Reverse mortgages can seem daunting, but Bruce Simmons is here to provide clarity. In this episode, Bruce delves into the National Reverse Mortgage Lenders Association’s key questions, which are crucial for anyone contemplating a reverse mortgage. Learn about the importance of setting financial goals, understanding borrower responsibilities, and considering other income strategies. This comprehensive discussion aims to empower you with accurate information to make informed decisions about your financial future.
00:00:01 Introduction and Overview of Reverse Mortgages
Good morning, good afternoon, or good evening, whenever you’re listening to me is perfectly fine with me. My name is Bruce Simmons, and thank you very much for listening to Reverse Mortgage Radio and joining me today. Hope you’re having a fantastic day and staying cool on this summer weekend. Today, we’re going to be dropping some knowledge on you about reverse mortgages, because what we’re going to be talking about are seven things Considerations, seven questions you should be asking yourself if you’re considering a reverse mortgage. These come from the National Reverse Mortgage Lenders Association. And it’s a handout that I actually give to everybody who’s considering a reverse mortgage. When we meet, I give it to you as part of your information package. A lot of people gloss over it, and frankly, it’s because I don’t spend a lot of time delving into it and explaining it when we meet, because we’re going over a lot of other stuff. But today, we’re going to dig into these questions And on a fairly good level that I hope that you do consider them because they’re important. We’re going to talk about how do you intend to use your reverse mortgage proceeds? What’s your plan for the money you’re going to get from the reverse mortgage? Do you fully understand your obligations as a borrower under the reverse mortgage? That’s number two. Number three, if you’re married, is your spouse going to be a co-borrower on the loan? They don’t necessarily have to be, and well, if they’re over 62, they do, but we’ll dig into that here in a minute. Number four, how will your reverse mortgage loan be repaid? A lot of people don’t consider that. Number five, do you receive assistance under any other government programs that are based on your current income? Number six, how long do you and your spouse plan to remain in the home? I talked to everybody about that pretty much. And number seven, have you considered other strategies to supplement your retirement income? Those are the seven questions we’re going to dig into today. If you have any questions about reverse mortgages, please feel free to call me at any time. My direct line is 303-467-7821. 303-467-7821. My name is Bruce Simmons, and I’m the reverse mortgage manager for American Liberty Mortgage here in Denver, Colorado. I’ve been with this company now since 2011. What’s that? I’m going on a… It’s coming up on 13 years here pretty soon. So yeah, a long time. I like to stay with the same company a long time. I’ve been in the business for 21 years. So I kind of have seen a lot, although it’s amazing. I still see things that I haven’t seen in a long time. And even when I come across something I may have come across 10 years ago, well, guess what? The rules have changed. And I may not understand how to… proceed. So sometimes I have to reach out to people and say, hey, here’s a unique situation. What do we do in this? And I’ve done that before, and I’m not ashamed to admit that I don’t have all the answers because sometimes the answers change too. Or I’m getting old, so sometimes I don’t remember them. But you can reach out to me with any questions. If I don’t know the answer, I will Reach out to somebody to get the answer for you. In fact, I just did that this weekend because somebody called. They’ve got an IRS tax lien. And I was trying to remember because in the back of my mind, it’s tickling. I don’t think we could pay that off. And the loan officer who referred me, this customer, says, hey, we have to pay it off. We don’t necessarily have to pay it off, but you could still have… a tax lien from the IRS, not a lien, where you owe money to the IRS, but you’re making payments. You have to have made at least three payments on time and you cannot prepay those. And I knew that, but I forgot in order for us to be able to pay it off with reverse mortgage proceeds, the IRS has to have had a lien on your property because the way FHA loans are, the way FHA reverse mortgages are structured, in order for us to pay off a loan directly or a lien on any bill directly, it has to be a lien on your home. In other words, let’s say you’ve got $50,000 in credit card bills that you want to pay off with a reverse mortgage. Normally, for most debt consolidation loans, the lender just makes a check out to UN Visa or UN MasterCard or UN JC Penney or whoever, and then you endorse that check and mail it in. That cannot happen with a reverse mortgage. I don’t know. I didn’t set the rules. Don’t blame me. I don’t know why that’s the case, but it’s the case. We’re only allowed to pay off liens on your property. So if you have a first lien, a second lien on your home, and any mortgage is a lien. So you’ve got your first mortgage. Let’s say you have a