Bruce sheds light on the common misconceptions surrounding reverse mortgages. Often misunderstood as a last resort for the desperate, reverse mortgages can benefit even those with substantial savings. By integrating a reverse mortgage into their financial strategy, retirees can reduce the need to draw down on investment portfolios, thereby lessening their tax liabilities.
Our host highlights the versatility of reverse mortgages, whether it’s easing the burden of a hefty mortgage payment, creating a line of credit for emergency needs, or funding future long-term care. The strategic use of home equity can offer peace of mind and financial stability in the latter years of life.
Bruce’s advice for anyone considering a reverse mortgage? Get all the facts and understand how it aligns with your personal circumstances. Through real-life examples, he illustrates how clients he’s worked with used reverse mortgages not only to meet immediate needs but also to plan for long-term financial health.
For those interested in exploring the benefits of reverse mortgages, Bruce invites listeners to visit his website or reach out directly for personalized guidance. As he puts it, understanding the options is the first step towards financial independence in retirement.
In today's episode, Bruce Simmons shares his best practices for securing a reverse mortgage tailored to your unique needs. Through a detailed discussion of common scenarios borrowers face, Bruce breaks down what you need to consider when it's time to choose a lender. The episode is packed with insights on how to protect yourself from overborrowing, and compares various mortgage products to find the one that best suits your financial situation. Learn about the nuances that separate loan offers, why interest rates matter, and how to ensure you're not paying more than necessary upfront. This indispensable guide will put you on the path to financial freedom by arming you with the knowledge needed to make sound decisions every step of the way.
SPEAKER 01 :
How would you like to learn seven tips when shopping for a reverse mortgage? Do you think that would help your outcome somewhat? I think it might. So stick around because that's what we're going to be talking about today. Thanks so much for joining me on Reverse Mortgage Radio. I'm your host, Bruce Simmons. You can reach me directly if you have any questions about reverse mortgages at all. You can reach me at 303-467-7821, 303-467-7821, or visit me online at reversemortgageradio.net, reversemortgageradio.net. That's my website. You can download my free consumer guide. This is a newer article, so it's not in my consumer guide yet. It will be probably when I update next year. I think I'll probably add this to it, but it will be posted as a blog post as well as you can listen to this entire podcast on my website starting next week. And you can also click on the in the upper right hand side to get a free quote to find out if a reverse mortgage might work for you or not. It'll tell you how much money you might be able to get. Now, be aware that the closing costs are a little higher on that. quote than what I traditionally offer. I'm working with my web guy to kind of try to get it more in line. But It'll show you whether or not we can loan you enough money, say, to pay off your existing mortgage. That's the thing. So that's at ReverseMortgageRadio.net. ReverseMortgageRadio.net. Okay, we've got a lot to cover today. I'm going to try to condense all seven of these tips into this 28-minute program. So I better jump into it because I know I'm going to get kind of long-winded on some things. First of all, the first tip you need to know when shopping for a reverse mortgage is know the end game. Know the end game. Why do you want a reverse mortgage? What are you hoping to accomplish with a reverse mortgage? Is your main goal just to eliminate your mortgage payment? You can't eliminate the entire mortgage payment. Remember, the way reverse mortgages work is we pay off any existing loan on your home. We pay off the balance. So you no longer have that loan with Wells Fargo or Chase or the credit union, whoever. You have the reverse mortgage in its place. The reverse mortgage does not require an interest in principal payment. You can make payments on it if you want, but no mortgage payment is required. However, however, remember, the house is still yours. The home is in your name. It stays in your name. You are responsible to continue to pay your own property taxes, your homeowner's insurance. You have to maintain the home. It's only available for your primary residence, so you have to live there as your primary residence, and you have to keep your name on title. As long as you do those five things, no payment is ever required. So let's say you've got a principal and interest payment of $1,200 a month. Let's say your mortgage payment might be $1,700, but the principal and interest portion of that's $1,200. you're not gonna eliminate a $1,700 payment. You're gonna eliminate $1,200. The other 500 in taxes and insurance, you still have to pay yourself. Now, sometimes we can set money aside to pay your taxes and insurance on your behalf. There just has to be enough money to be able to do that. And for some people, just eliminating that payment can allow you to retire and live a much more stress-free life. Because remember, the whole goal with reverse mortgages is to reduce financial stress, reduce financial stress. And you do that by not having