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Hello, hello, hello. Thank you so much for joining me today. Before we get into all the nitty gritty of the show today, I do have an apology. I am so sorry that I did not say anything last month or the beginning of June, actually, about Memorial Day. It just completely escaped my mind. And all the veterans… who we’ve lost over the years, it just blows my mind that people have given their lives for the freedom of this country. And this week, we had the sixth, excuse me, the 80th anniversary of D-Day. So I just want to say thank you to all the veterans out there who served, especially in times of war, whether it’s recent or it was in Vietnam or even Korea or any time in the past. If you served in the military, I want to thank you very much for that. I lucked out. I don’t usually talk about my military experience, but I always said that I served in the Cold War, right? Because I was in from… 83 to 86. That’s when I served and I was in the army or in Germany and it was cold out there. It gets pretty cold in Germany at times, especially when you’re out in a motor pool or in the field laying in the mud working on a vehicle because I was a track mechanic. And that was always a good challenge for me to get bust my knuckles and freezing weather because you can’t wear gloves while you’re working on a vehicle. I found out I wasn’t a very good mechanic, though. But I used to I would always kind of discount my service because I… I was 19 years old in Germany and drinking beer and working on vehicles. I didn’t really do much. But then I had a Vietnam veteran that I did a loan for. And he was very, very proud of his military service. And he told me, he said, you know what? Don’t discount your service. You would have fought if needed. And I got to thinking about it. I said, you know, you’re right. I would have. I was very patriotic. I still am patriotic. I shouldn’t say was. But I would have fought if that’s what was required of me. In fact, when I was in basic training, I learned about airborne school. I thought, oh, that sounds great. I was just an adventure pilot. And I went to airborne school as a mechanic. And then the Army, in their infinite wisdom, their military intelligence, sent me to the 3rd Infantry Division. And for those of you that don’t know, infantry is ground troops. They don’t jump from airplanes. So I never got to jump again in the Army, although I have jumped some times. with much better shoots these days, recently up in Longmont and things of that nature for fun. But I got to thinking about that, though, and it’s just I sometimes forget about these holidays because I get so wrapped up in reverse mortgages, which is my passion now in helping people. I didn’t say anything to the mothers for Mother’s Day. So thank you to all the mothers as well, too. I can go back to Christmas and Easter, all these things that I didn’t talk about. But a lot of times I don’t mention that because I want to jump into the meat of the program. So today I thought… I’m going to mention it today because I remember all the news about D-Day and the history of it and all this. And I love World War II history. I’ve kind of become a history buff. And I just got back from two weeks in Germany as well. I went back for the first time in 40 years. after being in the military there for 18 months and not really seeing a whole lot of the countryside, seeing the inside of bars, you know, with a big stein in my hand when I was 19 and 20 years old, that was fun. But now looking back and seeing how beautiful that country was or is and all the history, amazing history. So I just, I want to say thank you to the veterans and I really appreciate it and tell you a little bit about myself too. All right, let’s jump into the program now. What we’re gonna talk about today is inheritance. Now, here’s my disclaimer. I’m not a financial advisor. I am not an estate planning attorney. Don’t take my advice on any kind of estate planning issues. I just raise questions and kind of try to explain how a reverse mortgage might assist you in certain situations. All right. So I’m not an attorney or a financial advisor. You should talk to professionals if that’s a concern for for your situation. All right. But the reason I want to talk about inheritance is because I think a lot of people, a lot of people don’t even consider the possibility of a reverse mortgage because they think there won’t be anything left for their heirs if they do that. They Leaving a legacy is important to a lot of people. Most people, I’d say. However, I think if most people who could benefit from a reverse mortgage would talk to their adult children, Most of the adult children would say, hey, mom, dad, do what you need to do. I’m not worried about inheriting your home or I’m not waiting for you to kick the bucket so I can get your house. That’s just not the way most people think about it. I know a lot of people think that other people think that way. They