Is a Reverse Mortgage a good idea?

Friday, July 21st

What are the facts?

Is a Reverse Mortgage a financially smart decision for the elderly?

This week we cash in with the experts Tom Dambra CEO of Family First Credit Union and Duncan O'Dwyer Attorney Forsyth, Howe, O'Dwyer, Kalb and Murphy

Thanks to our friends at Family First Credit Union for supporting the $even Figure$ podcast!  
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Transcript - Not for consumer use. Robot overlords only. Will not be accurate.

That they do is gonna pay you every month no not sounds pretty good doesn't and that's what to reverse mortgage is ray and is it something we should tell our parents solo game to us or hurt is it too good to be true. It's seven figures presented by Stanley first credit union from personal thank into the business services and home loans. They're number one priority is finding a solution that works for you locally. I'm your host Cassini waters it is so important to protect the money that you worked hard for him. And it's really why I started this type cast to protect you in your family to protect me in my family. From being taken advantage because none of us wants to fall for a scam that's gonna leave us in a financial crisis but there are people. There are companies out there that prey and individuals who don't know a lot about personal finance perfect example reverse mortgages. Designed for the elderly. I'm just talking about it with my parents the other day and my parents. Ten to be pretty savvy when it comes to finances. And they didn't even really understand. Everything there is to know about reverse mortgages so I told them I was gonna do some research. Here's our researcher we're gonna talk would be experts today we cashed in with Tom Democrat CEO Stanley first Freddie union and Duncan O Dwyer attorney at Forsythe how old Dwyer Kalb and Murphy thank you so much for joining aspect of ground. Yes can we explain what a reverse mortgage. Is you have substantial equity it gives someone a way of accessing that equity. All right without having to make monthly mortgage payments so instead of making monthly mortgage payments. Basically they're drawing their equity out and they are receiving. Either monthly payments oral cash. Or else they can set up a line of credit. So that's why they called a reverse mortgage and under the tax laws. On money that you pull out is not taxable to you was ordinary income. So oh that it becomes really significant. Other things that are significant in the category are. These are non recourse. Loans. So that the only thing that the government can look to if the government is ensuring these loans and most of these are. Come loans insured through the FHA. Basically the only thing they can look to is the value of the home. They can't look to your personal assets if you can in fact paid back the money that you drew plus interest. At the time you die your estate or or the timing so what else. All I can look to a child so what are the problems. No doubt that the FHA incurred. Several years back was when homes in California. Or an Arizona or in former star don't lose half their value. What happened was that they basically were under water. Social that he died oil can look do what is the value of the house and they had to show what they might not get back their money but they're non recourse loans so the estate. Or the individual didn't have to pay don't you can only look to the house so there's no personal liability. I'm the obligation to pay back the money so what happens is at ten years goes by. This individuals taking money out taking out equity children. The same time they're doing that the money they are taking out this interest it's a cruel and I'm not obligations so when it's time to pay it back if they sell our house. I got to pay back the money that they do plus the endlessly interesting happened today crude can be unified and hit 6% somewhere in there. So was this a good idea do we like it sums up on. Reverse mortgages I think that it has had very limited. Applications somebody my experience. A where it was utilized. It did seem to be. An onerous prop. Personally you keep titles to your home that's very important about the title field Kathy hang under the tight. All right so let's say that your 75 years old yeah mortgage is paid off app you lived in the home let's say will. Lived in the home in almost married like husband used it. We're living on Social Security no other form of income okay. Wants to stay in the homes have been five years of age. And it really has no way to do that but she has a whole lot of it has no mortgage on the house paid off years ago. So Social Security is not giving her enough. And doesn't impede your Social Security or your Medicare. It doesn't he Medicaid. If you're on Medicaid. Problem. Okay but Medicare and Social Security are not impacted by taking Rupert. You can you can keep those benefits that's fine. So this sudden my exit 75 year old person who wants to stay in the house but really this Social Security. There's not enough to pay the who's in the insurance on the house learning. English your starting many big hair. So and she has already pretty tied up and helps being available assets by the house maybe she has a 150000. Dollar house there's no more. All our equity it's tied up in the house but she can't he can't basically get out Ed except for this reverse mortgage. So she takes a reverse mortgage 75. Even with a deep discount in the points. And the courts and charges are true. It gives her not dole. Basically be able to pay the taxes paid the insurance and live in the house that she has no mortgage payments the same. What bright it gets to be a balance of how disciplined. Individual. So we didn't really give her. A lot of extra spending money. It's really just do you any equity so let's say it's a 150 and let's say you could pull out after expenses 68000 dollars. So