Can a reverse mortgager be a good idea

First, We need to know: what is a Reverse Mortgage?
In a normal mortgage or home loan, the borrower pays for the house over the years to the bank. Reverse Mortgage is the opposite of a regular mortgage. It is a product primarily designed for retired people who are not able to support themselves but have assets in the form of house properties. 
In a Reverse Mortgage, a retired person mortgages his property to a lender (bank), which then makes periodic payments to the borrower so that borrower can meet his monthly expenses. Unlike a home loan, the borrower is not required to make regular monthly payments towards principal and interest to the Bank. 

During the reverse mortgage period, the ownership vests with the borrower. When the borrower dies, the mortgage is paid by legal heirs and house is handed over to legal heirs, or if the loan is not paid back, the bank auctions the house to recover its dues.

Reverse Mortgage can be a good idea if you keep the emotions aside and look at it purely from a financial perspective. Let us look at the negatives and positives surrounding Reverse Mortgage, so that you can decide whether it suits you or not. 

Negatives surrounding Reverse Mortgage:

• Society Pressure - Home is generally looked upon as a sacred place. If you talk about liquidating your primary home, it is not taken well by anybody especially children. Children see it as giving away their family home and wealth.
• Higher Costs - Most banks charge a higher interest rate on reverse mortgage compared to a normal home loan and the valuation of the house is also in the hands of the bank. You may not get the real market value.
• Loan Liability if the owner moves or dies - A Reverse Mortgage becomes due in full if the owner dies or moves from the home. Paying such a high amount upfront can be difficult for both the owner and the legal heirs.

Positives of Reverse Mortgage:

• Better Monthly Cash Flow - Many retired people have assets in the form of house properties but do not have reasonable monthly income to support their monthly and medical expenses. Reverse mortgage is a perfect tool for such people.
• Tax Benefits - In India, payments from Reverse Mortgage are made tax free. So, you don't have to worry about any tax payments.
• RMLeA (Reverse Mortgage Loan-Enabled Annuity) - You can get even higher monthly payments if you go for RMLeA. A Reverse Mortgage Loan Enabled Annuity (RMLeA) is an advanced Reverse Mortgage product in which the bank instead of paying you directly, pays one lump sum amount to an insurance company. The insurance company then makes monthly payments to you based on actuarial pricing.

To know more about Reverse Mortgage, RMLeA, their eligibility criteria and other features, I suggest that you go through this Reverse Mortgage Guide. You will get good insights.

Morever, in a reverse mortgage, instead of you slowly buying all of your house by paying off the mortgage lender, the lender slowly pays you and, at the end of the contract, you owe the lender the loan balance (although almost all reverse mortgages in the US have non-recourse provisions that prevent borrowers/estates from owing more than the value of the home).

This financial instrument was designed for people in retirement who want/need income and wish to convert the equity in their house to cash but don't want to sell their house and immediately move. At contract termination ("maturity"), the homeowner owes however much the loan was increased to.

In the standard situation, structuring a reverse mortgage usually involves an actuarial calculation (a prediction of how much longer the homeowner is expected to live, and therefore need income). If the home appreciates over the term of the loan, happy is the homeowner (one presumes s/he might be able to further extend the reverse mortgage for the additional home value [usually this would require a refinance of the reverse mortgage to access any additional home value]), or his heirs (there will be money left over if the home is sold to satisfy the loan [but sale is not a requirement, balance can be paid with other means]).

There is, of course, a presumption in such a contract that the collateral asset (the home) will at least retain its value, if not appreciate.

Whether any financial instrument is a good idea depends entirely on a sober, rational assessment of one's own situation. I have no doubt that many reverse mortgages are written both

1. with poor terms, and/or
2. for situations that don't match my description above.

One must always remember that, in a contract, there are two parties, both of whom believe the contract is a good idea at execution time. Sometimes a neutral third party observer would agree, sometimes not.

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The downsides to doing a reverse home mortgage

In this present era, there are already innumerable of loan types which are in subsistence. One among this loan type is the reverse mortgage. It actually consigns to a mortgage in which the detachment of the assets will be switched into cash that a particular person needs.