say, oh, yeah, well, you’re kind of stealing from your kids. Wait a minute. Whose house is it? Is it your house or your kids? And do your kids even want the house? Most likely not. I’ve seen polls where as much as 70% of people who inherit a home, they just sell it as quickly as they can because they want the money. They don’t want the house. And depending on the situation with a reverse mortgage, You could be saving money so the kids inherit money instead of the property, or they could do both. In actually a lot of cases, if you read the book Reverse Mortgages by Wade Pfau, the third edition, he goes through scenarios where people have bigger estate after doing a reverse mortgage than they do without doing a reverse mortgage because of their financial situation. If you’ve got a good-sized investment portfolio, things of that nature. But I don’t really want to get into all that nitty-gritty today. Today, what I want to really talk about is what happens with your home if you have a So let’s dig into that. First of all, if you have any questions about reverse mortgages, you can call me directly. My name is Bruce Simmons. I’m the reverse mortgage manager for American Liberty Mortgage in Denver. You can reach me at 303-467-7821. 303-467-7821 is my direct line that rings to my cell phone that’s forwarded from an office number to my cell phone. Thank you. Thank you. download my consumer guide. It’s a reverse mortgage consumer guide that goes into a ton of detail about reverse mortgages. And then if you’re interested, you can contact me directly and I can run numbers for your specific scenario to let you know, yeah, a reverse mortgage looks like It might work for you or it might not, or you want to meet to discuss the details, I’d be happy to do that. All right. But let’s talk about what happens when you have a reverse mortgage with the equity in your home. First of all, keep in mind, we’re not loaning 100% of the value. We don’t loan 70% of the value. Very, very, very seldom do we loan 60%. You’ve got to be close to 90 years old or older to get in the 60% range of the value of your home. By that, what I mean is loaning 60% of the value of the home. Most of the time, for most people who are in that, say, I’d say… uh early 60s to mid 80s range they’re going to get somewhere between 32 33 of the value to maybe 50 of the value roughly roughly speaking it changes every week depending on interest rates as interest rates go up the amount of money we can loan to people as a percentage of the value of the home goes down. Keep that in mind. And I don’t know. Honestly, I’ve been saying for a year now that I don’t think rates are going to be coming down. I’ve said other people think that, and maybe they will, maybe they will. That was more hopeful thinking than anything. I think rates are going to be sticky, continue to be sticky. I’ve seen different… scenarios where we’re in like a 40-year higher inflation, higher interest rate cycle now. In other words, from the end of the World War II, basically the 40s through to the 1980, we were in this same similar cycle of higher interest rates and higher inflation. And then from pretty much 1980 through 2020, we were in this low interest, lowering interest interest rate and lowering inflation cycles. So there’s 40-year cycles. Some people are saying that we could be in a new 40-year cycle of this higher interest rates and higher inflation. So that means that interest rates are going to go up even more, which hopefully they won’t. But if they do, they’ve got to make some changes to the program. HUD does. Because Loaning 30% of the value or 35% of the value just isn’t cutting it for most people. I get a ton of calls from people who call me. They say, hey, I’ve got a lot of equity. My house is worth 600,000. I only owe 250 on it. And I say, well, unfortunately, I can only loan you $200, and that’s not enough to pay off their existing mortgage on their home because we have to be able to loan you enough to pay off the existing mortgage because when you get a reverse mortgage, the old loan you have on the home has to be paid off. There’s no other loans allowed on your home when you have a reverse mortgage. So anyways, if we loan you 30%, 40% of the value of your homes, the reverse mortgage is what’s called a negative amortization loan. The loan balance gets larger over time, most of the time, because no payment, no principal and interest payment is required. You still have to pay your property taxes, your homeowner’s insurance, you have to live there as your primary residence, You have to maintain the home and keep your name on title. As long as you do those five things, no payment is ever required and nobody can ever come back on you and say you have to pay this loan off as long as those five conditions are continually met. But If you don’t make any mortgage payments on your home, the interest that you’re being charged along with mortgage insurance gets added to the loan balance. Your loan balance gets larger over time