that she has a pot of 68000 dollars sitting there out in front of her and 175 years of age she can draw that. As a line and not rule out or draw out she can get an established monthly payment let's say she's always take got a thousand dollars a month. No need to meet my Beatles. She can do that she can take your envelopes. What the deal is to be disciplined enough to make that movie lift. The make up my plans because if you go through. That I'll be available funds there is no more ways that you withdraw your money you just exhausted at that who's gonna pay. Taxes and the insurance is if you are personally responsible. We're paying your taxes and insurance and if you don't do that that's an event of default they can foreclose. And that's why I'm mostly thumbs down rate you're thumbs down on that for the most part there maybe a few circumstances that makes that ball for the most part I'm not a fan. And soul let's use Duncan's example of their 60000 dollars of help well don't forget those closing costs they may have got rolled into the deal but perhaps. Different to those closing costs are gonna hit you to the tune of six or 7000 dollars and now. Arm you know moms moms available winder earth 60000 dollars is now down to 60000. He caught 6%. Cost at least over. 6%. Closing cost. Very hot. Very hard because origination fee. FHA premium. Title insurance settlement fees wrote according fees you don't tax escrow fees means yeah. You name it they just you know when I mean I heard about coral with fifteen different. That's the real killer and in this same example Sheen may be eligible for a home equity line of credit. And those fees are not applicable a lot of those fees are absorbed by the financial institution that's giving you. Did he lock. And so so in that case she has access to her equity in her home. The interest rate is typically lower out of sealock than it is on a reverse more man so your paying less and interest in the long run. And again it's it's allowing her to stay in her home if you determine know that. She cannot make these payments just simply not going to be able to pay the taxes not going to be able to pay the principal and interest that's too on the home equity. Then. You have to make a hard decision with her. And and that's hard decision maybe the sale of the home because the sell the home remember now creates. A lot of dollars first these guys out of borrowing situation she now potentially as of the homes worth a 150000 dollars she has a 150000 dollars a belt lurk. To move on to what government makes that so whether it's a downsized. Apartment or whatever the case may be. Want more money available now to her. I'm not having to make those. Payments for taxes payments for armed principal and interest ends. And in life I think becomes less stressful than worrying about this. I feel like Matt all did you guys are talking about this it's just a really small small group that could take advantage because let's say. And you would hope that you had some money in savings are you spent your whole life working hard you would hope you have a 401K or some money you're not totally. Just living cancels a security that's the ideal situation right that's our goal in life. Went dad and checked my experience. Usually. When this was being used there was 100%. There was no mortgage. House was not a 500220. Host the woman had been there usually the husband had. What was their she was in mid seventies somewhere wanted very much staying home. Or security. That's which you can't. Sure they get about downsizing you don't learn. Any Hermann let me yeah she had a 100% equity in their house or close to one yet so bad. You take your take kind of the the that chance. When you're paying a 150000. Dollar home in reference and an example 150000. Estimated value the whole month. We're looking at it after expenses. 60753. Dollars available. That's what's available or after expenses the expenses in this setting where 9846. She's upfront. I just document prep flood shirt counseling can merge registration or insurance premium origination fee. We pay our administration. Some articles and that should be appraisal fee credit report for you key endorsements of title winners title insurance recording charged for the mortgage at a packed. So all this stuff he's talking about I actually went online then did a little more research to know what happens outside this country of Canada. Has Canada doesn't need to reverse mortgages but you in order to qualify for reverse Morgan's in can be able to take one now. You have to seek legal independent legal advice. Prior to actually being able to close I'm in reverse more. Now there is there is an FHA requirement for counseling. Mean you must in fact go to a certified and approved FHA counselor. Who has the review. All of this with you and you have to bring that certificate. To close that you did and I you pay for. When you pay for the council but you have to go to counseling so they do do that but the problem is it did catch them whose elbow. OK in the Kelso or felt. What's going on this product if I were to get into the nitty gritty of this product review you would have a hard time understanding yeah let alone someone. Who's quite low and trying to explain how this whole thing works when their clock saw what their interest rate is going to be how it's gonna change how you could use we'll. This is so disheartening that companies that are pushing best. Knowing preying on the fact it feared could be confused. It it it it I mean I'm doing this for long Tonya. Took me a lot of time I've written articles reflection on this subject. It's a complex. Product it's a complex subject. And scored the only person. Some of my observations even when they had the council. Make your reference at all to begin nor did with a counselor told him. But they shot there being if they shot with a counselor for a period of time and an account there was a