In this episode of Reverse Mortgage Radio, we explore the vital topic of financial preparedness during retirement. Host Bruce Simmons dives into the benefits of using a reverse mortgage to create an emergency fund, ensuring retirees are not caught off guard by unexpected expenses. Amidst a heartfelt acknowledgment of Veterans Day and his own military experience, Bruce outlines how reverse mortgages can offer peace of mind and financial flexibility. With interest rates and inflation impacting retirement planning, Bruce sheds light on how leveraging home equity can relieve financial burdens and secure a stable future. He shares insights into the
00:00:01 Introduction and Veterans Day Acknowledgment
Do you happen to have an emergency fund or do you have money that’s set aside for unexpected expenses? That’s what we’re going to talk about today on Reverse Mortgage Radio, using home equity to create an emergency fund in retirement. However, before I forget, I do not want to forget Veterans Day is Monday, and I want to thank all the veterans out there, everybody who’s given a huge part of their youth, their young adulthood for our country. And if you know any veterans, definitely thank them. I appreciate all you’ve done. I was in the Army in the early 80s, from 83 to 86. I was in the military. I was a track mechanic, actually, and was stationed in Germany. Of course, back then, in the 80s, that was a pretty peaceful time. I can’t… join any VFW or anything because there were no foreign wars. I think I was never in any foreign wars. I think there was the Falcon Islands, something like that. I think that happened when I was in airborne school, I think. And it’s kind of funny because the Army let me go to airborne school as a mechanic, a track mechanic. And then they stationed me into the 3rd Infantry Division in Germany. The infantry division, that’s a leg unit. So I never got to jump again, in the military anyway. But that’s military intelligence for you. I was lucky because I didn’t have to face oncoming bullets or anything like that. And I just have so much respect for people who join the military now and over the past 10, 15, 20 years with all that’s been going on in the Middle East. That takes a lot of bravery in my mind. They have a lot more bravery than I ever did as a young man. And the people in Vietnam and Korea, those guys are amazing. I’d done a number of loans for people, Vietnam vets and even Korean vets. Every now and again, not so much now, but at the beginning of my career 20 years ago, every now and again, I did do a loan for one or two World War II vets. Amazing people. And I just want to give my utmost thanks to you because without you, We don’t be having these elections that we have. You know, we can’t speak out the way we do. We can’t have all of our freedoms. Maybe we’d have some. I don’t know. Who knows what would happen? But our military has really kept us free in my mind. Real quick, I do want to just point out on November 11th at 11 a.m., that’s when we’re supposed to remember the veterans. Of course, you remember them all day. But originally, Veterans Day was a celebration. It was a day to be observed with parades and public meetings and a brief suspension of business beginning at 11 a.m. That’s what it was in 1919 originally when I think President Wilson, Woodrow Wilson, proclaimed November 11th in commemoration of Armistice Day. And of course, it went through all different iterations of holidays, if you will, and to eventually become fixed on November 11th. There was one in the 60s, I think, or I think it was the 60s, when the government tried to make it Monday, the first Monday in November every month or every year, because they wanted to give people a three-day weekend, hoping that it would lead to more consumerism, more people traveling and things of that nature. But it eventually came back, I think, in the 70s to November 11th, and that’s where it’s been ever since. So if you’re a veteran of the military, you have my utmost respect. I definitely appreciate it. And the military helped me. I was not a good student in school, and if I hadn’t joined the military, I don’t know what I would have done because I didn’t have my head on straight. The military caused me. They made me get my head on straight. And when I got out of the military three years later, it was I knew kind of what I wanted to do. I knew I didn’t want to be a mechanic because I wasn’t very mechanically inclined. But it helped me figure it out and get into finance and things of that nature. But anyways, that’s beyond the point. I do just want to thank everybody who is a veteran, men, women. Everybody, your families especially, because the families go through a lot with the military when they have a son or daughter or husband or wife or anybody in their family in the military. They put up with a lot, and I thank you. All right, let’s move on to the topic at hand. First of all, I want to point out that there are a lot of people, a lot of way too many people in retirement that are not prepared for the unexpected, unexpected expenses. People are living too often on Social Security. Too much of their income is a part of Social Security. I mean, they rely on it way