home equity line of credit. They have a lien on your home. So we could pay those off. If you have an IRS bill that does not have a tax lien on your home, We cannot use reverse mortgage proceeds to pay it off. And I forgot that. So things like this are where I have to reach out to other people. But I don’t have a problem with that. I’m not ashamed to say that I don’t know it all. I’ve come across a lot of unique situations, but sometimes the rules change on us as well. And you can also visit me online, by the way, too. feel free to visit my website at ReverseMortgageRadio.net. ReverseMortgageRadio.net. I’m in the process, hopefully by the end of next week, I’ll have a quote tool on there so you can go on there and get a completely free quote. Not one of these things where you have to put in all this information. You do have to put in some information, but it’s not like, okay, now somebody’s going to get back to you and you get calls from 14 different companies all over the country wanting to sell you a reverse mortgage. No, my website will give you the numbers right then and there. So you, yes, you do qualify or no, you don’t qualify and how much you qualify for. The other thing you’re able to do is if you wanted to proceed and send me more information, you could do that too. You can complete. It’s not technically an application, but it’s kind of like an application. It’ll ask you more details and then I can get back to you and we can have a conversation to see, yeah, does a reverse mortgage make sense or not? But at that time, I’ve got a lot more information so I could. be more prepared when we talk. And I’m really excited about this new tool. The other thing I’m going to have, too, is an uploadable button on my website too, where you can upload documents. So if you wanted to send me your social security statement or your bank statement, things like that, securely, 100% securely, you can do that through my website. And I’m also going to have those links on my email as well. So I’m advancing technologically wise into the 21st century with my website. But you can also download my consumer guide on there, which is about 30 pages or 40 pages of a lot of good information about reverse mortgages. I probably go into too much detail, but that’s what I tend to do sometimes. But it’s good information. It’ll give you the ABCs all the way up to the DZs and XYZs of reverse mortgages. And it’s a great tool for you to be able to become knowledgeable. That’s my goal. I want to make sure that you have the accurate information. stress accurate information so you can make an informed decision about reverse mortgages. There’s a lot of people who want to give you information about reverse mortgages, like your neighbor who’s a retired electrician or your attorney who doesn’t know anything about reverse mortgages. They’re willing to give you information about reverse mortgages, but they don’t know anything about it. Or they think they do. That’s even worse. When somebody thinks they know what it’s about. Oh, well, my brother’s best friend’s sister’s… brother-in-law’s mother got foreclosed on because she had a reverse mortgage. No, she didn’t. I’m sure that’s not the case, okay? That’s like that old telephone game, you know, where you talk on a telephone and somebody says a story and then you pass it on and somebody else passes it on and it goes down four, five, six, eight, ten people. And the story’s completely different by the end of it. That’s what happens. Somebody hears something about reverse mortgages and they filter it through their biases that they already possess because out in the ether, it’s just out in the ether, reverse mortgages are bad, right? Well, I’m here to tell you that is false. I’m trying to flood the ether with accurate information, okay? And I’m very, very happy that you’re here with me today. So let’s jump into this. Let’s jump into the questions. Number one question, how do you intend to use the reverse mortgage loan proceeds? Now, this is important because I stress big time with people, do not, do not take out more money than you think you’ll need in the next 30 days or so from reverse mortgages. If you own your home free and clear, And you say, yeah, I want to pull out as much money as I can. Why? I just, I want to. I want to put it in my bank. Well, that makes sense. zero cents. You’re going to get paid half a percent interest rate, if that, on the money, and you’re going to pay taxes on it, probably, if you’re in a tax bracket, if you have to file taxes. And whereas you’re being charged seven, seven and a half, eight percent interest on that money. It makes no sense. Do not take out more money than you need. There are I don’t want to say, well, I’ll just say it. The scumbag loan officers that don’t know what they’re doing, they get paid on the amount of money based on the amount of money you draw up front from your reverse mortgage. And if you own your home free and clear and you qualify to get $120,000 at closing, but you don’t need $120,000 at closing, don’t take it. If you just want to set up a line of credit or a monthly payment, you can do that. You don’t have to take all that money out up front. Do not let anybody talk you into it. And if you feel that they are, call me. My number is 303-467-7821. And