Bruce Simmons (Host) : 0:01

Hello, hello, hello. Very glad you could join me today because we’re going to be talking about a couple of different articles here on Reverse Mortgage Radio today. One is specifically about the cost of everything going up, inflation, but more specifically about… homeowner’s insurance and the cost of homeowner’s insurance and how much of a percent of your income is that and all these things. Very interesting article. Another one, we’re going to be talking about using a home equity conversion mortgage as a debt consolidation loan. You’ve heard a lot of ads on the radio for debt consolidation loans. Even if you’re in at 2% or 3% interest rate on your primary mortgage. They talk about using a new mortgage, even if it’s at 6.5% or 7%, to pay off other debt because it’s saving you expenses, generally speaking. Even though your mortgage payment goes up, all your payments generally decrease, and they talk about a blended rate. We’re going to be talking about those two things today, specifically two articles that I think are very good from two very trusted sources that I quote a lot on this show. Any listener of Reverse Mortgage Radio knows I’ve talked about these folks a lot in the past, and I use their information to help get more information out to you because I think you need to hear this stuff as well. The first article we’re talking about, I heard about on HECMworld.com, H-E-C-M. That stands for Home Equity Conversion Mortgage. So it’s H-E-C-Mworld.com. And on there, Shannon Hicks, who’s the owner of that domain and that business, he quotes an article from a company called Insurify. Insure, like insurance, I-N-S-U-R, and then I-F-Y. Insurify.com is where this article came out, and I think it came out on August 22nd. It talks about everything has gone up. Retirees feel burdened by inflation as home insurance costs surge. It starts out here, and this article is from Tanvi. Actually, it’s written by Cassie Sheets, C-A-S-S-I-E, and her last name is Sheets, S-H-E-E-T-S, like bed sheets. But it was published on August 22nd. They say here, despite their reputation as a financially privileged generation, I’m sure you feel that way if you’re a baby boomer, millions of baby boomers are slipping through significant cracks in the U.S. retirement system. A new source of financial strain on retiree budgets is homeowners insurance premiums, which has skyrocketed by 20% between 2021 and 2023. You probably know that. I know I saw my rates go crazy last year. And one of the main things you’ve got to do is you’ve got to shop for insurance every couple of years. the people who I see paying the highest insurance are the ones who’ve been with the same agent for 10 years or more. I know you like the people, but money is money, right? So they continue on. The article continues. It says between 2024 and 2030, 30.4 million Americans will turn 65 years old. More than two-thirds of this final baby boomer cohort will be financially challenged, in quotes, in retirement, according to the Alliance for Lifetime Incomes. The U.S. inflation rate, which we all know surged by 9% in June of 2022, has slowed to 3% as of June of 2024. But that doesn’t mean it went down. I hate when the administration says, oh, yeah, inflation has come down. No, it’s still inflation. They’re still growing. It’s just not growing as fast as it was in 2022. But years of price increase, back to the article, years of price increases have wreaked havoc on retirees’ budgets, requiring them to scale down significantly in their golden years. Rising homeowners insurance compounds other soaring costs, like surging car insurance premiums, which have increased by 15% in just the first half of 2024. Grocery prices have hiked up 11.4% in 2022 and an additional 5% in 2023. And hospital care costs are up by 7% year-over-year as of July of this year. These increases are especially difficult for the one-third of senior citizens who reported not having enough money to live comfortably in retirement in a 2023 Gallup survey. And this is one thing that I always say about, this is me talking again, not the article, but I always talk about reverse mortgages are intended to relieve this financial pressure that’s created by all these other costs going up all the time. And just so you know, you are listening to Reverse Mortgage Radio. If you have any questions about reverse mortgages or your specific situation, please call me at 303- 303-467-7821. That’s my direct line. 303-467-7821. You can also visit me online at reversemortgageradio.net. Reversemortgageradio.net is my website. And on there, you’ll be able to find the latest radio show on there. It’ll be on the front on the homepage. But also now in the upper right-hand corner, you can get a free quote. on what we can do for you. It just asks your, your address, your email. I think you have to put in your email, your name, your dates of birth or your ages. I don’t remember which, because that’s a key component on how much we can loan you. And it’ll tell you how much we can loan you. If anything, you have to put in your, the value of your home and your, the amount you owe on any current liens on your home. If you have a first and a second mortgage, you need to put both those in there. But then it’ll tell you how much we can loan you. If we cannot loan you enough to pay off your existing mortgages, you’ll see a negative figure, like negative 50,000. If you owe 200,000 and we can only loan you 150,000, You’ll see a negative $50,000 there. That means that you’re $50,000 short. So we can’t do it for you unless you bring $50,000 to closing to reduce the payoff on your loan. And unfortunately, that’s one of the requirements with a reverse mortgage. But let’s get back to the article. They say here, Insurify’s data science team analyzed the rising cost of essentials, including homeowners insurance, in every state to find out how inflation is affecting retirees in 2024. Inflation lessening the value of assets is a top concern for 89% of retirees in Schroeder’s 2024 U.S. Retirement Survey. 