a mortgage payment, a principal and interest mortgage payment. But nothing is free. Keep that in mind. There is no such thing as a free lunch ever on anything. I don't care what you get. There's always something with it. With a reverse mortgage, you still have to pay your taxes and insurance. You're also still charged interest on the loan. It's still a loan. It's not free money. So you are charged interest, but you don't actually have to pay it out of your pocket. Well, where does it go? It gets added to the loan balance on a monthly basis. Every month, you're going to see two charges, actually. One is interest. The other is mortgage insurance. All FHA-insured reverse mortgages, which is about 95% of the loans in Colorado anyway, are FHA-insured loans. That means FHA charges a fee that you don't have to pay out of pocket, but it gets added to the loan balance along with interest every month. Every month you get a statement in the mail or you look at your loan balance online and you're going to see that loan balance get bigger and bigger and bigger over time. You take out $100,000 today, 10 years from now you might owe $200,000 or $220,000 or whatever. You might owe $180,000 depending on interest rates. But you have to be okay with that. Remember, you've gone 10 years without a mortgage payment all that time. So you're keeping that money in your pocket, and it's basically coming out little by little out of the equity of your home. Now, odds are the value of your home is going to increase by more than the interest is going to accrue over those 10 years. If you keep it 20 years, maybe eventually the interest will catch up with the appreciation. It just all depends on your specific situation. But there's no such thing as something for nothing. So if you want to do that, you want to pay off your existing mortgage to eliminate the principal and interest payment, that's a great goal. Other people have a goal of, let's say, generating cash flow. You own your home free and clear. There's no mortgage payment. Or maybe you just have a little $50,000 HELOC on it or something. You want to pay that off and get $1,000 a month. We can do that depending upon loan balances and age and all that stuff. Because FHA, the Federal Housing Administration, they're the ones that HUD kind of runs this program through. And they dictate to us, the lender, how much we can loan you. It's based on the age of the youngest homeowner, the value of the home, and the interest rate. Generally speaking, the older you are, the more money we can loan as a percentage of the value. The lower the interest rate, the more money we can loan as a percentage of the value. Keep those in mind. If you're 62, right now the interest rate's a little high, then you're not going to get a ton of money out of the loan. You might get 35% of the value. If you're 82, you're gonna get a lot more. I don't know the numbers off top of my head. They change every week. Interest rates change a little bit every week, and we're gonna talk about that because that's something you have to keep in mind when you're shopping around. So you have to know how you want the money because how you want the money might dictate, does it make more sense to have a lower interest rate or maybe even a higher interest rate? Let's say you own your home free and clear and you just wanna set aside money in a line of credit to draw on later. So you want to convert that into a monthly revenue stream when you're 80, or you want to save it for a special trip for your 50th anniversary or your 80th anniversary, whatever. You've got that money available to you, and there's a growth rate on the line of credit. So you'll have more money one year, two years, 10 years, 15 years down the road in that line of credit if you didn't touch it. OK, so there's all these different ways that you can draw money out and you have to understand how that works beforehand, too. So that's the well, let me that's the third thing. The second thing, the tip number two, do not do not do not do not give your Social Security number out just to get a quote. The lender or the company you're talking to does not have to pull credit. They don't need your social security number to get a quote. They will eventually need your social security number, but you wait until you decided on a lender, then give them your social security number so they can check your credit. But you don't do it until you have decided where you want to get the loan from. So that's two. Number three, understand what all the terminology and numbers mean. This goes back to what I was talking before. Don't be afraid to ask questions. There's a lot of different terminology. Now, a good loan officer is going to describe it to you in a way that kind of makes sense. And they'll say, this is the loan amount. This is the line of credit that you've got available to you. But you can only draw this much out in the first year. Another lender that... Some people do this, and it's crazy, but they'll say, okay, your max claim amount is this. The principal limit is that. You've got that initial disbursement limit right here. Your UPB is right to here. And you're like, what the heck did this guy just say? And if somebody talks to you like that, hang the phone up, okay? You don't need that industry lingo just because somebody knows that stuff. I was going to say a dirty word. Just because they know that doesn't mean they understand the program and they understand how to structure it for you. Okay? Work