Reverse mortgage - is this situation correct?

My senior in-law parents are in HUGE debt.
Their CA house is probably worth about 700,000.
Their debt is probably around 400,000 or more - and still owing on the house they bought over 40 years ago because they made some foolish financial decisions throughout the years.
They live in denial and continue to rack up their debt.

After father-in-law passes on, mother-in-law intends to do a reverse mortgage when she hits a certain age. This is all she will really have to live out the rest of her life.

They want my husband to be left with the house when they are both gone. Um . . . according to what I mentioned above, won't there be NO house? If she does a reverse mortgage, doesn't that mean the bank gets the house after she passes on???

Please help clear this up . . . THANKS!

Ugh . . . what are these thumbs downs? Now I'm confused . . .

It kinda depends on how long mommy-in law lives. Once she dies, the reverse mortgage loan has to be paid back to keep the house. In many cases, there is enough debt there to force you to sell the house to pay back the loan. The lender, however does not automatically get the house, they just want their money back with interest.

There are also different kinds of reverse mortgages:
1. homeowner receives a monthly payment
2. Homeowner receives a lump sum in the beginning and lives off of that til it is gone
3. Homeowner receives a line of credit to draw on as needed
4.Some combination of the above.

It sounds like Number one would be the best choice in the situation to keep the spending under control

Remember though, Reverse mortgages are an increasing loan, decreasing equity situation. There is less and less equity the longer it is outstanding.

Good luck, hope this helps

I don't know what happens when she passes on...if the mortgage company owns the house outright or if they pay off the rest of the mortgage, but from listening to Dave Ramsey, reverse mortgages are ALMOST always a bad idea. There are a lot of scam artists in this area - or at least companies taking advantage of older people. I would at least carefully research the situation - but if they are in denial about their situation, it will probably be hard to convince them otherwise...

You are correct on the fact that the house will go to the lender if the debt is not paid off.

My parents were thinking about doing the same, I talked them out of it....

Read this...
http://www.propertytalk.com/content/view...

Don't listen to these second rate mortgage brokers..
Contact your local bank and talk to a mortgage officer....

Depends on the value of the house and the amount owed. Also depends on how the contract is written. Either way, if the value of the house is less than the amount owed, then the bank owns it.

Let's say the house is worth $700,000.
The current mortgage is say $200,000.

They die. Your husband now gets the equity of $500K, but if he can't assume or get a mortgage for $200K, he can't keep the house.

The reverse mortgage is simply going to make the equity smaller. While the lenders on reverse mortgages won't lend 100% of the equity (they too want to allow for down markets), there won't be much left.

While I'm not totally against reverse mortgages (after all she needs to live somewhere), they are lousy solution to someone's failure to manage their money. She will still run out of money if she lives long enough...and she'll run out faster than the rest of us would.

The heirs has the option of refinancing to obtain ownership of the property after both homeowners are deceased. You can find in detail about the variety of options available with a reverse mortgage.

http://www.fanniemae.com/homebuyers/find...

If you are looking for a reverse mortgage to receive some much needed cash, you may want to look into a reverse mortgage wholesale loan. This is the perfect way for you to get a reverse mortgage<!--without all the added fees that lenders are adding on these days. Keep reading to discover exactly what this type of loan is and what it can do for you.A reverse mortgage wholesale loan is not available directly to you.

http://mortgages-finance.awardspace.com/...

This type of mortgage loan is sold to a lender at a discounted rate and the lender will add points to the rate and pass the savings on to you.There are three main-->agencies that sell reverse mortgage wholesale lender accounts. These agencies are the Federal Housing Authority, the Fannie Mae foundation and the Financial Freedom Cash Account.