Reverse Mortgage Radio Show 11-23-17
On this special Thanksgiving Day show, Bruce will discuss the five reason why someone might NOT want to get a reverse mortgage. He also throws in a couple of corny turkey day jokes as well.
5 Reasons Not To Get A Reverse Mortgage
KLZ's Ask the Experts proudly introduces Reverse Mortgage Radio hosted by reverse mortgage specialist Bruce Simmons. For over 14 years, Bruce has delivered home owners across the front range from costly monthly mortgage payments, relieving financial stress while providing additional income for retirement. Bruce wants you to learn the truth about reverse mortgages so you can make an informed decision for your retirement years. This is Reverse Mortgage Radio.
Bruce Simmons: Happy Thanksgiving, and thank you for joining me today. My name is Bruce Simmons and I'm the host of Reverse Mortgage Radio. I really appreciate you listening in today. I was thinking about Thanksgiving before and how for me anyways it's easy to be thankful. I've got a fantastic job that I love. I help people and really enjoy it, and I come in to this radio station in an air-conditioned or heated room whichever depending upon the season. I work with a fantastic producer, Marie and I'm thankful for everything. I'm very, very thankful I live in this country. I can't imagine living in any other country and not having the freedoms that we do here. That blows me away, but I was in San Francisco last week and one of the things we do, and it was nice. I flew out Saturday for the reverse mortgage lenders conference. It's called the National Reverse Mortgage Lenders Association. Sounds like thrilling stuff, doesn't it?
It actually was very interesting but I flew out Saturday, had dinner with my sister. She lives in San Francisco and then Sunday morning about 70 or 80 people I guess gathered at the Curry Senior Center in San Francisco to serve a meal and to give a meal to go, basically a bag of food with blanket in it to all these seniors who were there and I knew a number of them were homeless and I just can't help thinking what in their lives led them to this point. These people in their 60s, 70s and 80s who are dependent upon others, and I just have to say a silent prayer for them or think about how grateful that I am that I was able to help them, but the fact that they are in that situation, I just feel for them. We got there just before they opened up and the line was wrapped around the block to get in to have this free meal for these people.
It was a good experience for me helping these people out. They were all very thankful. It's amazing when people have little bit and somebody helps them how thankful they are, how grateful they are for it. But still there's a lot of people in this country, this great country that we live in, that don't have enough or they feel they don't have anything to be thankful for. I believe that everybody has something to be thankful for, and I know that you probably feel the same way, but I just wanted to kind of say that and then it was really good last week because after the conference I was able to go up to Northern California, a little further north, north of Santa Rosa through all those fires and everything where all the burned out land was. I didn't see a whole lot of it on highway 101 there, but still I know there's a lot of people who are without homes right now out in California because of all the homes lost, and I went up there to visit my parents and they had all kinds of stuff saved up for me to do.
Pulled out the refrigerator for my mom so she could clean behind it. Changing the air filter. It's up high and I could reach it. My dad couldn't and then I helped them move their furniture, so they could get the carpet cleaned and all this stuff. It was a good trip though, very fun and rewarding. I'm glad to be able to share the time with my folks because they live out in California and I'm out here. I only see them about once a year or so, but anyways, today what I want to talk about are five reasons why you may not want to get a reverse mortgage. But before I do that, Marie, my wonderful producer, I have a serious question for you. What did the mother turkey say to her disobedient children?
Marie: Oh, man. This is a serious question. I don't know.
Bruce Simmons: If your father could see you now, he'd roll over in his gravy.
Marie: Oh, that's terrible, Bruce.
Bruce Simmons: Oh, come on. That's good. I like, well here's one that's a little more risque. Did you hear about the X-rated turkey?
Marie: I didn't hear about the X-rated, what happened?
Bruce Simmons: It's served with very little dressing.
Marie: Oh, man. I just know there's somebody's listening who's going to pass this along at the dinner table.
Bruce Simmons: Well, that's good. That's what, I'm going to pass them along at the dinner table. I think these are fun. I did a loan for this one lady. In fact, I'm going to go see her today after the show. Well, I record this show, too, by the way. Just so you know I'm recording this on Wednesday, so I'm spending time with my family on Thursday, so don't call me on Thursday. Well, you can call me still on Thanksgiving. Just leave me a voicemail because I'm not going to answer. It's going to go directly to voicemail, but feel free to call me. You can reach me directly at 303-467-7821. 303-467-7821 is my number or visit me online. That's always there at reversemortgageradio.net. Reversemortgageradio.net is my website, and you can get all kinds of good information about reverse mortgages, see video testimonials. You can see me on there talking about reverse mortgages on different videos as well, too, but this lady who I did a loan for a couple months ago, I'm going to go visit her after I record this show today and answer some questions for her. That's one thing I want to point out, too, is that when you work with me as compared to say a bigger company that has a call center, after the loan you're still my customer.
