In this episode of Reverse Mortgage Radio, Bruce Simmons offers a thorough exploration of reverse mortgages. Whether you’re familiar with the concept or newly curious, Bruce breaks down the key components, provides clarity on common misconceptions, and shares personal anecdotes that highlight the real-life impact of such financial decisions. Tap into this wellspring of knowledge to see if a reverse mortgage could be the right fit for your life stage and financial goals.
Hello and welcome to Reverse Mortgage Radio. Very glad you could join me for another episode today. Hopefully you’ve got a plan to stay cool today and maybe it includes staying inside and listening to Reverse Mortgage Radio. I’m your host, Bruce Simmons, and I’m very glad you’re here though. Either way, no matter the reason, whether it’s just to get out of the heat or you’re actually interested in the show. Either way, feel free to always pick up the phone and give me a call. I’d love to talk with you. You can reach me directly at 303-467-7821. 303-467-7821. That’s my direct line. You can also visit me online at ReverseMortgageRadio.net. ReverseMortgageRadio.net. And you can download my free consumer guide online as well. But today, what we’re going to be talking about are keys to consider. So, keys to consider when you’re investigating reverse mortgages. I’ve come up with the top three considerations, if you will, and I’m going to break them down for you. Each consideration I’m going to break down into parts. So this is going to be a show that’s jam-packed with information. But before we can get there, as you know if you’re an experienced listener to this show, that I do have to Help out, if you will, the new listeners and explain to them what a reverse mortgage is and a little bit about how it works before we can really dig into the meat of the show. I’m talking about the meat because I just this week picked up like a half a cow. We bought a cow for the first time or half a cow is 225 pounds of meat or something like that. And jam-packed in our freezer. We’re hoping our freezer is not too full so it still has circulation. And we’re worried about, oh, no, if the power goes out, there goes $2,000 down the drain, right? But either way, that’s why I’m thinking meat on the mind here. Call me a meathead like old Archie Bunker used to call his son-in-law, for those of you that like that show. But a reverse mortgage, in a nutshell, is an FHA-insured loan that’s specifically designed for people that are 62 and over. Now, there are non-FHA-insured reverse mortgages that are down to age 55, but that’s a different topic. And I haven’t talked about that in a while. Maybe in the next few shows, I’ll bring up that topic and we can compare a FHA to a non-FHA loan. But for the topic today, we’re talking FHA reverse mortgage. It’s an insured loan. It’s not. a loan from the government. It’s a loan that’s insured by the government. And it allows you to convert a portion of the value of your home into money that you can then spend. Now, we do not make loans on the equity. For example, if you have an $800,000 home and you’ve got $400,000 in equity, that means you owe $400,000 on your home. Well, unless you’re close to, you know, well into your mid or late 70s, we’re not going to be able to loan you enough to pay off your existing mortgage. So any existing mortgage has to be paid off before we can add any money to you. A lot of people just do a reverse mortgage to eliminate their current mortgage payment. The house is still yours though. Keep in mind, the bank does not take ownership of the house. It’s still yours. you have to continue to pay your own property taxes and insurance. Sometimes I get people calling me and they say, yeah, I’ve got a $1,400 mortgage payment and I can’t wait to get rid of that payment. And I say, well, how much are your taxes and insurance? They say, well, I think it’s about $400. So I say, you’re not saving yourself $1,400. You’re saving yourself $1,000 because you’re still responsible to pay your own property taxes and homeowners insurance. You have to maintain the home as well as live there as your primary residence and keep your name on title. However, as long as you do those four things or five things, which you’re going to do anyway, right? If you owned your home free and clear, you’d be doing the same things. But as long as you do those, no payment is required with a reverse mortgage. You never, ever, ever have to make a mortgage payment on this loan. But you’re still charged interest every month. Actually, you’re charged interest and mortgage insurance on a monthly basis. And that interest and mortgage insurance gets added to the loan balance every month. You’re going to get a statement in the mail or you’re going to look at your statement online. And you’re going to see your loan balance getting bigger and bigger and bigger. And you have to be okay with that. If you’re not okay with that, then you should not do the reverse mortgage. Because the whole goal of this loan is to relieve financial