Re: OT--Ping: To all who keep warning me of a housing bust in Naples


<gfretwell@xxxxxxx> wrote in message
news:n4lti15uduev2megecs87b9f3krjtlvqk1@xxxxxxxxxx
> On Mon, 19 Sep 2005 12:37:26 GMT, "NOYB" <noyb@xxxxxxxx> wrote:
>
>>Or they could do a reverse mortgage and retire off the 1000% increase in
>>equity that they accumulate over the the next 25 years.
>
> That's not how a reverse mortgage works. The mortgage company pays a
> fixed amount per month (usually based on a fraction of the current
> appraised worth plotted against an optimistic guess on how long the
> person wil live) and hopes to pocket the appreciation.

They only hope to pocket the appreciation beginning from the initial
starting point of the reverse mortgage. Any appreciation that occurs
between now and when the reverse mortgage starts belongs to the home owner.
The homeowner's equity in the house drops as the bank continues to make
payments. But the homeowners reaps the benefits of the appreciation that
occurred before the payments begin.


They also won't
> write a reverse mortage unless the owner is pretty old.

In other words...most retirees would qualify.

> It is really just a scam that the banks foist off on old folks without
> anyone to look out for them.

It's not a scam. It's a process that allows the homeowner to take out the
equity of the home without having to pay monthly payments on the equity
line.

Here's another way to look at it:

Suppose you live in a million dollar home, but have zero equity in that home
(ie--you owe 1 million dollars). In 30 years, that home is worth $4
million, and you owe still owe $1 million on it (ie--you had an
interest-only loan). You have $3 million in equity on the home. You decide
to take out $2 million of that equity, and put it in an investment that pays
a rate equal to what the monthly payment would be on the loan (ie--you end
up with a net monthly outlay of cash of zero). You can then use the $2
million to live on.

A reverse mortgage does the same thing. It gives you the $2 million, but
amortizes it out over the life of the reverse mortgage. You're simply
taking the money in payments instead of a lump sum.


.

Relevant Pages

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