Whether it's two weeks or two years or whatever down the road, I'm still your reverse mortgage guy, okay? So don't forget that because this lady, she sent me an email when I was out in California last week and I replied to her, I thought I answered her question, but then she had other questions. I said, you know what? Let me call you when I get back and she ended up emailing me with another question and I said we just need to sit down and talk. She's like well, is this really that serious? I said no, it's not serious. It's just I think that we can communicate better in person, so I'm going out to her house today after I record this show and visit with her and make sure I answer all her questions 100 percent. She's just not real financially articulate. She doesn't understand some of the terms, and she doesn't like dealing with issues like that and so I'm going to try to keep it simple for her and make sure I answer all her questions.
But that's one of the benefits of dealing with somebody local who's been in the business a long time. You could deal with somebody local who might have only been in the business for six months. They might be out of the business in six months as well, and then you're stuck not having anybody local that you could call on to talk to directly who understands your situation. I was just able to pull her file out and I've got it in my car and after the show I've got everything right there. I say okay, this is how it works again. Remember this is how it all works, so anyways, that's one of the wonders, but she used to, every time she'd call me, she'd tell me some corny little kid joke. She teaches classes to little kids like for scouts and things like that. I don't want to give too much information about here but she would tell these corny jokes and I loved them and I could never remember, oh, I can only remember one. Here's one for you, Marie.
Which is larger, Mrs. Bigger or her baby?
Marie: I don't know, Bruce. Which is larger?
Bruce Simmons: Actually it's the baby because it turns out the baby is a little Bigger.
Marie: That's pretty good.
Bruce Simmons: I know. She tells me these great jokes like that.
Marie: You'll have to tell her your turkey jokes when you see her today.
Bruce Simmons: That's what made me think of her is these dorky turkey jokes. Last one. What is the turkey's favorite black tie celebration?
Marie: Favorite black tie celebration. What is it, Bruce?
Bruce Simmons: It's the Butter Ball.
Bruce Simmons: Yes, that's right. Okay, I had a poem I was going to read as well but I think we've done enough. So, we're going to start off right now talking about five reasons why you might not want to get a reverse mortgage. Now, I wrote these up a long time ago and actually I forgot to prepare for the radio show last night and so this morning I'm trying to figure out what am I going to talk about, and I have this as part of my download that's on my website. It's one of the pages. It's on my downloads, and I'm going to be updating this completely here soon, but this is good information and the only thing is that a lot of this, some of the reasons why you don't want to get a reverse mortgage might be reasons somebody else does want to get a reverse mortgage. It just depends on your situation. That's why it's so important to talk to me about your situation and say this is the deal. This is what I want to do. What I'm hoping to accomplish.
I met with a guy earlier today and he told me, he said well, I want 500 dollars a month, and I said well, what is it you're hoping to accomplish? Well, he's an artist and he just needs some additional income but if we take 500 dollars a month forever or for as long as he lives in the home away then that doesn't leave him a whole lot of money left over in a line of credit or the initial amount that he wants to do to do some work on the house or whatever, so we're going back and forth about that, how to best set up the loan for his situation, and I do that with everybody. I ran the numbers one way. Well, that really isn't the way he wants it, so I'm going to redo it and we're going to talk on the phone Monday and then I'll be going out there probably Tuesday or Wednesday next week to have him sign all the papers to get started. But I always make sure that we're setting it up the right way for him, and that's what you want to do.
You want to look at why you want to do a reverse mortgage or what is it you're hoping to accomplish if you move forward? That's one of the first questions I always ask. What are you hoping to accomplish? And it may be that what you're hoping to accomplish isn't really realistic or it's not in your best interest, okay? And we're going to talk about these, so these are just five things that I came up with here. If you think you might want to move in the next couple of years, it might not be a good idea to get a reverse mortgage. Now, the closing cost up front can be a little steep because one of the fees is the initial mortgage insurance premium that goes to the federal government. In fact, that reminds me, I probably should tell you what a reverse mortgage is for those people that are just tuning in.