instead of smaller because you’re not making payments. If we loan you 40% of the value of your home today, well, let’s just say if your home’s worth $600 and we can loan you $220,000. today, 10 years from now, your $600,000 home might be worth $800,000. The $220,000 that you owe on the loan, you might now owe $400,000. So you’re still going to have a lot of equity left to leave your family. But let’s say there is no equity left. Let’s say the value drops and now you owe more on the house than it’s worth. As long as you’re continuing to live in the home and pay your property taxes and insurance and maintain it and all that stuff, nothing changes. No payments are required. Nobody can ever come to you and tell you you have to pay the loan off. However, when you pass away, your heirs inherit the home, just like they would if you had a $400,000 or $500,000 in equity in your home. They inherit the home. They then have to sell the home or refinance it to get that equity. And we’re going to do a little comparison. If you don’t do a reverse mortgage, what happens as well? But let’s say that you’re upside down on the house. Now you owe more on the house than it’s worth. With a reverse mortgage… your heirs can just sign the house over to the lender and walk away. They’re not required to pay the difference. If the loan balance is $400 and the house is only worth $300, they’re not required to pay that $100,000 difference. They just sign the house over to the lender. The lender will sell the house for whatever they can get for it. And the mortgage insurance will pay the lender whatever they lose. So they’re not really losing any money and they’re not going to come after you, your estate, or your heirs for any loss. Now let’s contrast that, if you have an existing mortgage on your home. First of all, let’s say another, objection, I should say, that people have is they say, oh, well, I hate getting rid of my two and a half or three and a half percent mortgage that I got in 2020 or 2021. Well, most people get a 30 year mortgage. And if you’re 60 years old, 65 years old, and you got a 30 year mortgage three years ago, you still have 27 years left to pay it. Newsflash, you’re going to be banking that mortgage payment for the rest of your life. Is that what you really want? Or do you want a little more financial flexibility or financial freedom so that you don’t have to worry about making that mortgage payment? Of course, you still have to pay your property taxes and insurance no matter what loan you have. If you owned it free and clear, you’d have to do that. But it would be nice to get out from under that thousand, twelve hundred, fifteen hundred dollar principal and interest mortgage payment. Even if it’s only eight hundred dollars payment, that’s still a huge amount. That’s like ten thousand dollars a year that you’d be saving. So keep all that in mind. But let’s say you pass away when you’ve got a mortgage on your home. Your heirs inherit the home and they’re going to inherit more equity if you do not do a reverse mortgage than they will if you do. That’s cut and dry. Everybody knows that because you’re not making the payment. So your loan balance is getting larger. Whereas if you’re making the payment every month, like with a traditional mortgage, your balance is going down. Even if it’s only going down by a hundred bucks a month or whatever, it’s still going down and it’s not going up. However, your heirs inherit the home. That payment still has to be made. If you’ve got a $1,500 mortgage payment, That $1,500 mortgage payment still has to be paid for every month while your heirs are trying to sell the house. It may take two, three, four months to get the house in saleable condition to where now they could sell it. Well, that’s money out of your heir’s pocket. If you don’t have money in the bank or a lot of money that they can access, then they’re gonna be paying that money out of their pocket while they’re trying to sell the home. If they cannot do that, the loan’s gonna go into default. And then the loan balance will be going up because there’ll be attorney’s fees added to that loan balance as well. And then they’re gonna be under a lot of pressure to sell the house quickly before the foreclosure happens. Now with a reverse mortgage, the loan comes due when you permanently leave the home. So if you pass away, your heirs inherit the home, they’ve got a timeframe that they have to sell the home by too. That’s the same thing. If they don’t meet those timeframe conditions, and I’ve talked about those in the past, we’re not gonna dig into those today, but they do not have to make an ongoing mortgage payment while they’re trying to sell the house. That’s critical, okay? Also, think about it this way too. If your heirs wanted to keep the home, they may want to convert it to a rental property. They may want to move in themselves. Maybe your grandkids, they want your grandkids to be able to live there. That’s all great, but they have to refinance that