certification. And then. I mean I watched this where it works but it's in the Menard. Didn't so launched abuse. There was abuse with the financial planners at some point in time where financial players would tell somebody and let's go get this reverse mortgage for your equity out of the house. They take the proceeds and giving any and all investment. I'll put it in response. Mark is a thorough weaken Iran this financial planner conversation has come on yeah now it got so abusive in California. There is a certificate now that has to be solved the closing it says no provincial planner. Well I'm involved with this transaction that I will not be releasing any funds to finance. It Shaq. How abusive and that it got I mean it got that excel. What is really happening this product I think it they they meant well when they started off it create a product to allow older people. Who have been minimal means to stay in their home. Why do lots of things that the government creates. It ends up. After that with so much abuse of it. It ends up with such an enormous discount so let me call us up front to try and protect the gimmick is through these sort FHA insured. Oh there happened to ensure and then non recourse loan. So I thought if the market value of the property goes down to dramatically. The government that's insuring this obligation has roots. And they almost got away with a spoken. They had so much risk and so much war horse in this program and they almost get away with a put back. The overall well we wanna make sure that an elderly person can stay in the moment they have equity they brought it back but they increased the discount. Dramatically and they stepped up the colts. So between track combination. It makes this really a product that is not the greatest problem. What should we do instead and we have an elderly family member who could dad benefit from a little extra cash owners there home mortgages paid off. How was crunch the numbers what options do they have. Absolutely so gamma kind of work along at a 150000 dollar a cat concept yeah I've on. A home equity like paralyzed are up to 80% sometimes even hired an app I mean actual value while so the amount that you can borrow is certainly more. Gary tuchman closing costs rikers nearly hopes of closing cost. It's absolutely and and obviously the lender takes us into account when they're looking at whether or not a person can qualify for a home equity credit. Do they have enough in calming. On dollars to be able to make those payments along away. And down that's that's obviously critically important if they do. Clearly. Doing a line of credit makes a lot more sense and more if they don't. I think the rules as I mentioned before the real serious conversation around whether. This again I'll be back this example 75 year old person. Really should be staying in the home long term that's that's hard discussion to have with family members but at the end of the day. Bomb from a convenience standpoint. From all I care standpoint. I I would argue that it may make sense to find another situation where there isn't nearly as much I'm going cost maintenance of the home. And taxes etc. why does that person need. The much equity in the home to begin so would you. I even entertain the idea of refinancing house probably mapped. In this case you know when you refinance are there are if you're gonna take out a fixed mortgage and there are more closing costs typically fixed. Rate mortgage refinance and there is taking on a home equity end. Does she indeed qualified fourth that extreme work so now can she can she afford to pay. Got stuck wielded differences that they have to qualify for that mortgage one of the qualifications his credit. When ms. appraised value. One is the interest rate they can use etc. but they'll look at a credit of the individual. Terms of their assets and liabilities. Doesn't check out and they can't get into that oh she's so that was part of these social engineering of this program. This to say at least initially it was initially had no choice but no we're not because that's always good calculations. They look at credit that they put it credit they get credit like they could look at credit to qualify for traditional mortgage. They look at shift your first the ability to pay reductions in the insurance and if they're credit. There's so little iffy different. They can also in addition we had 9000 some odd dollars and setup the tax escrow for the estimated bounce a you'll want. So they could also did not from the floor about the money. What they estimate to be the taxes in the insurance premiums for the rest of your condition getting Astaro I don't so they just give me knowing that thing down because is that balance of protecting the federal government it's insured this loan. Against the social engineering and so on getting this kind of an instrument. So all you know after the kid got wounded in because you wanna be found pollution. Ahmanson whoops we got a reason discount rate. We've got to raise the premium you know pretty definite change Christiana. The shot. I have a big pot he educational thing goes well. They also all it's kind of interesting did you did you two notes due due to mortgage. Do we know what mortgaged so when you do what no mortgage to hunt. Education or whether goes out of business hubs still obligated to let you draw this money even if your bank disappear. So that's kind of a little bit of a unique thing but I think you got a pretty good idea. That this is a product that will only be used in a very limited. A very limited since caring and no apparent that the NBA universal product and that's why. Most lenders who runs the al-Qaeda then I think it's a. And you guys Donny may have family nurse we had him at first we don't offer the product and you're getting back to your question around. Why wouldn't you just refinance for thirty years and some fibers will remember years states