And by the way, my name's Bruce Simmons and I'm the reverse mortgage manager at American Liberty Mortgage here in Denver. Feel free to call me anytime at 303-467-7821. That's actually a phone number that rings into my office number in my house and then it's forwarded to my cell number, so even if I were ever to leave American Liberty Mortgage and I've been there six years. I'm not going anywhere, but if I did, you could still reach me at that number, but I've run into an issue with some people, in fact, a lady was trying to text me in California to that number. She said I texted you, I texted, and I didn't get it. That's not my cell number. It's forwarded to my cell number, so I think I probably should, if you want to text me, you can text me. Just don't text me at the 467 number. Text me at 303-513-2748. That's my cell number. 303-513-2748, and like I said you can always leave me a message or text me. Some of my customers do, it's amazing the amount of people who just like to text and they don't want to talk. That's okay.
So, in the situation, well, what a reverse mortgage is, is it's an FHA insured loan that's specifically designed for people who are 62 and over and it allows you to convert a portion of the value of your home into tax free money as long, you never have to repay as long as you live in the home. However, you are still charged interest and mortgage insurance because it's an FHA loan. All FHA loans are charged mortgage insurance, but you don't actually have to pay it back out of your pocket. The home stays in your name and as long as you're living in the home and paying your property taxes and home owner's insurance and maintaining the home, they can never kick you out. You never have to make a payment. The loan only comes sure when you permanently leave the home, but part of the closing costs up front is the initial mortgage insurance premium, okay? And that's one of the big, that's the biggest closing cost typically for most people because it's two percent of the value of the home.
There's one listener who called the John Rush show recently and she asked about a reverse mortgage and I sent her a quote, emailed her a quote and she got back to me, she said you know what? I don't think right now. I may want it in the future but right now I don't want to and one of the reasons was because of the up front costs and now that doesn't necessarily mean that she's, I think she'll probably stay in her home for a long time, but right now she couldn't justify the cost in her mind, okay? The reason, if you're going to leave the house in a couple of years, is those closing costs. They're not cheap, but again, you're not actually paying them, and think about okay, a regular mortgage might cost you two or three thousand dollars in costs, a reverse mortgage might cost you seven or eight thousand or maybe not that much. It might cost you a little more, just depends on your situation and what the fees are. Everybody's a little bit different. Nobody pays exactly the same unless they're situation is exactly the same. Then I would make sure that they were being charged the same because that's the way it works.
And so if you're thinking you're going to leave the home a year or two down the road, the up front closing costs would get added to your loan balance and the fact that you'll have a couple of years worth of interest and mortgage insurance to get added to your loan balance as well means you're not going to have as much equity when you do go sell the house. I remember a lady a number of years ago, probably in 2010 or 11, she wanted to do a reverse mortgage but she knew she was going to be leaving her house in less than three years and she was going to move into one of these places that, the nice places that are really expensive to rent and she was going to need as much money as possible. She owned her home free and clear. She had some money in savings, but she didn't really want to tap into it. She thought well, if I tap into the money from my equity, then I could better make my other money last, but the way it worked out it just didn't make sense for her situation. She wanted as much money as possible when she left the home.
And that also boils down to the other people. If you, or number two, I should say. So number one is if you're thinking you're going to move real soon, it may or may not make sense but probably would not, okay? Number two is if you want to keep as much equity in the home as possible, so if you're really sensitive, you've owned your home free and clear for years now and that's important to you, that's the way you were raised. You don't have any debt, even though you're sacrificing. You could improve your lifestyle with a reverse mortgage but you just don't want the trade off of having this growing debt because as long as you have the reverse mortgage, you're still charged interest every month, interest and mortgage insurance. The loan balance gets larger because you're not paying that interest and mortgage insurance.
Marie: Yeah, you know, Bruce, that's one of the things that was confusing to me at first that I think you've explained really well
that those fees quote-unquote, the interest and the mortgage insurance, they come out of the equity of the house, so you're not paying it out of your
pocket. It's coming out of the equity so the equity's shrinking over time.
Bruce Simmons: Yes, and the equity just so those who don't know, the equity is just the difference between the value of the home and the loan balance because when your loan balance goes up, if your value stayed the same, which we know in Colorado it's actually increasing but just for sake of argument, your equity is shrinking slowly but surely because your loan balance is going up. If you're charged 500 dollars in interest that month, well you've just lost 500 dollars in equity, but the trade off is that maybe you've got extra money now that you can do things that you want to do. You could go visit your grandkids on Thanksgiving or see the new grand baby or travel. A lot of people love cruising. There's a number of people who are snow birds and they go live down in Arizona for the winter right after Thanksgiving, they're off. So I'm working on a loan right now. We're closing on Monday and after they close they're heading down to Arizona. That's just, and so, but if the equity in you home is really important to you and that's what your leaving your family, most of the time, too, kids don't care. They don't.
