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Email this2:42 pm
October 21, 2013
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Today is Seniors Day, according to my television, so here's a tip I read recently.
This comes from David Chilton, in his second book, The Wealthy Barber Returns.
Instead of a reverse mortgage, get a secured line of credit. The interest rate will be lower, and also the fees will be less. He suggests that you set aside a portion of the money thus secured to pay the interest on the line of credit, which is very do-able in this low interest environment which is expected to continue for quite some time. The value of the house is not impacted, which is the major disadvantage of reverse mortgages, but the face value of the loan would have to be paid out of the proceeds of the sale of the house when it is sold.
It seems to me that if you can afford it from your income, you might choose to pay off some of the principal as well or contribute to the interest payment so as to make the line of credit last longer.
I suppose the caveat might be if you thought you might do this for a really long time and thus run out of money to pay the interest, but it could work well for people for whom the horizon is obviously shorter.
The younger you are, the less suitable both of these ideas are, actually. (The TV ads usually show people who appear to be about 55-60!) If you have the reverse mortgage, you will lose a huge amount in equity if you live long enough. If you get a line of credit, there is the risk you might not be able to ultimately keep up with the interest payments.
It's something to consider, as an alternative, anyway. Like everything, it will suit some people's circumstances and not others.
8:57 am
December 23, 2011
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I agree with the above. My mother had a reverse mortgage and it appears she bought an annuity that paid her diddly every quarter. We had to move her to a home and then we found what the real cost of the reverse mortgage was. Later, when I did her probate I actually figured out there were other less costly ways to get some cash but since I have no intention of ever going that way.....I have forgotten the other options I thought of. But what is above is a good option. But let's face it the reverse mortgage gives cash and no work on your behalf. It is easy and if you are older, mellowed out, don't want the hassle and you fall for the targeting advertising on TV .... I guess
. But I would suggest before you did a reverse mortgage to see a "good" adviser, accountant, or banker for all of your options.
9:42 pm
April 6, 2013
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But, Sue and John seem so much happier in the commercial after getting their HomEquity Bank reverse mortgage: 
YouTube: CHIP Home Income Plan (Previous Commercial)
9:54 pm
October 21, 2013
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At $20,000 up front and $2000/month, those smiles may not last very long.
Fortunately, seniors aren't necessarily too dumb to do the math...
8:23 am
December 23, 2011
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Unfortunately some seniors that are of sound mind that have paid their dues over the years see the glitzy commercial with the regular steady income and take it as they "see the $'s and don't care about the mechanics". I have personally observed it twice...they just do a complete turnaround and no longer have their "guard up".
4:22 pm
October 21, 2013
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I haven't seen it up close and personal yet, and I hope I never do, but obviously there is something that keeps these guys in business.
I have, though, seen that at advanced age when people think their horizon is quite short, they will sometimes throw caution to the wind. The future no longer matters, and it does change one's perspective.
9:58 am
April 6, 2013
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I think they are kept in business by the fact that living beyond one's means does not always go away when one becomes a senior, as Sue and John are in the commercial.
Loonie pointed out that they drew down $20,000 right away from their reverse mortgage and then $2,000 a month afterwards. Things are likely not going to end well if they really are living at least 12 x $2,000 = $24,000 a year beyond their means!
3:44 pm
October 21, 2013
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Yes. If "John and Sue" don't have a stake in the Toronto or Vancouver housing market or similar, let's imagine their house is worth about $400,000. CHIP only gives "up to" half the value, and probably less. But let's be generous and say it's half. I know there are fees to set this up, plus they are taking out 20,000 up front. So, let's say they have about $175,000 to work with.
175,000 / 24,000 = about 7 years. In this scenario, inflation doesn't exist. They must be hoping they'll be dead in 7 years, or perhaps they're investing in winning lottery tickets. They're going to need them.
And it could be much worse if my estimates are high, which they probably are. People who get themselves into this kind of fix are perhaps less likely to have a house of this value, plus there is a likelihood that they won't get 50%.
7:41 pm
November 4, 2014
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Reverse mortgages name says it all. Anyone that is thinking of using this thing is really desperate or has no clue what they are doing.
I hear so many of these ads in Canada and U.S. about tax free cash taking out from the equity in their home. Primary residences are capital gains and income tax free when taking the proceeds.
This is nothing special and is really a gimmick on their part. Reverse mortgages are only good for making you people go backwards financially.
Anyone that thinks that primary real estate is an investment is going to be in for a shocker.
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