68% of retirees are concerned about outliving their assets. And we talked about that just a couple of weeks ago about how a reverse mortgage can help you with that. But basically, there’s 11 states is what they say in here where homeowners insurance is is at least 10% or more of people’s retirement income. And these are all averages, okay? But Colorado falls a number 10 on that list. And they say here that average American retirees spend 8% of their income on average on homeowners insurance. In Colorado, we’re 10th worst in the country. The average income, they say here, for a retiree’s income is $35,459. That breaks down to a little less than $3,000 a month, average household income. And 12% of that income goes to homeowner’s insurance on average. You may be less. You may make a lot less. Maybe your income is only $2,000 a month instead of $3,000. And your homeowner’s insurance is still $2,500. Well, it’s still more than 10% of your income. Because they have here that income, the average income or the average homeowner’s insurance premium is $4,255. Obviously, that takes into more expensive homes, too, because a lot of people don’t live in $800,000 or $900,000 homes. There are a lot of people who do, even if they bought it when it was only $200,000. In Colorado, we know, especially in the Denver area, it’s amazing that your typical three-bedroom, two-bath home in different neighborhoods can be $600,000, $700,000, $800,000 in Colorado. And that costs money to insure. So that’s something to keep in mind that how much of your income is actually going to cover just household costs, not just insurance, but factor in taxes and maintenance. Even if you own your home free and clear, you still have a lot of expenses if you own a home, period. And they say here, they continue on, it’s hard to get by for 21% of retirees living solely on Social Security. As Americans become increasingly concerned about Social Security solvency, which I know when I met with my financial advisor, I talked about that. I said, well, what happens if Social Security gets cut by 25%? We factored that in. They say here they might be underestimating how much they’ll rely on it someday because nearly 60% of current retirees listed Social Security as a major source of income. But just 34% of non-retirees think they’ll depend on it, a 2023 Gallup poll found. Nearly half, roughly 48%, of non-retirees think a 401k or an IRA will be the major source of income. But only 27% of current retirees say the same. So basically, there’s a disconnect, I would say, between the people who are retired and the people who are not yet retired and what they think they’re going to be able to get. But they continue on here. The boomers are the fastest growing segment of renters looking for a roommate, according to the room sharing site Spare a Room. And we’ve talked about this before, too. that’s one way that people are dealing with the income shortfall, I should say, the income shortfall that they have, the expenses. Because if you’re renting out to somebody, you can still give them a good deal even if they’re paying $1,200 a month when the average rent is something like $1,600 or $1,800 a month. If they rent a room from you for $1,200 a It’s not their own place, but it’s a whole lot cheaper than the $1,600 or $1,800 they might have to pay living on their own or even with a roommate. Because if you have to have a two-bedroom home or apartment, it would be worth a whole lot more. So that’s one of the ways that people are dealing with it. But then they quote a financial person here, Gloria Garcia Cisneros, a certified financial planner and wealth advisor with Lord Murray. encourages financially strained retirees to use their current assets to increase their income from renting out a room, like they just talked about, to liquidating unsecured or unused cars or collectibles. You’d hate to do that if you really like having whatever it is you’re collecting. You’ve been collecting it for decades probably for a reason because you enjoy it, but it may be time to give it up is what she’s saying. And then she says here, when you’re making so little, it’s really hard. One option would be downsizing your home or there are reverse mortgages, she says. A reverse mortgage will buy back your house and give you a stream of income for a certain amount of time. But at the end of it, the lender keeps the house. Now, obviously, this is a good segment or segue for me to talk about. what a reverse mortgage is and how it works. I’m glad she’s understanding that reverse mortgages are an option, but she clearly does not understand how they work because there’s, as in HECM world, Shannon Hicks, the person who talks about this, says there’s three main errors in what she says. Number one, a reverse mortgage does not buy back your house. you’re getting a loan on your home. A reverse mortgage is simply a loan on your home. It does not give you a stream of income. It’s loan proceeds. If it were income, it would be taxed. It’s loan proceeds that you’re receiving. So there’s no tax on that. And then also too, they say at the end of it, the lenders keep the house. That is not true either. Those are three really big misconceptions that a lot of people have about reverse mortgages. A reverse mortgage, generally speaking, is an FHA-insured loan most of the time. It’s an FHA-insured loan that’s specifically designed for people who are 62 and over that allows you to convert a portion of the value of your home into money that you can spend. It’s not taxable, it’s not income, okay? But you’re borrowing the money from the equity in your home. However, as