Sometimes though people have a handicapped child and they want to make sure that child can function, they can function in that house, so they might have to have somebody come in and help them, but usually sometimes they could continue living in the house even without the parents being there. I've got a loan like that in Golden with a guy that's in that situation. Now he ended up doing the reverse mortgage but he knows that his son could stay there because he has a job and everything else, but he probably wouldn't want to, and so it just again, it's your situation, so number one is if you're going to moving soon it might not make sense. Number two is if you want to keep as much equity as possible in your home it might not make sense because this does chew up equity over time.
Number three, if you're terminally ill. This is a tough issue. I've done loans for people who say if I wasn't here and my wife or my husband would never, he would sell the house as soon as I'm gone or whatever, but I'll never, ever forget a customer I did in Northglenn, did a loan for in Northglenn. She ended up, she had Lou Gehrig's disease. When we started the process, she could sign her name a few times but she owned her home free and clear. There was no way in the world she was going to come out of that house. She was not leaving and that's what she told me. She said they're going to take me out of here feet first. It took us about a month to put the loan together. By the time we closed, we had to use her power of attorney because she wasn't able to sign anymore. And we set it up, at the time that we closed the loan, I think we set it up to where we were depositing 4,000 dollars a month into her bank account so that she could pay the in home care. Nine months later when she passed away, we had increased it three times.
So she was now getting like 8,000 dollars the last month she was alive. I think we deposited 8,500 or something in her account. That's a lady I stayed in touch with because I helped her make those changes. That's one thing that I was telling the customer today, you can change the payment plan. The guy that wants 400 dollars, I said, if it turns out you actually do need 500, we can change it, three months, six months a year or however long down the road. Basically the way the reverse mortgage works, I'm kind of getting of topic here, but you've got a bucket of money and we could separate that money, so HUD says we could loan you 100,000 dollars. You want 400 dollars a month, so we set the money aside to cover that 400 dollar a month payment. Maybe it's 60,000 we set aside to cover that payment for as long as you live in the house. You want 20,000 dollars up front, so we give you the 20,000 up front, and then you still have another 40,000 dollars left over, or 20,000 dollars left over that you could leave in a line of credit, okay?
Then if you decide okay, well, now I need 500 dollars a month, we have to take it from that other bucket that's set aside, that 20,000 in the line of credit, and so there's finite amount of money and you can break it up however you want.
Marie: That's amazing to me how flexible it is for the individual.
Bruce Simmons: Yeah, it's incredibly flexible and it can be changed down the road. That's what I like about it, too. It is very flexible. That's a very good point. In fact, I think I did a whole show on the flexibility of it.
Marie: I think you did.
Bruce Simmons: And you could find that show on my website at reversemortgageradio.net. Thanks for the plug, Marie. So if you're terminally ill, some people say it's worth it to be able to stay in their house, but again, then it goes back to the first thing that you're not going to be there very long. Well, in the case that I'm talking about with this lady in Northglenn, the emotional benefit of the loan, or the emotional benefit outweighed the cost of it. It made emotional sense. That's what I'm trying to say. It made emotional sense not necessarily financial sense, but she only took that money over nine months and she still had a lot of equity left in her house when she passed away because it was only nine months and so the interest didn't accrue over a long time.
The fourth one. The fourth reason why you might not want to get a reverse mortgage is if your home is damaged really, really bad. Now, I talked about this I think last week or the week before, if you have repairs on your house we can a lot of times set aside money to cover the cost of the repairs. We set aside one and half times whatever the repair is, as long as it's not a safety. If it's health or safety issue, if there's mold in the house, that has to be fixed before we can close the loan. If you're missing a hand rail to the basement, that has to be put on before we can close the loan because that's a safety issue, and so things like that, some things have to be fixed prior to closing. A lot of things can be fixed afterwards, but every now and again, I think I've come across it like twice in 15 years, where somebody's home was in such bad shape that we couldn't do the loan because the repairs, the cost of repairs were more than 15 percent of the value. If they have a 200,000 dollar home and the cost of the repairs are more than 45,000 or about, that would be 50 percent would probably be what ...
Marie: You're looking at the wrong person for math help, Bruce.
