How to talk to in-laws about reverse mortgage?
May 25, 2019 4:03 PM Subscribe
My in-laws are late 60s and moving forward with a reverse mortgage. Am I wrong to be concerned about this move, and how do I talk to them about this?
They're doing this because they can't afford the lifestyle they want. This means travel or having the freedom to get this or that and not be stressed about money.
Let me say up-front -- I don't care if we get anything from them. I've always said to all our parents that I want them to do what they can, while they can. We're comfortable and don't want anything from them.
That said -- I personally think this is a bad idea. My reasons:
1. They don't own their home outright. House is probably worth 700k, and they likely still owe ~300k.
2. They've been bad at money management. They took out home equity years ago, much of it got spent on this and that. Hence why they owe so much on the house.
3. They're not being as cautious as I'd like with what I consider their "asset of last resort." My worst-case scenario is something like -- they both need long-term care in ~10 years, they have little equity, there's little/no room in the places that just do medicare. So --- the long-term care options aren't looking so good.
My questions for the internets ...
1. Am I being too paranoid?
2. If not, how can I talk to them about this in a way that might actually influence them?
They're doing this because they can't afford the lifestyle they want. This means travel or having the freedom to get this or that and not be stressed about money.
Let me say up-front -- I don't care if we get anything from them. I've always said to all our parents that I want them to do what they can, while they can. We're comfortable and don't want anything from them.
That said -- I personally think this is a bad idea. My reasons:
1. They don't own their home outright. House is probably worth 700k, and they likely still owe ~300k.
2. They've been bad at money management. They took out home equity years ago, much of it got spent on this and that. Hence why they owe so much on the house.
3. They're not being as cautious as I'd like with what I consider their "asset of last resort." My worst-case scenario is something like -- they both need long-term care in ~10 years, they have little equity, there's little/no room in the places that just do medicare. So --- the long-term care options aren't looking so good.
My questions for the internets ...
1. Am I being too paranoid?
2. If not, how can I talk to them about this in a way that might actually influence them?
You're not wrong to be concerned, but whether or not a conversation is warranted depends on how close you are to your in-laws, whether or not you've ever discussed finances with them before, what other family members think.
Is your spouse an only child or are their siblings involved? What do they think - spouse and sibling?
Saucysault is correct, the conversation you need to have is with your spouse so you are both on the same page about the boundaries you want to set now and not when the choice is moving your parents into a nursing home or your home. Or when your in-laws are coming to you asking for money for this or that.
Given that they have more than 50% equity in their home and the current real estate market, it might make more sense for your in-laws to sell and down-size to something more affordable without a lawn to mow, plumbing that's their responsibility to fix, roofs that leak, etc.
posted by brookeb at 5:24 PM on May 25, 2019 [3 favorites]
Is your spouse an only child or are their siblings involved? What do they think - spouse and sibling?
Saucysault is correct, the conversation you need to have is with your spouse so you are both on the same page about the boundaries you want to set now and not when the choice is moving your parents into a nursing home or your home. Or when your in-laws are coming to you asking for money for this or that.
Given that they have more than 50% equity in their home and the current real estate market, it might make more sense for your in-laws to sell and down-size to something more affordable without a lawn to mow, plumbing that's their responsibility to fix, roofs that leak, etc.
posted by brookeb at 5:24 PM on May 25, 2019 [3 favorites]
If they want the money, having a talk about how much they’d get by selling vs reverse mortgage is a good conversation to have if they’re willing to downsize. The amount they’d get as a reverse mortgage amount is likely far less than they’d have if they sold now and bought a less expensive place.
The fees they’d still owe can chew through a lot of the funds they’d get through the transaction and if they can’t keep up with their property tax and insurance bills, they could end up losing the house when the bank repossesses it.
posted by quince at 6:46 PM on May 25, 2019 [2 favorites]
The fees they’d still owe can chew through a lot of the funds they’d get through the transaction and if they can’t keep up with their property tax and insurance bills, they could end up losing the house when the bank repossesses it.
posted by quince at 6:46 PM on May 25, 2019 [2 favorites]
Reverse mortgages are one of the most expensive possible ways to access the equity in your home. Additionally, it is not a way to end all financial responsibilities associated with a house--the borrower is still responsible for property taxes and insurance. If your in-laws do what many borrowers do and draw a one-time lump-sum payment, they may burn through that relatively quickly. They can and will lose the house if they don't keep up on the T&I. From the way you're describing their spending habits, that doesn't necessarily seem like a remote possibility.
posted by praemunire at 9:47 PM on May 25, 2019 [2 favorites]
posted by praemunire at 9:47 PM on May 25, 2019 [2 favorites]
Ten cents on the dollar math; and about any financial "adviser" out there that doesn't have their hand in the pie.