long as you live in the home, pay your property taxes and your homeowner’s insurance, maintain the home and keep your name on title, you never have to make a mortgage payment on this loan. It’s optional. Some people do. Most people do not. But you’re still charged interest every month. So that interest gets added to the loan balance. This is where I always say a reverse mortgage is designed to relieve financial stress because every month you’re going to get that statement in the mail or you’re going to look at it online. You don’t have to pay anything, but we make sure that you have access to seeing what the loan balance is. Your loan balance is going to increase if you do not pay the interest in mortgage insurance on the loan. It will go up. And if looking at that statement and seeing your loan balance go up is going to increase your financial stress instead of decrease it, like by not having to worry about a mortgage payment, you should not be doing a reverse mortgage loan. Again, it’s meant to relieve financial stress, not increase it. Now, that brings us to the next article that I want to talk about, which is from Dan Holtquist. He’s the author of Understanding Reverse, a book that I highly recommend you purchase from Amazon. You can go to understandingreverse.com and read his recent blog post, which was just put out this week. He talks about what is a HECM debt consolidation. HECM, again, stands for Home Equity Conversion Mortgage. And that’s simply the FHA’s reverse mortgage loan. That’s the name of their loan product. And then I’m going to read his article here, or part of it. He says, for homeowners age 62 and older, the federally insured home equity conversion mortgage, which we call a HECM, is the most common reverse mortgage product. Over the last 15 years, the HECM has undergone significant changes, becoming a popular tool for retirees seeking assistance with cash flow, liquidity, tax planning, and even enhancing their net worth. However, the greatest potential impact of a HECM right now might be a debt consolidation. And basically, you’ve heard me say it before, I think cash flow, cash flow is most important in retirement. You could be a housing millionaire. Your house could be worth a million dollars and you could say you’re a millionaire. Legitimately, you are a millionaire. But if all that million dollars is sitting in equity in your home and you’re not tapping into it, any of it, What good does it do you unless you sell it? You either have to sell it or mortgage it. That’s the only way to tap into that money. And if you get a regular mortgage, you’re going to have to make payments on it. That hurts your cash flow. So with a reverse mortgage, you do not have to make payments. Now, back to the article, because he defines what a debt consolidation is. Debt consolidation is a financial strategy that combines multiple debts into a single loan. often with better terms like lower interest rates or lower payments. This can make debt management easier, reduce the risk of default, and ultimately save the borrower money. A HECM debt consolidation loan uses a reverse mortgage to leverage housing wealth to pay off existing mortgages, leans against the property installment debt such as car loans, and revolving consumer debt like credit cards. You can consolidate all these debts into a single loan without requiring any monthly principal or interest mortgage payment with a reverse mortgage. That’s a nice thing with the HECM, the FHA-insured reverse mortgage. You simply have to live in the home, pay all the property costs and related charges like taxes and insurance, and then maintain the home. The amount that is drawn plus interest is generally paid off when the home sells in the future. Now, he does make a note here because he says the HECM is not able to pay off consumer debts directly at closing. Rather, it provides the cash proceeds for those payoffs. Other products known as proprietary reverse mortgages may be able to pay all the debts directly when the loan funds. So let’s back up just a minute here. There’s a condition requirement of reverse mortgages, the HECM, the FHA-insured loan, where they basically, FHA puts restrictions on the amount of money you can pull out in the first 12 months of the loan. If you own the home free and clear, and let’s say you could take out $200,000. Let’s say we can loan you $200,000 on the house. FHA says you can’t take all $200,000 in one big lump sum. You can only take 60% of that $200,000 that we can make available to you in the first 12 months of the loan. The other 40% is still available to you, but you have to wait a year to get it. Now, on the positive side, that money is sitting in a line of credit that actually grows over time. So you’ll have more than that 40% available to you a year from now. Because it’s grown over the course of the year. So keep that in mind, which is a good thing. But the downside with that is, let’s say you need all $200,000 to get totally out from under all the debt you have. Well, you can only take $120,000 in the first year. That’s the maximum you can take. If you owe a mortgage on the home, let’s say your mortgage is $150,000. Well, then we’ll loan you enough to pay off your mortgage plus 10% of the amount of money we can loan you. So that would be, in this case, if we could loan you $200,000 total, that would be another $20,000 that you could take in the first year. I’m sorry to get into the weeds here, but I want to explain. There are restrictions on the amount of money you can take in the first 12 months of the loan with a HECM. With a proprietary reverse mortgage, there is no limit. 