stress, not create it. If looking at that statement is going to create financial stress for you, or any stress for that matter, don’t do it. It’s better not to do it. You’re better off selling your house and renting or doing something different. Because I don’t want to do the loan for you if you’re going to be upset with me a year or two down the road. And I take great care to make sure you understand how that amortization process works. I show you numbers, how the loan balance gets bigger over time. And you’ve got to keep that in mind. But for those of you that are okay with that, now remember, odds are the value of your home is going to go up too. Okay. I’m kind of interrupting myself here. I apologize. But If your loan value is increasing, let’s say by 4%, let’s say you have a $500,000 home and your property value goes up by 4%, that means you’ve gained $20,000 in interest. Well, if you take out $100,000 and you’re being charged, let’s say a total of 8%, Well, now you’ve lost $8,000 in that respect, okay? So you’ve lost 8,000, but you’ve gained 20. The net result is you still gained $12,000 in equity. I hate it when people say you’re losing equity with a reverse mortgage, because most of the time you’re not. You’re just not gaining as much as you would have if you didn’t have the reverse mortgage. However, obviously you’re saving money in your pocket by not making that mortgage payment as well. You got to keep all these different factors in mind when you’re looking at reverse mortgages. And it’s a great loan program as long as you understand what you’re doing. And that’s part of the reason for the show. Well, that’s the main reason for the show. I want you to understand how this loan works. The more educated you are when you call me, the easier my job is when I’m explaining things to you. I don’t have to go over all the details. We could talk about your specific situation in a lot of detail, but the broad picture you have already in your mind of how it works. So let’s jump right into this, okay? So the number one consideration with reverse mortgages, number one, is understanding the cost of the loan, not just the closing cost. The ongoing cost, because there’s no such thing as a free lunch. You’re not getting free money. This is not a gift from the government. It’s not a gift from the bank. You’re being charged interest for this loan. You’re also charged closing costs going into it as well. So I break the closing costs down into three categories. And then we’re going to talk about the ongoing costs also. And about probably… what, a month, two months ago, I went into closing costs in great detail. For the whole show, I talked about nothing but closing costs. You can go to my website at reversemortgageradio.net. You can download that show. Just scroll through. I think it’s four, five, six episodes ago. And all the episodes are labeled pretty clearly in my website. And you can find that show and listen to it if you want more details about the closing costs. And when you call me, I will break down the closing costs line by line for you. I’ll show you in writing what things cost, okay? I don’t hide anything. There’s nothing under the table. So let’s talk about mortgage insurance. That’s a biggie. That’s the big thing that causes people to say, oh, reverse mortgages are expensive. Well, Compared to what? You can’t really compare a reverse mortgage to any other loan that’s out there or any other financial product for that matter. Because there is no such loan that you can get that you never have to repay as long as you live in the home. The loan only comes due when you permanently leave the home. And then your heirs inherit it. The bank does not take the house when you die. The heirs inherit it and they’ve got six months to either sell the home or refinance it. If there’s equity in the house, then they keep whatever equity is left. If there’s no equity in the house, they can just sign it over to the lender and walk away. Or they can pay 95% of whatever the value is at that time, that current value. So if today your home value is $600,000, 20 years from now, your home value has dropped to $500,000, but your loan balance has continued to grow. and you owe $600,000 on the house now, well, you’re $100,000 upside down on the house. And it doesn’t matter for you as long as you’re living in the home and paying your taxes and insurance and maintaining it and all that stuff. But then your heirs inherit the home when you pass away and they’re like, oh no, we have to pay $100,000 to clear this loan. No, they don’t. They do not. And if they wanted to keep the loan, the house, excuse me, they could go get a new loan for 95% of whatever the value is at the time. So they go get a new loan based on a value of $500,000, even though $600,000 is owed on the loan. Anyways, there’s a lot of details to it. It’s simple, but that’s not the topic of the show. But the mortgage insurance is the reason that you can never leave a debt beyond the value of the home to your estate. your heirs are not