These things are vile, the people that sell them are vile; and when the deal goes sour in just a matter of years; most involved in the take profit aspect have long; long moved on. Best response they will offer if any is a shrug.
Math and a competent money person is your best bet. And by competent; I mean a homeowner; and an adviser that is willing to go against the grain of criticizing ones fellow professionals.
posted by Afghan Stan at 10:01 PM on May 25, 2019
These things are vile, the people that sell them are vile; and when the deal goes sour in just a matter of years; most involved in the take profit aspect have long; long moved on. Best response they will offer if any is a shrug.
Math and a competent money person is your best bet. And by competent; I mean a homeowner; and an adviser that is willing to go against the grain of criticizing ones fellow professionals.
posted by Afghan Stan at 10:01 PM on May 25, 2019
I agree with the other posters. Talk to your spouse. This is a tough decision for anyone - especially since you’re the spouse.
I work for a wealth management firm and pretty much all the financial advisors do not recommend reverse mortgages. I’d be very cautious of the person trying to sell your in-laws the benefits of the it as well. To me, reverse mortgages are akin to ARM loans - and we all know who well that played out prior to the market crashing in 2008/2009.
For most people to qualify, their home needs to be paid off or close to it. Plus the cost alone for the loan - because that’s what it really is - is very high. If they already have money management issues, this might not be the best thing for them.
The reality is, most Americans are living longer. Which means they need to make their money stretch as far as they can and live within their means. What is even scarier is the cost of long term care when they need it...because let’s face it...there is a very high probability that one or both of them will need it. Long term care isn’t cheap. It’s freaking expensive. And while they say that most people only spend 3 to 5 years at an assisted living facility....they fail to tell you that those people were self-managing their care for YEARS before they die or have to really go to a LTC facility. And if they don’t have insurance, it can wipe out all of their savings...and their families too. What is worse is if one of them needs LTC care first and wipes out said family money, that person will likely pass away first. This would leave the surviving spouse with nothing to live on but social security.
If your in-laws are really set on the reverse mortgage, please try to convince them to seek professional opinions from a second or third source - other than the ones trying to sell them the reverse mortgage.
There are a lot of resources out there. They can seek debt managing advise. I know for sure that Dave Ramsey has a network of financial advisors throughout the country that he can refer people to to get help.
Also, if they need money badly and have bad money management, I recommend they sell their house instead. Put a large amount into an investment vehicle like an annuity (that will give them a monthly distribution check) as a way to help guarantee an income...without those crazy fees. Plus, depending on their age, they may qualify to get a LTC insurance rider to help cover LTC if they need it in the future. If they already have an annuity, I would double check if they can do a 1035 exchange to get a better policy, hopefully one that will give the LTC as well. (Regular LTC insurance has more restrictions than annuities, plus depending on age and medical history they may be more expensive or not qualify for it).
Finally, if you say that they have social security and are okay with living in a social security funded facility down the road, have them check them out. They will be shocked at the difference in the quality of life and care between a social security approved LTC one and other more reasonable ones. Trust me, it’s like comparing a Motel 6 with the Hilton hotel (regular rooms). The motel 6 version social security will pay for has more crowded rooms, no privacy, overworked staff, less personal care, share bathrooms, etc.
posted by MamaP47 at 10:33 PM on May 25, 2019 [8 favorites]
I work for a wealth management firm and pretty much all the financial advisors do not recommend reverse mortgages. I’d be very cautious of the person trying to sell your in-laws the benefits of the it as well. To me, reverse mortgages are akin to ARM loans - and we all know who well that played out prior to the market crashing in 2008/2009.
For most people to qualify, their home needs to be paid off or close to it. Plus the cost alone for the loan - because that’s what it really is - is very high. If they already have money management issues, this might not be the best thing for them.
The reality is, most Americans are living longer. Which means they need to make their money stretch as far as they can and live within their means. What is even scarier is the cost of long term care when they need it...because let’s face it...there is a very high probability that one or both of them will need it. Long term care isn’t cheap. It’s freaking expensive. And while they say that most people only spend 3 to 5 years at an assisted living facility....they fail to tell you that those people were self-managing their care for YEARS before they die or have to really go to a LTC facility. And if they don’t have insurance, it can wipe out all of their savings...and their families too. What is worse is if one of them needs LTC care first and wipes out said family money, that person will likely pass away first. This would leave the surviving spouse with nothing to live on but social security.