with somebody that you can feel comfortable talking to and comfortable asking questions of. Number four, make sure you compare apples to apples. Now, we're going to take some time on this because this is really important. Apples to apples means... You don't want to call up one lender and you say, yeah, I think my house is worth 500,000 and I owe about 120 on it. And then you call the next lender up and say, well, I think it's probably 520 or 525 and I owe about 135 on it. I mean, those numbers aren't the same. And it's difficult to do that. And then you compound it when you say, oh, yeah, and I also want to pay off my car. I owe $20,000 on my car, so I want to take that out up front. That's going to screw everything up. You're going to look at that quote and compare it to the other quote where you said your house is worth $500 and you owe about $120,000. It's just going to mess it up because the quotes will not look similar to you at all. And all you're looking at is interest and origination fee. There's much, much more to shopping than getting the lowest rate or the lowest fees or whatever. It just depends. So you want to make sure that you're comparing apples to apples. Well, I'm not going to go there yet because that's another tip. let's just say make sure that you also are aware of how the interest rates change from week to week. Interest rates play a huge part on how we calculate the amount of money we can loan you. For example, Let's say you got a quote three weeks ago from a lender. You got a quote three weeks ago, and they said you could borrow a maximum of $190,000. And then you call me this week, and I say, well, the maximum you could get is $175,000. You say, well, this other lender told me $190,000. They're better. Well, no, no, no, no, no. The interest rates have gone up, believe it or not, over the last three weeks in a row. They've increased. Actually, they've increased just about every week since the Federal Reserve lowered the rate. That's a whole other topic, but basically there's been all this data that's come out this week. What was it, the CPI cost? I don't remember what. came out on Thursday, I think, that was a lot higher. Consumer spending, I think, is what it was. And it was a lot higher. Now, most people are probably putting that stuff on credit, but it doesn't matter. The Fed looks at this and they say, uh-oh, the market or the It's good for the job market, so we don't need to lower rates as much because it's going to fuel inflation more. And what happens is people who buy bonds, which is what we use to determine the interest rate on the reverse mortgage, we use bonds. the 10-year Treasury Index, which is a bond to the U.S. Treasury, how much the government has to pay to borrow money on a 10-year or a one-year loan, if you will. That's the U.S. Treasury Index. That's how we calculate how much money we can loan you. As that rate goes up, see, lenders think that the The Fed is less likely to lower interest rates, so they're going to start bidding those rates up because they don't think the Fed's going to lower the rate a half a percent in December like they originally thought a month or two ago. Anyways, we're getting... into a different topic there. But basically what happens now is the interest rates actually are going up, which means the amount we can loan you goes down. Remember how we talked about that? The higher the interest rate, the less money we can qualify you for. So you have to be aware of stuff like that when you're shopping for reverse mortgages. And again, my name is Bruce Simmons. I'm the reverse mortgage manager with American Liberty Mortgage, and you're listening to Reverse Mortgage Radio. Very glad you're here, by the way. Hope you're having a fantastic day. But we're talking about seven tips to understand when you're shopping for a reverse mortgage. If you didn't hear the whole show, you can go to my website next week. Usually it's up by Tuesday or Wednesday. My web guide gets it posted on my website at reversemortgageradio.net. Reversemortgageradio.net is my website. You can download the entire podcast there or just listen to it from my website. Or you can also download my consumer guide. I've got a free consumer guide that will give you 90% of what you need to know about reverse mortgages. And a lot of those tips are in here. They're just not condensed the way that I'm saying it today. So anyways, you can also just pick up the phone and call me. I still like to talk to people. 303-467-7821 is my direct line. Do not text me at that line. I won't get it because that is a landline. Believe it or not, I still have a landline. Actually, I've had that phone number since 1999. It rings to an office that's in my house and it's forwarded to my cell phone. So sometimes you say, well, is this your cell phone? I'll say, well, it depends on what number did you call? Because I could get calls either on my cell phone direct, which I don't like to give out on the radio, or it can be on my office line. But give me a call. I'd love to talk with you. 303-467-7821. We're talking about seven tips when shopping for a reverse mortgage. We've already talked about four now. So number one, know the end game. Why do you want a reverse mortgage? What's your goal? What are you hoping to accomplish with a reverse mortgage? Number two, don't give your social security number out until you're ready to actually apply for a reverse mortgage. A lender does not need to to get your social security