going to be responsible for anything beyond the value of the home if that were to happen. Because the lender would file a claim with a mortgage insurance company. They get the mortgage insurance money, so they’re not losing any money. They’re not going to come after you, your estate, or your heirs for that loss because they didn’t lose anything. But everything has a cost. That initial mortgage insurance premium is 2%. of the value of the home up to a maximum value of $1,149,825. So let’s say you’ve got a $800,000 home. The initial mortgage insurance premium is going to cost $16,000, 2% of $800,000. You do not have to pay that out of your pocket. That’s rolled into the loan, but you have to be aware of it. The other fees include origination fee. The origination fee can range from zero to $6,000. It’s based on the value of the home and also to the loan officer. That’s one of the considerations you want to talk about when you’re talking with your loan officer about the loan. You want to say, well, how flexible are you on that origination fee? Can we lower it? You want to ask people that. The last category is all the other closing costs, appraisal, title insurance, credit report, flood certification, all these things that are standard in every mortgage loan you’ve ever done. And those costs are pretty standard. Most lenders cannot deduct those. Those are just third-party fees. that are pass-through fees, okay? Those, in Colorado, those fees will average, depending on the value of the home, or if you have acreage, then the appraisal cost is more, or if it’s a rural property, the appraisal cost could be higher. But typically, they’re gonna run you around $2,300 to $2,500 for all those costs, okay? Now, the ongoing cost of a reverse mortgage, or what we already talked about, the mortgage insurance premium, and the interest. Well, wait a minute, Bruce. You just told me I’m gonna have to shell out 2% of the value of the home for the initial mortgage insurance premium, and now you’re telling me there’s more? Yes. Number one, you’re not shelling it out, okay? You’re being charged that initial mortgage insurance premium. And on a monthly basis, you’re gonna see two charges on your loan every single month. One is interest. whatever the going rate is. And number two is mortgage insurance. Yeah, the government collects mortgage insurance on a monthly basis as well as the initial amount. It all 100% goes to FHA. It does not go to me, the lender, or anybody else. It goes to FHA and it all goes into a pool. It’s insurance money. It’s a half a percent of the loan balance per year. So let’s just say if your loan balance is $100,000, you’re going to be charged $500 roughly over the course of the year in mortgage insurance. Okay, so a little less than $50 a month. on that. But anyway, it’s not a flat fee because it compounds too. You have to be aware of that. All right, let’s jump into the second consideration. This is something a lot of people don’t really give a lot of thought to, but the impact on your heirs. Number one is the loan repayment because the loan becomes due when you move out of the home, sell it or pass away. Your heirs, if they want to get the equity that’s left, they’re going to either have to refinance the home or sell it or pay it off with other assets. Maybe you have a life insurance policy for $400,000 and $300,000 is owed on the reverse mortgage. Well, they could take that life insurance policy and pay off the $300,000 owed and now they have a free and clear home. Or they could sell the house. They have six months to either sell the house or refinance it. There are Very tight rules that HUD puts on lenders. They need to know within the first 30 days what the intention of your heirs is. Are they planning to sell the home? Are they going to keep it? Are they going to refinance it? What’s the deal? Are they waiting for insurance proceeds? Or are they trying to get a loan? However that may be, okay? So the lender needs constant communication. They need to be reassured. They’re like a big baby. They need to be reassured all the time that, yes, the heirs are working towards settling this loan. But remember, because you have this reverse mortgage and you’ve been not making payments on the loan all this time, that you’re going to have less equity. Odds are there’s going to be a fair amount of equity left because we don’t loan 70% or 80% of the value up front. we typically loan between 32 to 50% of the value. Now, if you’re in your 90s, you’re going to be able to get 60 or 65% of the value. But most people who get a reverse mortgage are in that mid 60s to mid 70s range. That’s probably the average person who gets a reverse mortgage. I’ve done loans for people that are just turning 62 and I’ve done reverse mortgages for a lady. I’ll never forget this little lady who was 99. She needed in-home care. She was sharp as a whip and she was able to sign all those documents all on her own. She signed 50 documents at the application and 50 documents at the closing. She did great. Sharp, sharp