too much. And It’s just they don’t have the money to set aside, especially with inflation, the way it’s going and trying to live on a fixed income. If your car breaks down or if something happens in you, you can’t work for a while because there’s way too many people working into their 70s and even 80s nowadays, too. And they do it more often than not out of necessity. I always say if you enjoy what you’re doing, have at it. I think it’s awesome. If you have a career or a job or whatever, Whatever you’re doing that you love and it gives you a reason to get going in the morning and you love it and you want to keep working because you just enjoy what you do. Then more power to you. I say awesome. But if you’re tired, you don’t want to go to work, but yet you feel you have to. That’s when things are not the way they should be for people in their 60s and 70s. And I’m not very far away. I turn 60 next year. And I would be doing this because I love reverse mortgages. I don’t know how long I’m going to do it for, but I know I’m going to do it for a while, well into my 60s and possibly even 70. It depends on… a lot of different factors. Interest rates, for one. But yeah, just this week, the Federal Reserve lowered the rate again. We’re going to keep an eye on that to see what caused. Last time they lowered the interest rate, the interest rates ended up increasing. I mean, the federal funds rate decreased, but the 10-year Treasury Index, which is the rate we use to determine how much we can loan you as a percentage of the value of your home, with a reverse mortgage has gone up ever since. The last two months, just about, it’s been increasing. It’s gone up almost a full percentage point. since in the last two months. And as that interest rate goes up, the amount we can loan as a percentage of the value of the home goes down. Let me real quick explain what a reverse mortgage is because I kind of jumped into the topic after Veterans Day and didn’t explain about reverse mortgages. So if you’re new to Reverse Mortgage Radio, thank you for joining me today. My name is Bruce Simmons. I’m the Reverse Mortgage Manager with American Liberty Mortgage here in Denver. And I’ve been specializing exclusively in reverse mortgages since 2003. So I’ve seen a lot of different scenarios. But the thing that I love about reverse mortgages is how it helps people. It helps give you peace of mind and frees people from the burden of making mortgage payments. Now, the way a reverse mortgage works, it’s designed for people, most of the time, 62 and over. There are non-FHA insured loans that go down to age 55. But most of the loans, reverse mortgages I do are for the FHA program, and that’s 60 to and over. And it allows you to convert a portion of the value of your home into money that you can access. And as long as you live in your home, you pay your property taxes and your homeowner’s insurance, you keep your name on title and you maintain the home, keep it in good repair. As long as you do those five things, you never, ever, ever have to make a principal or interest mortgage payment. It’s still your house. That’s why you have to pay your taxes and insurance and maintain it and all that stuff. Back when I first started, I remember 2004 or 5, somebody called me and they said, if I get a reverse mortgage, who do I call if I have like a leak in my faucet or something? And I was like, not me. Don’t call me if your faucet is leaking. I’m not going to come fix it. It’s your house. You maintain it. That’s part of the deal. You pay the taxes and insurance. You live there as your primary residence. But no mortgage payments are required. You can make payments, and we’ll touch on that here in a little bit too, but you can make payments on a reverse mortgage if you want to. But it’s not required. That’s the nice thing. Let’s say you’re a real estate agent. You love being a real estate agent. Business has been tough, right? You have a mortgage on your house right now. You’ve got to make that payment every single month. But there might be a stretch of a month or two or three where you don’t close any loans or you don’t sell any property and you don’t have any income. What do you do? You got to figure out a way to make that payment. You’re either taking it out of savings or you’re tapping into other debt, whether it’s credit cards or a HELOC or whatever. And you’re increasing your monthly burdens in the future because you still have to make payments on that debt. If you get a reverse mortgage and you can pay off your existing mortgage, because we have to be able to loan you enough to eliminate that existing mortgage. So if you owe $200,000 on a mortgage and your house is worth $600,000, we loan you, let’s say we can qualify you for $225,000 on a reverse mortgage. The first $200,000 has to go to pay off your existing mortgage. So that loan gets paid off completely and it goes away and it’s replaced by a reverse mortgage. The reverse mortgage does not require any additional payments or any principal and interest payment. So in that situation, you don’t have to worry about when you don’t close any sales. But then let’s say you have a month where you close three and now you’re flush with cash and you’ve