number or pull your credit just to give you a quote. If they say they do, they're lying and you should hang up. Number three, understand what all the numbers mean. Don't be afraid to ask questions. Basically, everybody gives you a very, very similar quote. We mostly use the same software. And there's words in there like principal limit or max claim amount or upfront principal balance or things like that. But a good lender will explain those in words like this is the loan amount. We base it on the value of your home and the interest rate. And that gives you the amount that we can loan you, things like that. The other thing, lastly, what we just finished talking about is compare apples to apples. If you're shopping from one lender to a next, give them the same information. Make sure that you use the same value. If one lender says, well, I think your home would be worth at least $550, say, no, no, no. I'm basing my quote on $500. I understand that if the value comes in higher, I can borrow more. If it comes in lower, I'll get less. That's not up to the lender. So if one lender says, oh, your house will be at least $500,000 or $550,000, it doesn't matter what the loan officer says. Use the value that you want to use, that you think. And if a lender won't give you a quote on that, you don't want to work with them. Because some lenders will try to puff up the value to make their quote look better. Okay. And then also make sure that you give them the same payment plan. Don't tell one lender that you want 20 grand to pay off your car, your car loan, and another loan lender that you just want to set up a line of credit with no cash out. That's going to mess things up too. All right. Number five, are you looking for the absolute lowest rate or the lowest costs or maybe both, right? Well, It depends upon your situation. These are things you need to consider. If you're 62 and you're setting up a line of credit so that it'll grow over time and be ready when you have it, you're going to keep it for 10 or 15 or 20 years, it might be best to have a fairly low interest rate because that'll save you more money in accrued interest over the life of the loan. Whereas if you're 90 years old and you're thinking about the end of life cost and you want to I hate to say it, but you want to die in your house, right? My customers tell me, they're carrying me out of this place feet first or whatever. I did a loan for a lady once. She had Lou Gehrig's disease. She knew she was not going to live in the home more than a year. We did the loan for her, and we paid like $6,000 a month to start. By the end, it was like $9,000 a month for her care. She only lived nine months in the house, and it made no sense for her financially. If a financial officer looked at the numbers, they'd say, that's crazy. You should not have done that. Well, it made emotional sense for her. She wanted to stay in her house, and she was not going to leave. And this is the only way she could do it. And it made perfect sense for her situation. But it depends. Maybe in her case, she doesn't care about interest rates. She wants as low as upfront cost as possible so she can tap into as much cash as she needs to pay for her care, knowing that it's not going to accrue over the next 15 years. So it just depends on your situation what's best. Most of the time, you want to deal with a combination. And in some cases, you can almost buy down the interest rate, if you will. Let's say a lender quotes you a certain rate with a higher interest rate and low closing costs. they might say, well, okay, I can offer you a lower interest rate, but I'm going to have to increase the origination rate because we got to get paid as well, right? So we either get paid on the front end or the back end. So when we're charging a higher interest rate, The company that we sell the loan to is going to pay us a little more money when we sell the loan to them. Whereas if you've got a really low balance and it doesn't matter, then we may have to charge a higher loan. closing cost up front because the loan balance is so low. So it just depends on your specific situation. And you could talk to the lender about that yourself and say, okay, I own the home free and clear. I don't want any money up front. you're going to be charged a higher origination fee than somebody who's paying off a $250,000 mortgage because the lender is going to make more when they sell that loan of $250,000 than they will for a loan of $15,000 or $20,000 or whatever. Keep that in mind. Another thing, the sixth tip is Don't overwhelm yourself. Don't waste a bunch of time getting six or seven quotes. Really, three. If you get three quotes, you've got a good mix of of the different types of loan or the good possibilities. OK, I did a loan or I did a quote for one lady. And this goes back to the apples to apples thing, too. She asked me, she said she wanted fifteen thousand dollars cash out. And I was talking to her about the margin and the interest, the origination fee and all that. And she put all these quotes into a spreadsheet. She had like seven quotes. And she called me back and she was cool about it. She said, I decided to go with another lender. And I said, well, why is that? I gave her a really good quote. I know I did. And I asked her, I said, well, she said, well, this other company is going to give me more money. But their interest rate was a little higher. I said, that can't be. You can't get more money without that. And so she sent me