lady. Anyways, there’s, but we don’t loan 80 or 90% of the value. It’s only 30 to 50%. The younger you are, the less money we can loan. If you’re 62 years old, you’re going to get about 32 or 33% of the value. So if you have a million dollar home, that means we’re only going to loan about 320 or $330,000. Now, if you’re 85, then we can loan about 50% of the value of the home. Keep all that in mind. But as that loan balance gets larger and larger because you’re not making payments on it, your home value is going up as well, odds are. And the difference is your equity between the loan balance and the value of the home. That’s your equity. And as the value goes up, you have more equity. But as the loan goes up, you have a little less equity. Odds are they’re both going up. They just don’t go up at exactly the same pace. Keep in mind. Lastly, this is something that’s really important. Communication. It’s really important for you to discuss communication. the reverse mortgage with your family. I’ll tell you that right now, because I’ve done loans for people. I said, you know, it’s none of my kids’ business. They’re not involved in our finances at all. We’re not even going to tell them that we have this reverse mortgage. And that’s up to you. There’s no requirement that other people know. You don’t have to get your kids’ approval to do a reverse mortgage. But it’s a good idea. And there’s handouts that I can give you. What to do when the loan comes due, for example. Or other HUD handouts. Consideration, what is it? Something from the Consumer Finance Protection Bureau. Now that you have a reverse mortgage, these are the… your rights and responsibilities of a reverse mortgage. So it talks about having to pay your taxes and insurance and keeping your name on title and all that stuff. And how you also have rights as far as to be able to stay there peacefully is making sure that the, uh, the federal government guarantees you’re going to have money available to you. If you’re receiving money either in a line of credit or on a monthly basis from the reverse mortgage, that money is guaranteed to be available to you. But, uh, a lot of the families might be surprised, I should say, by the requirements for repaying the loan. So being clear and having clear communication with your family is very important. And if you’ve got an estate planning attorney, that helps too. It helps to get, get adult children involved from the beginning. I’ve gone to people’s homes and conducted family meetings with kids and grandkids and caregivers, everybody, 18 people in one house, I remember. And some people are joking about things and some people are dead serious that this is super important. We have to understand this, you know, in the, the jokester brothers making stupid jokes about whatever. So it’s funny seeing family dynamics. But I’ve done a lot of loans for a single lady that doesn’t have any family nearby at all. So it’s just, it depends on your situation, but I recommend getting your family involved if you can. By the way, if you just joined us, you are listening to Reverse Mortgage Radio. My name is Bruce Simmons. I’m the Reverse Mortgage Manager for American Liberty Mortgage here in Denver. We’ve been in business since 2003, which just coincidentally is the year that I began originating reverse mortgages. I’ve worked for this company since 2011. So 13 plus years or thereabouts. And it’s a fantastic company. We’re going to be here for a long, long time. We’re making it through this tough time right now, even still originating loans and still here answering your reverse mortgage questions. I’ve been in this business a long time and I’ve always, always had the same phone number. And you can reach me at 303-467-7821. 303-467-7821. That’s a landline that rings to an office that I have in my basement. I got that phone number in 1999. And I’ve kept that number for all these years, 25 years now. And I’m not getting rid of it. So you can always reach me at that number. I’ve got it forwarded to my cell phone most of the time. But you can also visit me online at reversemortgageradio.net. Check out the video testimonials that I have from actual customers. Read the Google reviews that I have on there. I’ve been doing this a long time and I really, really, really love what I do. I love helping people and I want to be there after the loan closes as well. If you have a question, I want to be able to answer it for you. Okay? So keep in mind, that it’s important to deal, if you’re gonna get a reverse mortgage, to work with somebody who you feel pretty confident is gonna be around for a while. All right, last but not least, we’re gonna talk about longevity and housing plans. We’ve already talked about understanding the cost of reverse mortgage, both upfront and ongoing costs, the impact on heirs, And now we’re going to talk about longevity and housing plans. So you want to consider your future housing plans. Is this a home that you plan to stay in for the foreseeable future? If so, then it makes more