got $15,000 or $20,000. You can apply that to the reverse mortgage, pay down the loan some so that the loan balance doesn’t grow so much. And then that money is still available to you because it gets set aside in a line of credit. So you’re not just dumping it into equity in your house like a closed in fixed rate mortgage where you have to pay it down, and then you still have to make a payment the following month. It’s just all that money went to principal. And now you don’t have access to it. But with a reverse mortgage, you still have access to it. You can pay down your loan balance and still have access to that money. It’s like a lifetime equity line, if you will. Although it’s way, way better than a traditional home equity line of credit. Number one is you don’t have to make payments. It does not expire after 10 years. As long as you’re living in the home, paying your taxes and insurance and all that stuff, you never have to make a payment on it. So it’s a fantastic deal. And that money, the extra money that you have, like I said, we might be able to loan you $225,000. But you say, I don’t want the extra $25,000. I just want to pay off my mortgage payment. That extra 25 gets set aside in a line of credit. You can use that as an emergency fund because there’s, like I said, there’s way too many people who are not prepared for financial shocks like a new roof. You need a new roof and you’ve got a $5,000 deductible or you need a new furnace in your house. We’re coming up on winter and you know, I know my furnace went out on the coldest day of the year a number of years ago. And that’s just what happens. It seems like your AC goes out on the hottest days of the year and your furnace goes out on the coldest. Be prepared. Granted, maybe you need to replace your furnace now or your water heater. That happens too. Those things only last 10 or 12 years and then you need to replace it. Maybe you want to do an upgrade and get one of those tankless water heaters. But those are expensive. But either way, that could be a financial shock. You might have a death of a spouse. Gosh, I hope not. That would be terrible. I’ve been married 35 years and I cannot imagine. not being with my wife, that would be terrible. And especially if our income was cut in half, because when a spouse passes, you lose that income pretty darn quick, and Social Security’s quick to cut that off. Granted, they’ll replace, if it’s whoever has the highest income, you keep that income, but still, you’re losing a lot of money on a monthly basis, and then you’ve got decisions to make. tough decisions sometimes. And that could be terrible. But if you’ve got a reverse mortgage line of credit in place, it could be easier. It won’t be easy, of course, but it could be easier. Taxes. Let’s say you say, well, wait a minute, Bruce. I don’t need extra money. I’ve got this money. It’s all in liquid assets. I could just sell them. I can sell my stock. I can do whatever the case may be. Or even if it’s a classic car. I’ve got a classic car I can sell if I had to. You’re going to pay taxes on that money probably or be taxed on it. Probably. Not always. It depends. If it’s in a Roth, then that’s great. You don’t have to pay taxes on it. But if you do, and you have to count that as income, well, that could increase your personal… You pay taxes on the money you draw out. You have to pay a higher tax on everything because it kicks you up into a higher tax bracket. Also… It could create a Medicare surcharge where now, because you’re in a higher tax bracket, you’re going to have to pay more in Medicare next year for the whole year because this year’s income is more. If you take money from a reverse mortgage, that’s not taxed. It’s loan proceeds. And so you don’t have all those complications of that. It could be an unexpected medical issue. car repair you know and then if you can’t get where you need to go to to work and you need to do that and you’ve got this three thousand dollar car repair well now what are you going to you’re missing out on work time and who knows you could get laid off and you still have to get your car repaired With a reverse mortgage, home equity, I shouldn’t say home equity, but with a reverse mortgage, it provides you that financial security. Maybe a lot of times, though, with reverse mortgages, we can only loan you enough to pay off your existing mortgage. Let’s say we could just barely loan you $200,000. So you could pay off your existing mortgage, and it saves you $1,200, $1,500 a month. That’s but there’s no extra money left over. So you have no emergency fund. But wait, you’ve got fifteen hundred extra dollars. What if you took half of that money and you set it aside in a savings account every month? Boom, boom, boom. Every month you take fifteen hundred dollars or seven hundred and fifty dollars and put it in savings. In 10 months, you’ve got seventy five hundred dollars. that’s set there. Or you use it to pay off other debt, which creates a better cash flow position for you. I’ve done a lot of loans for people who are able to retire because they don’t have that big mortgage payment. And they want to retire, but they can’t. They know that they need to work because they have to