Ok, so I spent the day showing properties. This, I have to say, is one of the things I hate most in life. I avoid it all costs. Realtors have made tons of money off of Buyers that I hand over to them. But today was special. I was with Sellers, of mine, who are needing to downsize and I wanted to give them an idea of what they can buy for less than $100,000. So not only did I spend all day showing listings but I was showing manufactured homes. This is something I have never done. The whole purpose of this little adventure was to be able to reduce their current home by another $10,000 to expedite a sale. They really, really need to downsize.
My Sellers are close to 70 and are no longer able to maintain their property. All of their money is wrapped up in their home and it is slowly disappearing. My sellers are being crushed by a rising mortgage balance and a depreciating market value. I know what you want to say, "Broker Bryant, how come their mortgage balance is going up? Aren’t they making payments?” Well, technically, no. In reality, yes.
Several years ago, these Sellers were sold on the idea of a Reverse Mortgage. At the time, it seemed like a great idea. No more payments and you can live in your house until you die. Here in lies the problem. No one can predict the future. Life has a way of going where it wants to and we are just in it for the ride. How were they to know that their health would fail and they could no longer maintain their 1750 sq ft home? How could they predict property taxes and insurance rates skyrocketing and property values taking a plunge? Could they have foreseen their interest rate going from 1.5% to 6.47% in the first 6 months? Life is funny like that, it goes where it wants to go.
So here is their current situation. They are on a fixed income. Property taxes and insurance payments are now equal to the PITI payment they used to make on their mortgage, that had a balance of $69,000. Since they do not make payments and the principle balance and interest only “payment” goes up every month, their current mortgage balance, after 3 years, is $101,000 and climbing by about $600 to $650 per month. This payment will continue to increase every month until they die or sell. Their house, that was worth $250,000 last year, is now worth about $230,000 and decreasing rapidly. So where does this leave them? Being crushed between a rising mortgage balance and a decreasing house value.
Now I will be the first to admit that I am ignorant when it comes to Reverse Mortgages. Over the last month I have been reading up on them and trying to become more knowledgeable. I have several Sellers right now that either have one or are thinking about getting one. Are Reverse Mortgages a good thing? I just don’t know. Are they for everybody? Definitely not. Should homeowners have counseling before getting one? Absolutely. Should we, as Realtors, recommend them or give advice on them? I don’t think so.
From what I have learned about Reverse Mortgages, they can either be a blessing or a curse. Extreme caution is recommended.
For my Sellers, it has been a curse. It was a short term solution to a long term problem. If counseled properly, it would have been in their best interest, to of sold their house a couple of years back and downsized. Now they are forced to sell. If not, they will be crushed financially.
Unfortunately, in order for this to work, we are now looking at manufactured housing. Hopefully, I can get their home sold and they can pay cash for their next house and have much lower taxes and insurance. We did look at some fairly nice places today and they have "got their heads around" what must be done, to secure a future, they can afford. I am so pleased that I am able to help them. This is why I do what I do.
Nice folks, in their 70s, should not have to worry about being crushed. I hate showing properties! But I hate my Sellers being crushed even more. My Sellers are not grapes!