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. Or you can visit me online at reversemortgageradio.net. Next week, the entire podcast for this show will be up on my website at reversemortgageradio.net. Or simply give me a call. I’ll answer whatever questions you have. Okay. So with a proprietary reverse mortgage, they allow you to pull all the money out in one lump sum. There’s no restriction. They call it an initial disbursement limit or restriction on there. So you’re not limited on the amount of money you could take. If we can loan you $200,000, you could take all $200,000 at closing with a proprietary reverse mortgage. That’s a non- FHA-insured loan. It’s just as good. There’s just pros and cons to both. I think about three or four months ago, I compared the two different ones, a HECM to a proprietary loan, to just show you the differences. But call me and I can talk to you about the differences as well. So be aware of that. Now, He talks too about here, he says, during the federal stimulus response to COVID-19, consumer debt increased and personal saving rates increased. However, that was temporary. because he has a chart on his website. This is an article from Dan Holquist at understandingreverse.com. He shows the amount of consumer debt compared to the amount of savings. They’re going in opposite directions, and the consumer debt’s going up and savings are going down, as you probably imagine. He says the bad news is that consumers are taking on too much debt and not saving enough. Over the last 10 years, consumer revolving debt has increased by over 77%, while personal savings rate has decreased by over 44%. The good news for older homeowners is that home values have appreciated an average of 106% over the last 10 years. Now, he takes a national average, so… I don’t know what it’s been the last 10 years in Colorado, but that’s an interesting thing there. He talks about different concerns and the Dave Ramseys of the world that think all debt is bad. Again, it’s cash flow. Be aware of cash flow. That’s what you want with this. And with a regular debt consolidation loan, you’re adding debt. So it’s not the best type of thing. So he says here, traditional forward debt consolidations loan may not work in today’s higher interest rate environment. It might be too risky to double your mortgage rate to pay off revolving debt, such as credit cards, even if the weighted average interest rate, or what they call blended rate, decreases. This might not make sense for following reasons. And he says, it converts unsecured debt into secured debt. your home that you have to make payments on. It increases your monthly mortgage payment, even though your overall debt payments might go down, it increases your overall mortgage payment. In non-payment of your mortgage, guess what’s going to happen then? It’s called foreclosure. Homeowners who implement a HECM debt consolidation strategy, though, are thrilled to have a mortgage without a mortgage bill. You still have to pay your taxes and insurance, of course, but no principal and interest. If however, though, let’s say you’re concerned about the interest accrual on the mortgage statement, you can make optional payments whenever you wish in coordination with your tax planning strategy or whatever you want, okay? So the HECM product offers advantages in that voluntary payments not only lower your loan balance, but then you’ve still got that money that you pay into it available in a line of credit for future use. It almost is like a savings account In your home, when you make payments on your existing reverse mortgage, you pay down your loan balance or you keep it the same. Even if your loan balance goes up, let’s say you’re charged $1,000 in interest and you pay $500. Well, that means that’s $500 less you’re going to be charged interest on next month, but also that $500 gets moved over to a line of credit and you can tap into it again if you need it. It’s not money sunk into where you’d have to refinance to get it, like if you pay down your traditional forward mortgage. So that’s some of the benefits of doing a reverse mortgage debt consolidation is that using that money to pay off debt, just it makes sense in a cash flow perspective. I’m helping some people right now in that exact situation where we’re paying off a mortgage, a home equity line of credit that they have that’s doubled in payments over the last year and a half. And then also, we’re paying off some other debt for them as well. And then they’re going to have more money available to them a year from now. So it just makes so much sense for people. I would do that in a minute. I would do it for my parents. I’d do it for my grandparents. Anybody who I care about that I want to live a more comfortable lifestyle, I would do that for. And in fact, I am going to do a reverse mortgage on my house when I have the opportunity. I’m not 62 yet, and I’m not in a house that I want to stay in yet. If you are in a house you want to stay in and you’ve got a lot of equity in it and you have questions about reverse mortgages, please call me. I’d love to talk with you. I can answer whatever questions you have. My number is 303-467-7821. My name is Bruce Simmons. I work for a local mortgage banker here in Denver called American Liberty Mortgage. And I’ve been there with these folks almost 13 years now, since 2011. And it’s a great company to work for. It’s a great company to do business with. You can reach me directly at 303-467-7821 or visit me online at reversemortgageradio.net. And remember, in the upper right-hand corner, you can get a free reverse mortgage quote. I’m not going to gather your information and then call you back a day later or whatever with a quote you can see the numbers as soon as you give us the information we need which is not your social security number it’s just the value of your home your dates of birth and things of that nature how much you owe on the house i look forward to talking with you i hope you have a fantastic day thank you for joining me today