To simplify this the unpaid interest on your home equity loan owed just compounds yearly.

It is probably in the contract. Once your combined interest owed plus the equity loan you took out. Represent 100 percent of the pre agreed property value.

You may have to surrender the property . As there is no more security available for the money owed accumulating any more. Or start making payments.

The home may even inflate in value in say the five years. But the lenders terms will be based on the original agreed value.

Many people out there do not have the need to be financially astute. So they are not. There may even be a clause that obstructs you from reducing the amount owed under the contract terms.

So if anyone knows of anyone looking at one of these. Tell them it is best to take a copy of the contract to a lawyer before engaging it. I also suspect the interest is higher as the loan reciepient does not feel they have to pay it. They do not care. As it is deffered in their minds if they are thinking at all.

If I knew this lady depending on several things. She could perhaps rent out a room or two or take in borders. As others mentioned there are better ways than this.

Each state perhaps should make a law that the homeowner must have the contract explained to them by a lawyer when any form of deffered interest is involved. The compounding effect is murder. There are also a few other clauses I can think of in those contracts. That I would expect to be in them.

Thank you .

I'm not financially astute but I am keenly aware that addition is cumulative by nature, very few seem to grasp that simple idea .

No borders ! .

__________________
-Nate
1982 240D 408,XXX miles
Ignorance is the mother of suspicion and fear is the father

I did then what I knew how to do ~ now that I know better I do better

This isn't correct. The homeowner can't be foreclosed based on accrued balances. The balance due is normally held until the house is sold by either the owner or the estate, and the proceeds go to paying the loan. If you live to be a hundred, you keep the loan and the lender can't foreclose based on accruing interest. This is possible because the originating loan to value is low, because most properties appreciate over time, and because you are required to carry mortgage insurance.

The lender's recourse is limited to the value of the home, so whenever the home is sold, the lender takes what is owed and no more. Triggering events that can cause a foreclosure are limited: death, no longer using the home as a principal residence, or defaulting on insurance or property tax obligations. You can never be forced to surrender the house because of declining valuations, that's also addressed by mortgage insurance.

The loan can be paid back to the lender at any time. But usually, you would take this sort of loan if you have no other funds, so that's probably not in the cards. More commonly, it's repaid when you move or die. If the sale proceeds exceed the balance due, you keep the difference.

I am not sure but are these plans available starting at 55? If so a person could live to ninety. I believe the normal maximum loan is fifty percent of valuation. In Canada they cannot take your physical home in many circumstances as you age. To pay nursing home bills for example.

I talked with an income tax employee of the Canadian government. He told me they commonly get you to sign this right way. After some thought they do take all your other income streams in a nursing home for the average person. .

So how are you going to support the house in that situation anyways? There are property taxes and maintenance issues and the place needs heated so the electric bill is also retained. Remember you have to maintain insurance as well on the property.

I just remember if you go to a nursing home the contract is finished. Their money is due. If the contract specifies if one goes the other is no longer protected under the terms possibly. You cannot for example rent it out that would be a breech of contract. Your physical presence is required.

You break the contract in any way probably occurs frequently. Basically I see it a calculated risk by lenders. On average the person forced into taking this equity type loan is more likely to default in some fashion than not. In my mind at least and as someone mentioned you should have money to engage one of these deals. If so why would you engage it?

At fifty eight I was diagnosed with cancer. It was not looking that good. We had paid the bank a huge pile of charges over the years while in business. So I went to the bank and asked for them to finance an insured loan with me putting 10k down on a new car. The loan person just bluntly said. You are just financing a car? Do not tell me the reasons.

As soon as I knew I would not be dead in less than three months I just paid it off. I had mixed feelings about doing it at the time. At the same time it was an attempt at recovering some portion of money they had cost me in their errors over the early years. It does not justify it but I could have taken that insured loan into far more substantial dollars. I just cannot do certain things though.

I lost on that fortunately. From an ethical perspective that was semi difficult for me. If they had not basically ripped me off and probably very seldom pay out on those short length term insurance policies. I would not have done that. The loan officer had picked up on my breaking old habits instantly. In Canada the big banks are by far the wealthiest entities in Canada.

The bank I use is by far the largest in Canada. I keep things in reserve. I never informed the branch here that our oldest daughter is married into the family that semi controls this bank. Although the daughters father in law has passed away now. It might have been usable if needed years ago.

I tend to be a slow thinker. This lady has a daughter that is always getting money out of mom. When she really does not have it. The lady might be able to rent the house out and move to a much cheaper rental location or situation for herself.

I forgot how the dynamics in families are all over the place. Technically she should have a child that is helping her rather than making her life more difficult. Far too many issues are just a byproduct of the human condition. There is usually not much change possible. Everyone has their own visions. There is the old adage as well. You cannot really help a person that does not want to help themselves.

The US has restricted many bad practices with regard to reverse mortgage, and now most of the loans made here are FHA loans called HECM's. Foreclosure has to be justified by specific, well defined circumstances: if you go into an extended care facility that would usually trigger foreclosure, because you are no longer residing in the home. But if you have a spouse still living in the home, that can prevent foreclosure even after death of the borrower. Actually reading the contract and discussing in with potentially affected family is the way to avoid surprises.

As for who should do it and when, it's a late in life decision. The best case would be someone in their 60's or older who has a reliable stream of income (because ongoing taxes, insurance and maintenance would need to be paid by the borrower), but with a need for a large lump sum of cash, say for medical reasons, a car, a new roof, or whatever people spend large sums of money on. The lender will only lend you a fraction of the home's value, because they can't recover their money until you vacate the home, which can be decades away. And the loan has to be insured, because sometimes real estate fails to appreciate. Essentially you receive the net present value of your home, and the lender takes the keys at some future point when you won't care about it anyway. If there's more value than is owed, the balance goes to your estate. If there's less value, that's covered by insurance. For the right borrower at the right point in life, it's a good way to go. But not for everyone.

I was happy to see some form of protection exists in America. For holders of these reverse morgages. I do not think we have any in Canada.

I also dislike the easy money situation of today. I call it easy because people do not seem to think. Before using it.

I also think it distorts common sense all too often. I also know it is a requirement to keep the consumer based economy afloat. The price paid by too many for this is also too high. In several ways. It distorts things to a great extent is a major issue as well.

"I forgot how the dynamics in families are all over the place. Technically she should have a child that is helping her rather than making her life more difficult."

THIS ~ her 53 year old daughter educated & gainfully employed has her hand out constantly and the woman complains to me about this endlessly .

I'm flummoxed, I'd like to help but this reverse thins sounds like a bad deal to me even though she's elderly .

__________________
-Nate
1982 240D 408,XXX miles
Ignorance is the mother of suspicion and fear is the father

I did then what I knew how to do ~ now that I know better I do better