If your in-laws are really set on the reverse mortgage, please try to convince them to seek professional opinions from a second or third source - other than the ones trying to sell them the reverse mortgage.
There are a lot of resources out there. They can seek debt managing advise. I know for sure that Dave Ramsey has a network of financial advisors throughout the country that he can refer people to to get help.
Also, if they need money badly and have bad money management, I recommend they sell their house instead. Put a large amount into an investment vehicle like an annuity (that will give them a monthly distribution check) as a way to help guarantee an income...without those crazy fees. Plus, depending on their age, they may qualify to get a LTC insurance rider to help cover LTC if they need it in the future. If they already have an annuity, I would double check if they can do a 1035 exchange to get a better policy, hopefully one that will give the LTC as well. (Regular LTC insurance has more restrictions than annuities, plus depending on age and medical history they may be more expensive or not qualify for it).
Finally, if you say that they have social security and are okay with living in a social security funded facility down the road, have them check them out. They will be shocked at the difference in the quality of life and care between a social security approved LTC one and other more reasonable ones. Trust me, it’s like comparing a Motel 6 with the Hilton hotel (regular rooms). The motel 6 version social security will pay for has more crowded rooms, no privacy, overworked staff, less personal care, share bathrooms, etc.
posted by MamaP47 at 10:33 PM on May 25, 2019 [8 favorites]
There is an explanation of how reverse mortgages work on the Bogleheads wiki:
https://www.bogleheads.org/wiki/Reverse_mortgages. Your in-laws would still be required to pay taxes and insurance on their house and to maintain it properly. Are they sure that they are eligible? Do they have estimates of the closing costs, interest rates, etc? What would the proceeds be? Since they have so little equity I am afraid that they will be disappointed.
As a side note, Medicare does not pay for long-term care at all; Medicaid benefits pay for nursing-home care for people who have exhausted all their resources. Medicaid may offer some benefits to people in assisted living or even in the community, but that depends on the state, as do the income/asset requirements, which are generally quite strict.
I am old myself, and tend to regard the reverse mortgage as a last resort. If, however, your inlaws proceed with the mortgage, suggest that they make sure both names are on the mortgage. Otherwise, a surviving widow or widower may be required to sell.
posted by SereneStorm at 1:08 PM on May 26, 2019 [1 favorite]
https://www.bogleheads.org/wiki/Reverse_mortgages. Your in-laws would still be required to pay taxes and insurance on their house and to maintain it properly. Are they sure that they are eligible? Do they have estimates of the closing costs, interest rates, etc? What would the proceeds be? Since they have so little equity I am afraid that they will be disappointed.
As a side note, Medicare does not pay for long-term care at all; Medicaid benefits pay for nursing-home care for people who have exhausted all their resources. Medicaid may offer some benefits to people in assisted living or even in the community, but that depends on the state, as do the income/asset requirements, which are generally quite strict.
I am old myself, and tend to regard the reverse mortgage as a last resort. If, however, your inlaws proceed with the mortgage, suggest that they make sure both names are on the mortgage. Otherwise, a surviving widow or widower may be required to sell.
posted by SereneStorm at 1:08 PM on May 26, 2019 [1 favorite]
Here's an even better resource:
https://www.consumerfinance.gov/consumer-tools/reverse-mortgages/answers/
Would they listen if you told them they're too young?
posted by SereneStorm at 1:29 PM on May 26, 2019
https://www.consumerfinance.gov/consumer-tools/reverse-mortgages/answers/
Would they listen if you told them they're too young?
posted by SereneStorm at 1:29 PM on May 26, 2019
suggest that they make sure both names are on the mortgage. Otherwise, a surviving widow or widower may be required to sell.
This is no longer the case (for reverse mortgages originated since ~2017). An otherwise qualifying spouse will be considered an "Eligible Non-Borrowing Spouse" and death of the spouse on the mortgage no longer triggers foreclosure. However, it's much tidier not to have to worry about that process at a time of grieving.
posted by praemunire at 4:20 PM on May 26, 2019
This is no longer the case (for reverse mortgages originated since ~2017). An otherwise qualifying spouse will be considered an "Eligible Non-Borrowing Spouse" and death of the spouse on the mortgage no longer triggers foreclosure. However, it's much tidier not to have to worry about that process at a time of grieving.
posted by praemunire at 4:20 PM on May 26, 2019
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posted by saucysault at 4:28 PM on May 25, 2019 [10 favorites]