pay the mortgage. With a reverse mortgage, there’s no required minimum monthly payment. Now, remember, you do have to factor in the downsides because you are still charged interest. It’s not free money. Don’t get me wrong there. There are costs up front. There’s closing costs. There’s also interest costs and mortgage insurance on reverse mortgages. The FHA mortgage loan has mortgage insurance on it. There are these charges. And these get added on on a monthly basis. Your loan balance gets larger over time instead of smaller. I know you’re used to making your payment every month and seeing that loan balance drop. Especially if you’ve been paying on that loan for a while, you pay this $2,000 payment and you see your loan balance dropping by $1,200, $1,300 every month. And that’s really satisfying. But just imagine how satisfying it would be to not have to pay 12 or 13 or $1,500 extra every month. Now, you still have to save money for your taxes and insurance, okay? That’s your responsibility. We can, if there’s enough money, set aside money to pay your taxes and insurance out of the loan proceeds. Talk to me about that, though. Okay. By the way, too, if you just tuned in, you are listening to Reverse Mortgage Radio. My name is Bruce Simmons. I’m the reverse mortgage manager with American Liberty Mortgage here in Denver. You can reach me directly at 303-467-7821. 303-467-7821 is my direct line. Or visit me online at ReverseMortgageRadio.net. ReverseMortgageRadio.net. You can go to my website. There’s a ton of great information. I’ve got video testimonials on there. I’ve got… Other testimonials printed. I’ve got a lot of information about reverse mortgages. You can download my free reverse mortgage consumer guide. You can even get a quote right there on the website immediately. You don’t have to wait for me to call you back. You can go on there and see how much you can get from a reverse mortgage. And then, now just so you know too, the closing cost… I can’t adjust the closing cost on this software just yet. It’s not perfect. So sometimes the closing costs are higher than what I have to charge. Just an FYI there. But anyways, it gives you a good idea of how much money is available to you from a reverse mortgage. As interest rates go up, the amount of money we can loan goes down as a percentage of the value. Conversely, if the interest rates come down, the amount of money we can loan goes up. Just because the Federal Reserve lowers the federal funds rate, that’s only one interest rate. It has a trickle-out effect on all the other interest rates, typically. But like I said, for the last two months, it hasn’t. When the Federal Reserve lowered rates in September… The 10-year Treasury index, which is the index that we look at in the reverse mortgage world to determine how much we can loan you, that has gone up eight or nine-tenths of a point since when it was the lowest point, right when the Federal Reserve lowered the federal funds rate. And it’s complicated as to why, and I don’t fully understand it. I don’t feel… qualified to try to explain it to you, but that’s the way it works. You can check out the 10-year Treasury Index, and you can look at how it’s gone up over the last two months. If you want, I’ll show it to you. In fact, at some point, I did a video years ago about how interest rates affect the amount of money you can get. And I need to do that again, probably update it, because that was probably in 2017 or 18. I don’t remember. It’s been a long time. So keep that in mind. As interest rates go up, the amount of money you can get from a reverse mortgage goes down. So let’s talk about some other things, the other ways a reverse mortgage can help you to establish an emergency fund in retirement. Of course, you can have your own. Like I said, there’s cash savings. You can just keep money in cash if you’ve got it. You can keep an extra $10,000 or $15,000 set aside in your safe or in the bank even. But cash does not earn a lot of money. And right now with 2% to 3% inflation, if you’re not earning at least 2% to 3% on that money, you’re losing. You’re losing purchasing power because you’re falling behind with inflation. You might be able to keep it in a timed account. They call those CDs now timed accounts because there’s no certificates. But basically, the way it works is you put money in there for 90 days, 180 days, or a year, whatever. The problem is the liquidity. If you have to get that money, even on a 90-day timed account, you put it in there, and now 30 days into it, you’ve got to have the money. You need $10,000 right now for an emergency. You could use credit and then make a couple of payments on it, and then when that CD comes due or that time to count hits the 90 days, you can draw the money out with interest, and you’ve made that money, 3%, 4%, 5%, whatever it is, and then you can turn around and pay off that credit card. That’s one way to look at it. That’s a possibility. But it’s not… really that flexible. With a reverse mortgage, if you’ve got money set aside in a line of credit, that line of credit actually has a growth rate that’s equal to a half a percent greater than the interest you’re charged on the money you are using. So let’s