sense. If it’s a house you’re thinking you’re on half an acre lot and you’ve got a multi-level home that’s taken a ton of work and you’ve got bad knees, probably not a good idea to get a reverse mortgage on that home because of those upfront costs. You want to live in the home long enough to make those upfront costs worth it, okay? It doesn’t make sense to shell out all that money for the mortgage insurance so you have a A $600,000 home, you got $12,000 in mortgage insurance and maybe three or four or $5,000 in origination fees and another $2,500 in other costs. All that money adds up. And if you’re going to leave the home a year from now, it just doesn’t make sense most of the time. However, there’s always an exception. I did a loan for a lady who had Lou Gehrig’s disease. She was never going to leave that home alive. And she knew it. She needed money to pay for her care. And in her case, it didn’t matter how much the upfront costs were. It made emotional sense, even though it didn’t make financial sense in her mind, because she wanted to stay in her home and she wanted to die in her home. And that’s what she did. She kept that loan for nine months before she had passed away. Okay. But you want to look at the long-term suitability. Like I said, if you’ve got stairs, you could get a stair lift, and maybe that’s a good answer to it. If you’re in a great neighborhood where you’re near everything you like and you have great neighbors who can keep an eye on you and such. But your health and mobility are very important. So you want to be aware of that. Now, some people say, hey, these stairs keep me young. I run up and down them a dozen, two dozen, three dozen times a day. That’s my main source of exercise. Out shoveling snow is great for me. Well, that’s great at 65, but what about at 75 or 80? Now, that’s 10 or 15 years down the road, so maybe you’re not worried about it. you plan to leave at that time anyway, and then it makes sense, okay? But contingency plans. Do you have a contingency plan in case you need to move out unexpectedly? You have to understand the terms of the reverse mortgage and how it’ll affect your finances if you need to leave the home. FHA allows for you to be able to leave the home for up to 12 months without for medical reasons. So if you fell and broke a hip or you had a stroke and you’re recovering, you’re gone for six, eight, 10 months, but you’re planning to come back and you can come back, then great. That’s awesome. But if you cannot make it back home, I always tell family and borrowers, you should plan on selling the home as quickly as possible because that interest, remember, is being charged monthly. And it’s adding up. You want to tap into as much equity as possible so that you have money to care for yourself in your nursing home or your assisted living facility or even just help cover costs if you’re staying with family. If you sell your home and you can cash out $300,000 today or $250,000 a year from now, it might make more sense to sell it sooner and have that extra money And then you can help out your family who you’re staying with. So these are the considerations. Again, number one is the cost, both the upfront and the ongoing cost. The impact on your heirs, that there will be less equity than there would be if you did not have a reverse mortgage. But you’re not losing equity. You’re just not gaining as much as you would have otherwise. Keep that in mind, too. but you’re also pocketing that extra money. And so you say, well, maybe now I can give more money to my family while I’m living. You can buy your grandkids birthday presents, or you can help pay a college bill for a grandchild, or you can help your kids with a down payment, give them a gift of $20,000 or $50,000 for a down payment on a house. That’s called giving with a warm hand, instead of a cold hand when you’re deceased. That’s another way to look at it. You are helping your family now when they need it the most, instead of making them wait 10 years until you’re gone, and then they don’t get as much, or whatever the case may be. And then lastly, you want to be aware of the longevity in your housing plans. You don’t want to do this on a short-term basis. You want to have the long view when you’re looking into a reverse mortgage. So I really appreciate you joining me today. Hopefully your long view is to stay cool today and keep the temperature down. But I appreciate you listening and you can feel free to call me. I’d love to talk to you about your specific situation. My direct line is 303-467-7821. 303-467-7821. Or you can also visit me online at at reversemortgageradio.net, reversemortgageradio.net. Download my consumer guide there, and I’d love to help you learn about reverse mortgages and see if it’s right for you, because you need to be informed in order to make an informed decision. And that’s my goal with this show, is to help you gather the information so you can make an educated, informed decision. Thank you so much for joining me today. I hope you have a fantastic day.