On the other hand, this kind of mortgage is usually tendered to senior citizens who are 62 years old and over. Additionally, reverse mortgage is considered to be very advantageous to elders who are in need of instant funds. Nonetheless, one should not be without difficulty tricked by the rewards. This is owing to the reason that such loan type has also copious drawbacks related with it.

Almost every concept or idea has its own benefits and drawbacks. Reverse mortgage is considered also one among the same. It has heaps of benefits and few faults which cannot be sidelined. Some of the disadvantages can be more fully listed below:

1. Inconsistent Rate of Interest
The foremost among the list of the disadvantages has something to do with its varying rates of interest. This kind of interest rate becomes certainly a challenge for the reason that it can just give one the uncertainty if what is the exact amount that he or she has to pay to regain the equity of his or her home.

2. Extra Expensive
A reverse mortgage is being deemed as expensive as any other kinds of loans or mortgages. This is due to the fact that the rate of interest persists to increase every month. In short, the interest rate tends to accumulate monthly. Consequently, it can consume up the entire equity of the property exclusively, the home.

3. Inflated Fees
One of the drawbacks has something to do with the supplementary very high fees. Such kind of charge is being added by the lenders of a reverse mortgage. Some of these fees are the loan closing fess, origination costs, as well as servicing costs. If legitimacy be told, all these fees are the motivation on why it becomes high-priced and expensive.

4. Failure of Equity on Home
A specific reverse mortgage if not remunerated on time can result to a whole failure of the equity on the assets or home. Thus, there is nothing more to depart to the next generations or heirs. Conversely, this can be prevented by way of the so-called non-recourse feature of most annul mortgages nowadays. One just has to be certain to choose a reverse mortgage with such kind of aspect to still save the equity of the home.

Undeniably, even if a reverse mortgage is said to be beneficial, it still has some of its drawbacks which should not be uncared for. Hence, one should make sure that he or she is aware on the shortcomings before availing such type of loan or mortgage.

In achieving this, one can take the maximum advantage of the mortgage serviceswithout having any regrets at the sundown. After all, there is nothing incorrect with just being careful in making decisions particularly when it comes to money matters and equity of properties exclusively, the home.

Additionally, Reverse Mortgage can be a good tool for retired people who find it hard to manage their monthly expenses. But, like every financial product there are certain downsides that you should know upfront so that you are better prepared and take an informed decision. 

Downsides of a Reverse Mortgage:

• Society Pressure - Home is generally looked upon as a sacred place. If you talk about liquidating your primary home, it is not taken well by anybody especially your legal heirs. Your legal heirs see it as giving away their family home and wealth.
• Higher Costs - Most banks charge a higher interest rate on reverse mortgage compared to a normal mortgage (home loan) and the valuation of the house is also in the hands of the bank. You may not get the real market value.
• Loan Liability if the owner moves or dies - A Reverse Mortgage becomes due in full if the owner dies or moves from the home. Paying such a high amount upfront can be difficult for both the owner and the legal heirs.

Rather than downsides, a reverse mortgage is a type of loan that has several advantages contrary to what some people may believe. 

It is truly beneficial to older home owners who want to convert the equity of their home to cash so that they can finance their living expenses, or focus on home improvement, or even buy a new house. By opting for reverse mortgage, homeowners can up size or downsize requirements minus future mortgage payments.

This sophisticated financial tool helps seniors to keep their peace of mind intact and focus on improving their standard of living. Such a loan is restricted only to borrowers beyond 62 years of age who have significant equity in their home. 

Moreover a borrower cannot be forced to sell his/her home to repay a reverse mortgage as long as they occupy the home. This remains valid even if the total monthly payments of the borrower exceeds the value of the home.

If you are in need of such a solution, then you can read more about reverse mortgage at New Jersey Reverse Mortgages (Loan) | FEMTG.

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The "catch" to a reverse mortgage

First, there is no “catch” or gotcha when it comes to reverse mortgages. In years past they were an unregulated mess, but that has mostly changed and for many people they turn out to be a very good option to improve what might be an otherwise challenging retirement. People are living longer, and it isn’t getting any less expensive as they age.