my name is Bruce Simmons. I will not try to talk you into taking more money than you need. Also, do a budget. A lot of times, People don’t understand the different ways. Because you can take money out from a reverse mortgage as a lump sum, like we just mentioned. You can also take it out as a line of credit. So it’s just available whenever you need it. You’re not charged interest on it until you take that money out of the line of credit. Basically, we set it aside for you. And the line of credit has a ton of benefits where that line of credit will grow over time. It can never be closed out as long as you… meet the obligations of a reverse mortgage, which we’re going to talk about here in just a few minutes. But there’s a lot of benefits of that. You can also receive a monthly payment. And you can receive a monthly payment a couple of ways. You can set up what’s called a tenure payment. That’s where you draw all the money out. Excuse me. That’s where we can set it up to where you’re receiving money as long as you live in the home, guaranteed 100%. If you’re 65 years old and you lived in the home until you’re 105, you’re still going to get that same payment every single month, guaranteed by FHA. If you need more money, let’s say that if you set that up and it’s guaranteeing you $950 a month, that’s what you could get guaranteed as long as you live in your home. But you need $2,000 a month. Well, we could do that for you, but it’s not going to be guaranteed as long as you live in your home. Maybe it’s only going to be guaranteed for 12 years and eight and a half months or eight months. Maybe it’ll be guaranteed for 15 years, whatever. That’s called a term payment. And another way to do it is what’s called a modified term or tenure. That’s where you combine a line of credit with a monthly payment. And actually, you can also take a lump sum. A lot of people do a combination. So let’s say you take out $50,000 to pay off an existing HELOC on your home. You need another $10,000 for home improvement. But then you also want to receive an extra $750 every month. And so we set that up. But yet there’s still, say, $30,000 left over that you can leave in a line of credit. And people will set that aside for emergencies, when their furnace blows up or their car needs repairs, whatever the case may be. This way, it won’t ruin the budget if you’re living on a budget. And that takes me back to my original point. A lot of people will say they want a monthly payment. And I’ll say, well, have you done a budget? They’re like, no, I haven’t. So what we do is what I recommend everybody do is figure out your property tax, how much your property taxes and insurance are, how much your utilities are, your cable, all that stuff, and figure out, okay, if I did not have to pay the principal and interest portion of my mortgage and I’ve got to pay $1,200 a month for all my bills. when my income’s net $2,000. So that leaves me a little bit of a cushion. That’s counting food, utilities, entertainment, cable, all that stuff. So if that all equals $1,250 and you’re receiving $2,000 a month, there’s no reason for you really to pull an extra $500 a month out because then you’re taking money out that you don’t really need. And you’re going to be charged interest on that money when you don’t even need to pull it out. It doesn’t do you any good. Now, sometimes people will, even though they have this money set aside in the line of credit, they like having money in the bank. And I say, that’s fine. If you want to pull out two, four, five, even $10,000 extra just to put in the bank because you know, I’d like to have that security. And I totally understand that. Because then you know it’s there. You can go to the bank. You can get it. Put your hands on it. It’s there. And you don’t have to wait to get the money from the line of credit. Now, there’s not a long wait. It’s a five business day wait period. Well, up to five business days the lender has after they receive your request. They’ll transfer the money to your bank from the line of credit. So if you set up a monthly payment, we’ll deposit that payment every month into your bank account on the first business day of every month. So you want to be aware of the different ways that you can draw the money out and have a plan for it. That’s what that part really boils down to. You have to understand your obligations as a borrower under the reverse mortgage loan. That’s what I started to touch on here. Let’s delve into it because in order to keep the reverse mortgage in place, you have to live there as your primary residence. You have to keep your name on title. You have to pay the property taxes, pay the homeowner’s insurance, and maintain the home. If you don’t do those things, the loan could be called due and you could be foreclosed upon. You could lose the home if you don’t do that. So you have to make sure you’re okay with that. Now there is the option of having the lender pay your taxes and insurance for you. That’s called the life expectancy set aside. What it does is we lower the amount of money that’s available to you and we take a certain amount of money and set it aside. Depending upon your age, if you’re only in your early 60s, we might have to set aside $60,000, $70,000, $80,000 or more to cover your