Bruce Simmons: I know. So anyways, I had it in my head before, 300,000 dollar home would be 45,000. That's what I did before. Anyways, it's unusual that somebody has that much in required repairs, and FHA is the one that determines that. The appraiser comes out and says okay, but I can come out and look at the house and say, yeah, this is the deal here. I know the people I'm closing on Monday who are headed for Arizona, their house, they've got some old vintage sheds that need repair, but I think we set aside like 1,500 dollars for their situation. That's typically the thing, but if your home is in really, really bad shape or you're a hoarder, and I know people don't, I've come across that and people don't like to say that, but I'll never forget a lady, when I worked for a big, the evil empire, I could do loans across the country.
She lived in Arizona and I got, somebody referred her to me, and she had her home. She told me the situation with her home. I said well, do all the boxes and books and things stacked up, do they block the window? She's like yeah, they do and you can open the door part of the way to get in the room and there was a path and I said, and she was in foreclosure. That's the thing that gets me. This was like in 2006 or 7 and she was in foreclosure. I said rent, well we talked a couple of ways. I said first is there somebody that can come out there and help you go through all this real quick? No, nobody can do it but me. I said well then, what you have to do, get a rental unit, a space to rent. Just haul it all off, put it in there and then you can have time to go through it all. I can't do that. She was living in an RV next to her house. She wasn't even living in the house because she had the RV parked in the driveway.
Marie: Man, what an awful way to live.
Bruce Simmons: Isn't it though? And unfortunately there are a few people like that but on that case you can't get a reverse mortgage. That's not going to work. That's not a very common situation. The last one, if you're young and you've got plenty of money, okay? Now, again, there's financial advisors, too, and I wrote this back before a lot of financial articles came out about setting up a stand by line of credit because this is the one I'm not sure, I've got figure out, I don't think this is really a negative because if you're young and you've got a lot of money, you might still want to do a reverse mortgage because you can set it aside and access that reverse mortgage if you're investments take a nosedive. You can tap into that line of credit.
Marie: Well, also doesn't it sort of lock in your house at its current value?
Bruce Simmons: Yes.
Marie: If the house is worth a lot more now and maybe the market's going to crash later.
Bruce Simmons: Wouldn't it be nice to know that, but yes.
Marie: Right. But just in case.
Bruce Simmons: That's right. It's a great way to lock it in, and with the growth rate of the line of credit, see the line of credit actually gets larger over time and that's a whole show in itself that I think I recorded on our, and it's on reversemortgageradio.net as well. But if you have any questions about any of these, you can call me directly at 303-467-7821. So, if you're young and you've got a lot of money, you might want to do it. It might be a great reason to do it because you're going to be there a long time and you're going to have time for that line of credit to grow and you're locking in the value like you say, Marie, but it might also be a reason not to do it if you just don't feel like you need to and because you are still using up some of the equity, even if you have a small balance of just the closing costs, say 10,000 dollars in closing costs, well you're being charged interest on that money. And so you are still chewing up a little bit of equity as you go and some people aren't comfortable with that.
So, there you have it. There's five reasons why you might not want to get a revere mortgage. Number one, if you think you're going to move in a couple of years. You want time to allow those closing costs to be spread out over, they have less impact on the actual cost of the loan. Two, if you want to keep as much equity in your home as possible because this loan is designed to chew up equity slowly but surely over time. Three, if you're terminally ill it might not make sense. Now, we're all terminal at some point. I mean, we're all going to go. That could be a reason to do it like I said before as well. If your home is in really, really, really bad shape or you're a hoarder or something like that, then I just can't help you because the repairs cost too much, or if you're young and you have a lot of money.
Those are the reasons why you might not want to do it but all of those, well, a few of them are reasons that you might want to do it as well.
Marie: It's your favorite answer, right? It depends.
Bruce Simmons: It depends. Yes, thank you, Marie. That's right. It depends on your situation. Call me. Let me talk to you. I'll talk to you and we'll go over all the details about how the loan might work for your situation. My number is 303-467-7821. 303-467-7821 is my number. My name is Bruce Simmons and I really, really appreciate you joining me today. I'm so thankful that I've got the opportunity to do a job that I love that I know, I know without a shadow of doubt that it helps people. There's all kinds of people say this is ripping off old people or seniors and I get that from people sometimes. I say you have no idea what the heck you're talking about, but I am very thankful for you for listening to this show, for calling me with questions. I love educating people about this. Even if you know you're never going to do it, so feel free to call me, 303-467-7821, and have a very, very happy Thanksgiving.
Call reverse mortgage specialist Bruce Simmons of American Liberty Mortgage directly at 303-467-7821 to begin drawing equity from your home. Bruce will come to you anywhere in the front range for an in person no obligation consultation. Learn more about reverse mortgages and watch testimonial videos on reversemortgageradio.net and MLS number 409-914, regulated by the division of real estate.