If you’re considering a reverse mortgage, there are a couple of things to consider:

1 - Everyone listed on the deed must be 62 years or older. If you and your spouse are listed on the deed, you must both be over 62 or the younger must be removed from the deed;

2 - A reverse mortgage must be the only lien on a property. This means, in order to obtain a reverse mortgage you must pay off any existing traditional mortgage. You can use your reverse mortgage proceeds to pay off your traditional mortgage;

3 - A reverse mortgage holder is responsible for staying current on their real estate taxes and homeowner’s insurance. If you go into arrears, you take the risk of being forced into default. A reverse mortgage holder is responsible for all maintenance on the home and it must be their primary residence; and,

4 - You are only permitted to live out of your home for a total of twelve months. This means, if you find yourself in, say, an extended care situation, or on an extended out-of-town work situation, you must approach your lender and discuss.

On the positive side of things, reverse mortgage fees are similar to those for any other mortgage product. The one additional fee is the Mortgage Insurance Premium, which is paid to the government mortgage insurance fund to protect you in the event the loan balance grows larger than the value of your home.

Morever, A reverse mortgage is a loan in which a lender pays you while you continue to live in your home. The payments can be made monthly, or in a lump sum, or in the form of a line of credit. You don't have to pay it back while you still live in your home.

To be eligible for a reverse mortgage, you must own your home. The amount you may borrow is generally based on your age (62 is typical), how much home equity you have, and the loan rate.

As a reverse mortgage borrower, you do not give up title to your home, and the money from an RM can be used for any purpose. However, you must pay closing costs and mortgage lender fees for a reverse mortgage.

The loan must be repaid when you sell your home or stop living in it as your principal residence. You or your heirs are not responsible for any remaining balance above the price of your home if you sell it for less than the loan amount. If you have equity in the home after the loan is repaid, that belongs to you or your heirs. A reverse mortgage, because of these costs, rarely makes sense for short-term use.

Taking on a reverse mortgage can be a smart move or a financial disaster, depending on the type of loan and your circumstances. Avoid certain reverse mortgage mistakesand consult a HUD-approved mortgage counselor to make an informed decision.

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you should buy my home in cash or get a mortgage

There are two viewpoints to consider:
1) Real Estate: Buying with cash gives you a competitive edge if you are going up against other bidders, as long as your offer price is reasonable.  If your agent is aggressive, you may also be able to negotiate a discount on the asking price for a cash offer that closes quickly (3 weeks or less).
2) Financial:  Most people have a financial life that is multi-dimensional.  You may need to hold back some of your cash for more than just emergency savings.  There might be middle ground that helps you buy a home but still keep some non-emergency cash on hand for other things, such as fixing up or furnishing the home.  A mortgage of about 50% might fit you best.  Regardless, there is no magic formula that a real estate agent can run to tell you if all cash or a mortgage is right for you.  You should consider meeting with a professional financial planner to look at every aspect of your financial picture.
Morever, It’s usually better to buy a home with a mortgage and not pay cash. This is assuming prices will go up, and your cap rate is higher than the interest rate on the mortgage.

I have made a spreadsheet to illustrate the power of financing property.

In this example, if you had $250,000 to spend on property, you could buy four homes with mortgages, or buy one home with cash.

If you chose to buy four homes, your annual profit would be $46,000. If you chose to buy one home, your annual profit would be “only” $19,000. As you can see, you can achieve a whopping 22.45% ROI with these very conservative estimates, as long as you finance the property. You can also achieve an 8.61% ROI if you buy the property with cash. Not too shabby!

One important point that is commonly overlooked is the tax benefit of depreciation. You can get a rough idea of what your depreciation benefit will be by dividing your purchase price by 27.5 years, which is the amount of time the IRS will let you depreciate a property over, and multiplying that number by your tax rate. In the example above, you can clearly see that by buying more property, you will have a greater tax benefit. Please keep in mind, if you ever sell the property, you will have to recapture your depreciation, reversing your tax benefit.

This example also assumes the rent collected is about 10% of the value of the property. There are many markets where you can do better than this, or you can do worse. 10% is a good rule of thumb. It’s not overly ambitious. You can definitely do better.

Next, I calculated property taxes to be 1.25% of the purchase price. You can make your own calculation based on the property taxes in your area. It’s common to see tax rates near 1.25% in California, so that’s what I used for this example.

Insurance has been calculated to be .25% of the property value. This estimate has been based on what my insurance costs me. I’m sure insurance rates vary by area. You can run this calculation with a different number if you please.