taxes and insurance for the next 18 or 20 years. And then we’ll pay the taxes and insurance for you though. We use loan proceeds to do it. You’re only charged interest on that money we set aside once the taxes are paid or once the insurance is paid. So that’ll be like an expense on your statement. You’ll see that money came out of this escrow account to pay your taxes and insurance for you. But those are the requirements that you have to be aware of in order to keep the loan in place. That’s why you need to be aware of all these things, okay? Because if you don’t do these things, you could lose the home. The loan could be called due at least, and then you might have to refinance or sell the home, which isn’t what you want to do, okay? Now, number three, if you’re married, will your spouse be a co-borrower on your loan? 99.9% of the time that answer is yes if you’re both over 62. If you’re not, let’s say you’re 65 and your spouse is 57. I always tell people, I’m sure there’s a lot of benefits to having a younger spouse, but a reverse mortgage ain’t one of them. Because what we do is now we’re going to base the amount of money we can loan on your spouse’s, the younger spouse’s date of birth. The younger you are, the less money we loan on a reverse mortgage. The reason for that is, is that that non-borrowing spouse, even though he or she is not part of the loan, he or she has the right to stay in the house if something happens to you, the borrower, because technically the loan comes due when the last borrower permanently leaves the home. or passes away or whatever. So if you have to move to assisted living, say 20 years down the road, and now it doesn’t matter your spouse’s age, because your spouse was a non-borrowing spouse when you started the loan, now your spouse can also stay in the home. But because that spouse is younger than you, we figure that spouse is going to be staying in the home longer than you over a longer time period. So we’re going to reduce the amount of money that’s available to you to compensate for that. And the loan won’t be called due. However, keep in mind, if there is a non-borrowing spouse, that spouse will not have access to any money at all. If you have a line of credit available to you and you pass away, your spouse does not have access to that unless he or she is a borrower. They also don’t have access to any money that’s set aside to pay your taxes and insurance. So if we set aside $60,000 and you’ve only used 30 of it, that other 30 just, it’s still sitting as part of the equity in the home. It’s not like the lender takes it, but your spouse does not have access to it unless their spouse is also a borrower. All right. And then we can go into a lot of detail on non-borrowing spouses, but I don’t want to do that today. Number four, how will the reverse mortgage loan be repaid? The loan comes due when the last borrower permanently leaves the home. Or in this case, if there’s a non-borrowing spouse, then that non-borrowing spouse can also stay in the home. Your heirs will inherit the home. Whoever you name on title will inherit the home if you pass away. Now you could sell it at any time. A lot of times that’s one of the misconceptions. People think they’re stuck in the house. Well, I can’t sell the house because I have a reverse mortgage on it. I’ve got all this equity, but I can’t tap it. Well, yeah, you can. You can sell it at any time. There is no prepayment penalty. You just pay off the amount you borrowed plus the accrued interest and mortgage insurance over the years. So if you took out $100,000 10 years ago, you might have to pay back $250,000 now. Or maybe it’s 180, depending on interest rates and how you use it. I don’t know. So keep that in mind. But if your house is worth $500,000 and there’s only $200,000 that’s owed on it, your heirs inherit a $500,000 home, they’ve got the option. They can either sell the house or they could refinance it if they want to keep it. Whatever equity is left in the home is going to go to them. If there is no equity in the home, let’s say the house is worth 500 and you owe 600 on the house, then the heirs are not responsible for any amount owed beyond the value of the home. They can sign the house over to the lender and walk away from it, or they could still keep the house. They just pay 95% of whatever the value is. The value, not the amount owed, but the value of the home is. And then the lender files a claim with a mortgage insurance company to pay the difference. But be aware that you can pay it off anytime you like. Now, if you receive assistance under any government programs that are based on your current income, that could be a problem if you have a reverse mortgage, especially if you take a lot of money. Because if you’re receiving supplemental security income or Medicaid, those are means tested programs. And while the money you get from a reverse mortgage is not taxed, it’s not income, it’s loan proceeds. But when you deposit that money in your bank, ding, ding, ding, bells go off in the Medicaid department or whatever. And they say, oh, this person has too much money to qualify. We’re going to disqualify them, whatever they do. I recommend if you’re on Medicaid, I can still do loans for people. I’ve done them. But we have to be very careful