mortgage, regardless of if you have a forward mortgage or a reverse mortgage. And what if they don’t qualify? Then you say, okay, well, they could continue to make the payment, right? And that would be great. So they can rent the house out for $2,000 a month. And then the mortgage payment is only $1,500. That works great unless the lender finds out that they’re not on the loan. They’re going to call that note due immediately. Now, that option isn’t even available with a reverse mortgage. But just keep in mind that regardless, no matter what kind of loan you have on your home, your heirs are gonna have to either refinance it or sell the house. One of the two things has to happen because they cannot keep that loan in place unless they’re co-signed on the loan. In fact, I had a customer like that where her husband was on the loan. This was in 2008. Her husband died. He was the only one on the loan. She was on title to the house still, but he was the only one on the loan. It was with Countrywide. I don’t know if you remember Countrywide. They did not have the best of reputations back then, But luckily, I was able to do a reverse mortgage for her and pay off countrywide because they were starting foreclosure on her. Even though she was a 70-some-year-old widow, they were starting foreclosure on her. And they would have foreclosed even though the payment was current. When they found out that he had died, that prompted the loan to be called due. Keep all those things in mind. Let’s now talk about, let’s say you’re interested in a reverse mortgage. You’re talking to your family about it. The reason I’m bringing this scenario up is because I heard a story where there was a family meeting And one of the adult children, the son, who was in fairly good financial position, said he didn’t like the closing cost on the reverse mortgage. And he told his mom, he said, hey, mom, never mind. You only owe $150,000. I’ll just pay that off for you. Boom. Pay that loan off. Okay. What is that kid, that adult child missing out on? on that $150,000. Yeah, he’s helping out his mom, but he’s missing out on the growth of that investment, that money that could have been invested all that time. And if she lives in the home for another 10 or 15 or 20 years, all that growth on that is missed out. You say, well, equity in the home is appreciating. Yeah, and it would be appreciating regardless of the loan amount that’s owed on the home. But now mom’s not having to make that mortgage payment, which is fine. But let’s say also, too, a scenario that I’ve had with other customers. Well, they weren’t customers because they’re, in one case, a daughter said, I’m just going to pay the payment for you, mom. Don’t worry about it. I’ll make that payment for you. And that works out fine as long as the adult children are able to absorb those expenses. However… Let’s say right now you’re 75 years old in good health. 10 years from now, you have a stroke, you have to move to assisted living or a nursing home. And you have to sell the house to do that. That’s fine. You sell the house, pay back the adult child, the $150,000 or whatever the mortgage payments are that have accumulated over time. But then the money runs out from the house and you have to go on Medicaid. It’s four years from now. You have to go on Medicaid. Well, the way Medicaid works, and again, I’m not a Medicaid expert. I’m not a estate planning attorney or a financial professional. But My understanding of the way Medicaid works is they’ve got a five-year look back. They want to see any money you’ve gifted over the last five years. If you sold your home and let’s say you pay back your son the $150,000 he loaned you 10 years earlier. And he did not have a lien on your home. There was no deed recorded because he just figured you’d pay him back when you sold the house. And you did. Everything’s all kosher. It’s all good to go. But then you have to go on Medicaid. because you don’t have any other money. There’s no other options. Medicaid has that five-year look back. Well, four years ago, you paid your son $150,000. In their eyes, unless there was a formal note and deed recorded, in their eyes, you just gifted him $150,000 from the sale of your home. They’re gonna want that money back before they authorize you to get Medicaid benefits. Now, again, I’m not a Medicaid attorney or anything, but that’s my understanding of it. If your daughter made these payments to you, let’s say she paid that $1,000 principal and interest payment for the last five years, and now $60,000 you paid her back when you sold the house, well, they’re going to want that money back. So there’s these unintended consequences. Unless you’re talking with an estate planning attorney or with a Medicaid expert or some other financial professional who understands all of these repercussions of getting money from your family to help you out, these are things you need to consider. The other thing that I know a lot of people consider or worry about is is loss