Normally, I keep my maintenance expenses below 10% of gross receipts. However, with older homes, or bad tenants, the maintenance expenses can be much higher. I used 20% for my calculation because I didn’t want the final ROI to be overly ambitious. This is not a best-case-scenario calculation.

My mortgage rates are around 4%, and it’s very possible to get mortgages around 4% in today’s environment. You can always run your own calculation with your own mortgage rate.

It’s also important to consider risk when you’re taking out debt. If property prices decline, your losses will be compounded. On the contrary, if we experience an inflationary environment, or an environment where property prices and rents increase quickly, your gains will be amplified. Leverage tends to make your net worth more volatile to the upside and downside.

Disclaimer: I’m just a bozo on the internet. Always consult with a professional before making investment decisions.

In my opinion, All the answers above address plenty of important points.  However, one critical issue is whether you qualify for a mortgage to buy that house, given that your "income is low compared to a mortgage cost".  

Banks use several simple qualifying formulas, one of which is DtI (debt to income ratio).  It means that they want your total monthly expenses toward house ownership (mortgage + insurance + taxes + common charges) to be less than 40% of your monthly income. Check your  calculations now if you still qualify for a 20% down mortgage.

If not, perhaps you qualify for a smaller mortgage, instead of a more traditional 20% down.

Whatever mortgage you qualify for, it is not just typical to purchase property using mortgage.  It also makes sense financially, at least in most cases.  You get a chance to borrow money at one of the lowest rates of your entire life (compare mortgage rates of 4% to a typical credit card rate of about 13%), and, normally, attain the highest leverage / borrowing capacity. When you pledge your house as a collateral you can normally lever 5 to 1, while when you pledge your portfolio of stocks for example you can normally lever up upto only 3 to 1.

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The mortgage originator

A mortgage originator can be an institution or an individual responsible for completing a mortgage loan application and offering/negotiating terms with consumers.  Under the S.A.F.E. Act, both institutions and individuals must be licensed and registered in every state where first mortgage loans are offered (this is determined by property state, no necessarily state of residence of the borrower for out of state properties).  

Since most consumers will primarily interact with individual mortgage originators who work for lending institutions, we can focus more specifically on their role and responsibilities in the mortgage application process. 

Simply put, the mortgage originator is the primary source of contact with consumers.  He or she is the portal that consumers have to the lending institution and its product and services.   Not only does he or she have to solicit mortgage applications, but he or she also has to ensure that the mortgage application is filled out by the lender on time while maintaining balance between customer service and lending risk. 

Lenders operate under the jurisdiction of federal and state laws that require certain disclosures be made and laws are followed.  As you can imagine, compliance can drive up origination costs for many lenders and impact the borrower experience in fundamental ways.

I created a sample flowchart that shows the roles and responsibilities of a typical mortgage originator during the loan manufacturing process.  Keep in mind that even when others are in charge of completing successive steps, the originator is ultimately the one who is the “project manager” of all of this and has to ensure timely loan closing regardless of hiccups (of which there are many) that arise. 

Additionally, An institution or person who works with a recipient to complete a Mortgage dealing. A mortgage mastermind are either a mortgage broker or a mortgage banker, and is that the first mortgage capitalist. Mortgage originators square measure a part of the first mortgage market.

The primary mortgage market is very fragmented within the U.S. While there are many giant companies that originate an large share of mortgages, there are thousands of smaller companies and people, that additionally account for an large share of totalmortgage origination services.

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Is it possible to negotiate the fee a mortgage broker charges for a new mortgage?

It depends on if you want to pay the broker's commission yourself (cash or by increasing your loan amount) or if you want those costs to be covered by the lender. If you pay them yourself, then you have leverage. If you are not paying the broker yourself, then you can't negotiate because compensation plans are contractually set at the beginning of the month or the quarter, so the broker has no power to change their fee even if they wanted to. Absolutely. Mortgage loan origination fees and even the interest rate is negotiable if you have the stomach for it. If not, then anonymously post your mortgage scenario tohttp://www.RateBid.com and let the lenders bid their rates and fees against each other and let competition get you the same result as negotiation

As i know that there was a federal rule that went into play on April 5, 2011 and the Dodd Frank Act adopted the rule as well. We call it The FRB Rule on Loan Originator Compensation.