her spreadsheet and I looked at it. The other lender did not have the $15,000 to her up front. She was only looking at the line of credit. She had like, there was like a $180,000 line of credit. Well, mine was like $170,000. But my interest rate was a little lower, which meant that I actually was giving her $185,000 if she didn't take the $15,000 out because the other lender did not have that $15,000 out up front to give her. So he was including it in the line of credit. She said, well, this other lender had the higher line of credit. I said, well, we're actually giving you a better line of credit if you didn't take that money up front. And anyways, she realized her mistake. She said, well, but I already told the other lender that I was going to go with him. So I'm just going to stay with that. Anyways, so it can confuse matters if you get too many quotes. And that takes me back to the apples to apples thing, too. I want to clarify one thing. Because the other thing, when you're shopping around, and this goes back to the three quotes as well, if you shop from week to week to week, if it takes you three weeks or four weeks, like I said, to... to get quotes, interest rates change. The two factors that the lender really has control over is something called the margin. That's the rate, or that's the amount that the lender charges on top of the index, which is the treasury index, okay? The margin is adds to the interest rate. So, for example, if the Treasury index were 4 and you're being charged a 2.5 margin, your interest rate is 6.5%. That's the index of 4 plus the 2.5% margin. However, if the lender is only charging a 2% margin, that'll lower your interest rate by half a percent because you have the 4% index, the Treasury rate, plus 2% from the lender. That's 6%. However, sometimes... If interest rates go up, let's say the index went from four to four and a quarter. But your first quote was still when the interest rate was four. The second quote is not going to look the same because you're not comparing apples to apples. The second quote could have actually a lower margin, and it would look the same as the first one. If the second quote had a quarter percent lower margin, it would look the same to you. But then, of course, if you go back, you say, okay, well, I'm going to go to this first lender. then you're going to find out that their interest rate is actually higher than what they originally quoted you. So you just got to be aware of things like that. The interest rate can change every week. It doesn't always, but it can change every Tuesday. Be aware of that. All right, let's get to the last point. Number seven. Do not get talked into taking more money than you need. Some lenders will pay their loan officers based on loan amount. So you have a $100,000 mortgage and you're allowed to borrow $250,000. The loan officer might try to talk you into borrowing more money than you really want. You just want to get rid of your mortgage payment, say, even though you know you have to pay your taxes and insurance. I always have to say that. But then... The loan officer gets paid more if you borrow more. Don't fall for it. They might even lower the interest rate or they'll knock off $1,000 off your origination fee if you take out more money. But then you're going to be charged interest on money you don't need. Don't let that happen to you, okay? Because that will come back to bite you in the butt later. Eventually, even if you invest that money, then you're going to be taxed on any returns from that money, and you're never going to get back what you're being charged in interest for it. So let's wrap this up now. These are the seven tips when shopping for a reverse mortgage. Number one, know the end game. Why do you want the loan? Do not give your Social Security number out until you're ready to start the application and you only give it to the lender you're going to work with. Number three, understand what all the verbiage and numbers mean. Okay, if you're looking at the index and the margin and the origination fee, all this stuff, understand what all that means because you can't make an informed decision if you don't really understand what you're being told. Ask questions. Do not be afraid to ask questions. Number four, make sure you compare apples to apples. Give the loan officers from one lender to the next the same information, same value, same payoff, same payment plan. Make sure you do that. Know what you're looking for in the form of, are you looking for the best rate, the best origination fee, whatever it may be. Understand that each has its pros and cons. Don't overwhelm yourself with too much information. A confused mind does nothing, and that's not going to benefit you most likely. If you are calling five, six, seven lenders, you're going to confuse yourself. They all explain things a little bit differently. And more likely than not, you're going to end up confused. Number seven, don't get talked into taking out more money than you actually need. Stick with what you need. And if you think you might need more money six months from now, you don't need to take it now. Leave it in a line of credit and draw it out when you need it. Thank you so much for joining me today. I appreciate you being here. My number is 303-467-7821. My name is Bruce Simmons. I'm the reverse mortgage manager of American Liberty Mortgage. We're a company right here in Denver. You can also visit me online at reversemortgageradio.net. Thanks so much.