say you have a $100,000 mortgage and I could loan you $200,000. You say, I don’t want $200,000. I only want to pay off my mortgage. So we take the first $100,000, pay off your mortgage, and that saves you $800,000, $1,000, whatever it is. That extra $100,000, you say, I don’t want it. I say, okay, we’ll set it aside in this line of credit that’s available to you whenever you need it. There’s certain restrictions in the first 12 months of the loan. But again, I don’t want to get into the weeds too much on that. But that money is going to grow. It’s not earning interest. You don’t have to pay taxes on it. However, if you use it, it gets added to the loan balance. So let’s say you’re being charged $100,000. six and a half percent on the money, that $100,000 that you took out to pay off your existing mortgage. You’re being charged six and a half percent on that. The line of credit is growing at seven. It grows at a half a percent greater than the rate you’re charged on whatever money you took out. And so that line of credit grows, and it continues to grow and compound for as long as you keep that money in there. If it’s growing at 7%, roughly 10 years, that $100,000 is going to turn into $200,000 over the course. It’s called the rule of 72. If it’s earning 7.2% over 10 years, it’ll double. So it’ll be very close to that double in 10 years if you didn’t touch it. Of course, if you needed it, it’s available to you. If you take out $20,000, think of it like a credit card. If you’ve got a credit card with a $5,000 limit and the bank offers you $6,000 now instead of $5,000, well, that extra $1,000 wasn’t free money. If you use it, you’re going to get charged interest on it, and you have to pay it back. That’s the way the reverse mortgage works, except you don’t have to pay it back, at least not immediately. It only comes due when the last homeowner permanently leaves the home. That’s when the loan comes due. Whether you sell the house and leave, whether you have to move to assisted living, or whether you pass away, whatever. The loan only comes due when the last borrower or homeowner permanently leaves the home. That’s when it comes due. Or if you fail, remember this, you have to pay your taxes and insurance. So if you don’t pay your taxes or your insurance, the loan could be called due. Now, we try to work with you to get those things paid. But if you didn’t do that, it could be called due. And then you’d have to either sell the house or you could be foreclosed on. So it’s not free money. There are restrictions on it as far as the way you have to maintain the house and pay the taxes and insurance, but you have to do that anyway. You could own your own free and clear. In fact, I talked to a lady today, not today, this week, and she owed $43,000 on taxes. She had not paid her property taxes since 2007. And now she says, she calls me, says, I’ve got to have this reverse mortgage right now because they’re foreclosing on me right to, you know, right now they’re, they’re filing for a deed. You know, I mean, what she’s, she’s at, 18 years worth of time to get this taken care of, and she didn’t. And she owns her home free and clear. So it’s not a matter of the reverse mortgage causing the loan to come due or people getting foreclosed on because of the reverse mortgage. You’ve got to pay your taxes and insurance no matter what. You have to pay your taxes. So keep that in mind. But the reverse mortgage has a lot of different applications. You can also set it up to where you’re receiving money every month. And that helps a lot of people too. So they don’t have to tap into other assets that they have. You’ve got money in an account, but you’re drawing it out too fast. And your financial advisor says, you know, at this rate, you’re not going to have any money left at 80 years old. Well, you own your home free and clear. So you say, okay, well, what I’ll do is I’ll get a reverse mortgage and we can start paying you. You can draw money out every month, say $1,000 or $1,200 or $1,500 a month. So now that money you’ve got set aside, instead of being running out at $80, maybe it’ll last till you’re $90 or $95 because you’ve got this money from the reverse mortgage coming in to make up that shortfall. So many different options with reverse mortgages. It’s incredibly flexible. Please call me with any questions about reverse mortgages. My number is 303-467-7821. 303-467-7821. That’s my direct line. It rings to me. It’s forwarded from a landline that I have in my house to my cell phone. I work for a company that’s been around for 20 plus years as well in Denver, American Liberty Mortgage. But my name is Bruce Simmons. I’m the reverse mortgage manager for American Liberty Mortgage Incorporated. And you can also visit me online at ReverseMortgageRadio.net. ReverseMortgageRadio.net. Go there, download my consumer guide, get a free quote. Check out information on there. Got a lot of good information. I spent a lot of money on that website. I’d love it if you actually used it. Either way, I hope you have a great weekend. I hope you enjoy your Veterans Day. And if you’re a veteran, thank you so much. I really appreciate your service to our country and hope you have a fantastic day.