about the way you take the money out, and I recommend it, highly recommend that you speak to a Medicaid attorney about it. And I’d be happy to work with you in that regard as well. Number six, how long do you and your spouse plan to remain in the home? Now remember this, I’m just gonna read this, because it makes so much sense. Reverse mortgages, like many financial products, have costs associated with them, including some that need to be paid up front when the reverse mortgage is obtained. Now, this is not cash out of your pocket. It’s all rolled into the loan, but it still is money out of the equity of your home. Among other things, that means that if you or your spouse are not likely to continue to live in your home for more than a number of years after the reverse mortgage is obtained, you might want to take a look at those costs and consider them very carefully because it may not make sense for you if you’re going to move a year or two down the road. Now, I’ve done loans for people who moved A realtor specifically, she bought a home with a reverse mortgage for purchase, fixed it up, and sold it like a year and a half later. She did that again on another home and again on a third home. And then finally, she moved into her fourth home with a reverse for purchase. That was her fourth reverse for purchase, and she stayed in that one. And she did that over the span of about six years. It can be done, but you’ve got to be aware of how you do it. I did another loan for a lady who had Lou Gehrig’s disease. She knew she was not going to stay in there much more than a year tops. But to her, it made emotional sense. It didn’t make financial sense. Any financial advisor would have said, you’re crazy for doing this. She was not going to leave the home. She was not going to move into assisted living. And she needed the money from the reverse mortgage for her in-home care. That made perfect emotional sense for her specific situation. The other thing, number seven now, and by the way, too, back to number six, most of the time, for most people, it doesn’t make sense. I mean, there’s always the one-off here and there. But for most people, if you’re not living there four or five years, it just doesn’t make sense. Now, there’s no prepayment penalty. So if something happens and you have to leave after a year, so be it. But you’re not going to have to pay any penalty, but you’re not going to get a refund of any of those upfront costs. So have you also, number seven is if you’ve considered other strategies to supplement your income. And this is something that the counseling should talk to you about. When you’re talking to a reverse mortgage counselor, they should do something called a benefits checkup, which is a tool for identifying services like housing assistance, tax deferral programs, home repair grants, or food stamps, things like that, social services. I guess food stamps are now called SNAP. We don’t want to sound bad to anybody. But basically, the other thing too you want to consider is there’s other ways to tap equity. it might make more sense right now to do a home equity line of credit. I’m talking with a loan officer who’s going to be doing a reverse mortgage for his mom. Through me, it’s a loan officer within our company. And his mom needs a lot of money up front to fix up her house. So I talked to him and he said, yeah, it’s probably going to add $100,000 or more in value to her home. And right now she needs all this extra work on her home and He was concerned about the appraisal because FHA appraisals could be a little more stringent or a little more strict than a conventional loan. So she’s getting a HELOC, a home equity line of credit, to remodel her kitchen, get hardwood flooring, remodel a bathroom, paint the house, do all this stuff. So then now… What we’re going to do is that’s going to take like a year to do because there’s a time period. There’s what’s called seasoning issue with loans. If you get money out from a refinance or whatever, you have to wait a year before you can do a reverse mortgage. But in their case, it’s going to take her a year to do it anyway. So she’s going to get this money, fix up the home. Then now it’s going to be at a higher value, and we’re going to be able to do a reverse mortgage payoff. her first loan and the HELOC and get her additional money because the value is higher. So you just don’t know. You need to evaluate all these different options. And that’s where talking to me about your specific situation, because these loans are very personalized. I mean, we can customize them to fit your need if you have enough equity. Now, if you were just barely enough to cover your mortgage, that’s where the money’s going to go, and there’s not a lot of flexibility there. But whatever it is, feel free to call me. I’d love to talk with you about your specific situation. My name is Bruce Simmons. I’m the reverse mortgage manager for American Liberty Mortgage here in Denver, and you can reach me directly at 303-467-7821. 303-467-7821. That’s my direct line. It goes to me. If you get my voicemail, please leave me a message. I will call you back. You can also visit me online at reversemortgageradio.net. Reversemortgageradio.net. Thanks so much for joining me today. I hope you have a fantastic day.
