from a house costing £150k to something that anyone would want to retire to. That's pretty much rock bottom cost for anything (even a bedsit) in traditional "retirement friendly" parts of the country. Also, what with stamp duty and the hassle of making your house appear suitably saleable, moving is a costly endeavour - it would probably cost as much as 5% of the price that they eventually sell their house for.
Maybe the kids could club together to buy the house for them, and charge them a below-market-cost rent for them to live in it? Don't think the reverse mortgages are quite as disreputable in the UK as they are made out to be here either.
posted by bifter at 9:15 AM on December 14, 2005
Maybe the kids could club together to buy the house for them, and charge them a below-market-cost rent for them to live in it? Don't think the reverse mortgages are quite as disreputable in the UK as they are made out to be here either.
posted by bifter at 9:15 AM on December 14, 2005
bifter writes: "it is almost inconceivable to 'downsize' from a house costing £150k to something that anyone would want to retire to."
Ah, that's too bad. I wondered if that might be an issue. The choicer condos in downtown Chicago often cost upwards of $500K, plus you have the added cost of monthly assessments to cover maintenance, utilities, etc. Suburban developments are usually considerably less expensive but may not have all the amenities.
As for reverse mortgages, I can only speak for what's happening in the U.S., but I think the more reputable lenders do not end up owning your home when all is said and done. (Banks don't like being in the business of buying and selling real estate after all.) They prefer that it is deeded to the heirs, who are then responsible for either paying the debt or selling the property to satisfy the debt.
posted by Sully6 at 9:39 AM on December 14, 2005
Ah, that's too bad. I wondered if that might be an issue. The choicer condos in downtown Chicago often cost upwards of $500K, plus you have the added cost of monthly assessments to cover maintenance, utilities, etc. Suburban developments are usually considerably less expensive but may not have all the amenities.
As for reverse mortgages, I can only speak for what's happening in the U.S., but I think the more reputable lenders do not end up owning your home when all is said and done. (Banks don't like being in the business of buying and selling real estate after all.) They prefer that it is deeded to the heirs, who are then responsible for either paying the debt or selling the property to satisfy the debt.
posted by Sully6 at 9:39 AM on December 14, 2005
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posted by MegoSteve at 5:40 AM on December 14, 2005