The loan originator decides on a set fee with his or her employer. The LO must be supervised by either a mortgage broker, lender, or bank.

The fee is either disclosed to you in Box A of The Loan Estimate as a "loan originator fee" OR if there is no fee disclosed to you in Box A of the Loan Estimate, the the loan originator's fee is being paid by you in the form of a slightly higher rate. You don't see the LO's fee, but the LO and the LO's company have already set the fee by written contract. 

Example: $200,000 loan.
Loan originator negotiates a 1% fee.

When the loan closes, the LO receives $2,000.
The company still earns its profit because they purchased mortgage money at a slightly lower rate (think wholesale) compared to the retail rate you will be paying for the life of the loan.

The Federal Reserve Board Rule on LO comp does not allow for a loan originator to negotiate a different fee for each customer.

The reason hinges on a couple of legal cases.  The best one is FTC v. Golden Empire Mortgage. With subjective pricing, the loan originators were charging whatever they wanted. If you were too stupid to not demand/negotiate a lower rate, you got stuck with the higher rate.  In the Golden Empire case, the local Russian and Mexican immigrant buyers got steered into the higher rate loans and the mostly white borrowers ended up with the best rates and fees.  Subjective pricing could lead to Fair Housing/Fair Lending and ECOA (equal credit opportunity act) violations so subjective decision-making by LOs is a violation of federal law in all 50 states.

Instead of thinking you're gonna negotiate the fee, why not comparison shop and apply at three places: Where you bank, with a local mortgage broker, and also with a local non-bank mortgage lender. Compare their Loan Estimates and ask them to explain how they're paid. They should not be trying to hide this from you. Ethical, legitimate loan originators welcome the opportunity to show you how their compensation is disclosed to you.  It will either be in Box A of the loan estimate or you will be charged a slightly higher rate.

What's more important that the best rates and fees is the ability of that loan originator to get your deal closed, on time. 

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Are there any pitfalls of reverse mortgages

There are many pitfalls of reverse mortgages as specified in the other comments - namely your heirs lose your house. 

One of the best alternative to a reverse mortgage is a Life Settlement. This is the technical term for selling your life insurance policy to investors for an upfront cash value. If you don't want or need your life insurance policy, it can be sold, just like your house or your car. 
But, There are best practices & tips:

• Avoid any reverse mortgage company/representative that requires the purchase of another financial product a condition of closing a reverse mortgage loan.  A reverse mortgage should be understood on its own as a financial product before any other products/services are added that can complicate the decision process.
• Consider alternatives to a reverse mortgage such as selling the house, renting out a room, etc.  There may be very good non-financial reasons to disqualify these options, but it doesn't hurt to run the numbers on them to make an informed decision.
• Negotiate closing costs and fees where possible.  Just like any other mortgage, a reverse mortgage can have many different options that might better suit a particular person's needs.

The best features of a reverse mortgage are the ability to borrow against a home you continue to live in, without risk to yourself/estate/heirs of owing more than the home is worth at the end of the loan, and without a monthly payment requirement.

That being said, it's important that borrowers understand they continue to be responsible for paying property taxes (same as if they didn't do the reverse mortgage) and homeowners insurance (same as if they had any other kind of mortgage).

It's a great financial tool when used appropriately.

Morever, Reverse Mortgage can be a good tool for retired people who find it hard to manage their monthly expenses. But, like every financial product there are certain pitfalls that you should know upfront so that you are better prepared and you take a informed decision. 

Pitfalls associated with Reverse Mortgage:

• Society Pressure - Home is generally looked upon as a sacred place. If you talk about liquidating your primary home, it is not taken well by anybody especially your legal heirs. Your legal heirs see it as giving away their family home and wealth.
• Higher Costs - Most banks charge a higher interest rate on reverse mortgage compared to a normal mortgage (home loan) and the valuation of the house is also in the hands of the bank. You may not get the real market value.
• Loan Liability if the owner moves or dies - A Reverse Mortgage becomes due in full if the owner dies or moves from the home. Paying such a high amount upfront can be difficult for both the owner and the legal heirs.

To know more about Reverse Mortgage, Reverse Mortgage Loan-Enabled Annuity (RMLeA), their eligibility criteria, tax benefits and other features, I suggest that you go through this Guide on Reverse Mortgage. You will get better understanding.

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