of independence. As you age, when you’re younger, you want, you need this independence. I remember turning 16 years old, getting my driver’s license, going out that same day, getting a job. I was doing it. That was me. I was being independent. And I’ve had that driver’s license now for the last 43 years or whatever. And I’m not giving it up. That’s me. But I would not want to borrow money or have my kids, you know, feel like they’re burdened. Even if it’s not a burden, it still is. You know what I mean? Because they’re having to make that payment or they pay off the mortgage for you, even if they can afford it. It’s still kind of that you feel like, okay, you know, they helped you out and that’s great. But is that really what you want? Whereas you could do a reverse mortgage with the same effect, not having a mortgage payment and not having to worry about the potential of burdening your family. Who knows what the financial situation might be five years from now. Maybe your adult children who are in great financial shape now give you that money to pay off your mortgage. But Three, four, five years down the road, they lose their job or they have a medical condition. Your son or daughter-in-law gets cancer and now they need a lot of money to pay for alternative treatments because insurance doesn’t cover for that stuff. Who knows all the different scenarios that could happen? And they don’t have that money because they paid off your mortgage. How would that make you feel, right? I’m not trying to guilt you or anything like that. But just these are things that a lot of times we don’t think of, these unintended consequences. Whereas with a reverse mortgage, yeah, you’re using your equity. There’s going to be less equity that you’re going to pass on to your estate. But the other factor is, and this is what I forgot to say. I was going to say this earlier. If you have a forward mortgage and the value drops, remember I said with a reverse mortgage, it’s non-recourse. That means the lender can never come after you, your estate, or your heirs if they lose money. With your existing mortgage, if your value drops below the amount owed on the home and And you’re continuing to make your payments, that’s fine. Nothing’s going to change, most likely. But if you pass away, now you owe $400,000 on the home, but the home is only worth $300,000, they could… There’s something called a deficiency balance or a deficiency judgment. They could sue the estate and try to collect that money that they’re losing from your estate or your heirs. That’s a possibility with a conventional mortgage. At least that’s my understanding of it. And again, I’m not an attorney, but that’s what it used to be. In 2008, President Obama waived that for a while. And I think it’s back in place now. I’m not 100% sure. I didn’t check. I think last time I talked about this, I was going to check and I didn’t. So I’m not 100% sure that that’s the case, but that’s my understanding. So again, these unintended consequence things. You say, well, yeah, but I wanted to keep that loan in place because I had a 3.5% interest rate. Well, you kept that loan in place. You also kept that mortgage payment. So you were spending that money to make that mortgage payment every month when you didn’t necessarily have to if you had a reverse mortgage. Whereas if you have a reverse mortgage, that extra $1,000 or $1,200 or $1,500 in principal and interest that you’re paying out every month could go into a savings account. Lastly, I want to talk about living inheritance. This essentially is gifting with a warm hand instead of a cold hand. You want to be able to help your grandkids with a down payment for a house, or you want to be able to help your son invest in a business or buy a property for an investment. Whatever the case may be, take them on a… European vacation to Germany, to go to Munich and check out Salzburg and all these great places like I just went to. You could do that with your family if you had a reverse mortgage, maybe. That’s gifting with a warm hand or giving a living inheritance. You’re being able to enjoy them enjoying your gift. That’s something that’s priceless in my mind, being able to experience the joy with them, getting them presents at Christmas, whatever the case may be. Maybe it’s nothing big like a giant trip, but it’s something little, even just being able to afford to be able to give your grandkids presents at Christmas where you couldn’t have before or it would have been a burden. But either way, thank you so much for joining me. Hopefully this makes sense. Feel free to call me with any questions at 303-467-7821. My name is Bruce Simmons. I’m the Reverse Mortgage Manager for American Liberty Mortgage, 303-467-7821. Or visit me online at reversemortgageradio.net. You can download this podcast or you can also download my consumer guide there as well. Thanks so much. Again, happy belated D-Day, I guess. I guess it’s proper to say happy D-Day. Either way, happy day for all of you.