the lows that. So you take out a really big mortgage and you weigh your state is still gonna hold the banker credit union to sell the house at that point assuming that the value of the home can cover asks what the with the borrowings which is typically. So you think home equity line of credit if they need money. Above anything else assuming it off like because it's the lowest cost way of doing. At that. Is going to trade off there's that trade off against the traditional qualifications for a mortgage. Is the fact that you really don't need to qualify. In the traditional sense you're really it's related to the appraised value of the house and your age and the interest rates. But they do a credit check on talking about impact when given state tax and getting federal tax and plus sending mortgage. All have to be paid off most. They've got to be clean they have to have a first mortgage lien on the it be effective it be subordinated thing. So there's an awful lot that one has to go through as a trade off against not having the credit together traditional working. And it and that trade off as the product has evolved. Seems to be less and less favorable. And I'll. Well fun Z is. Is really release inning guy asks you know they're coming in all laughing and. It's video relay they're talking about it I was and then everything I need to do. He knows there had been a lot of advertising Bologna do advertise. Offer reverse mortgages they've got to be personality. That people are horrible doesn't really understand the product. He's getting older maybe yeah pujols. Yeah. They say they may just a few key points when they do that marketing one thing is you don't give up title of the property. That's true. And two they don't do a traditional credit report check in traditional they do cratered port. But it's not the traditional core import check. And then what they never talk ever. Is how much money you can get out of your home because of the enormous discount that they can based. Usually you're gonna get wind yeah I'm not I'm not heavy Adler praised. Are you lucky he had ever better is that he when you're 62. That's the bottom of the barrel when you're eligible now the older you get more money you can get you know how to own the property. Let it doesn't go up dramatically in terms of how much can this council or substantial and the colts. They go right along so that 2% origination fee and some 300000 dollar that's a dollar amount that's 2% to 300 were originating from. And then the FHA premium on topic. You know another and then all the other expense I told you itself. You don't have anyone marketing mr. shears. Those issues with the consumers and Chester Taylor can't figure consumers really not getting unhappy up picture of what this product. As they get educate yourself you almost have to become like we said let's think obsessed with your finances because well we don't get so that was. Why Brett I mean the volatile time you put in in. Talked about the waste too when you get to 75 hopefully you are financially independent ranks but then you I don't worry about a reverse mortgage or home equity line of credit that you have the ability to. Stain your own home. But if you don't in and this is the way I've. Josh you're strongly about this if you don't you have to make some really hard decisions about whether you should continue to stay in that. Better be a good discussion for a future show how to protect your assets when you are at the point of talking about and thinking about nursing home care. Right then a thousand bucks a month I think it's a whole other subject. Well this product is not limited and how you can use. You can really use this product for health care costs you do differently he shouldn't you can use it for really anything you wanna use it war. The problem is you can't get enough out. Of your home because it is huge discount in the closing costs and because you gotta pay off your mortgage. Just can't get enough note make it viable when you look at those closing yep because if there's ten greens it's going to closing and you die. Two years later. It just sucked and enormous about a woman of open. Out of your home now this money does you just pay back what you drew plus the interest and your stay patient Acura stage still owns the property. And that can be shared with your ears netcast but usually. At this little hole. I do. This because of the problem. It seems to me that the product. Is going in the direction that now is protecting the federal government. More than any more than that element of truth. The borrower is getting him and I think that sums it up pretty much is our return on investment. He's dedicated your time this typecasting be appreciated the down and is it safe to say yeah look at other avenues to take care of mom and dad got. It's a good recommended he looked at other avenues the way to finance either showing. Downsizing. Sect you know putting out home equity. Mortgage and your property there are other ways that orb. Better financially one. Consumer. And that's. Doctor I can I curious about 2 spots I am I seeking legal counsel around. Disposing of assets prior to. Sort of gaining its ways or yet yeah absolutely. Oh up from one of our partners is our trust the states the and she just Medicare and Medicaid yeah I think her name is may achievement in. And she knows there's stuff she's about eighteen years in practice and nothing. Trust me eight hitter and and and she can talk a cracked this statement. And she is someone who can share which does this whole time she worked with financial planners. Like she basically. Does this estate meaning. He has lots and lots of parents who come to or need this. Need this and particularly older clients they've got so much still trying to figure out what why do with this money. You know Dwight get it out of stock market in order in the fixed. Obligations to get involved with annuities to sell my house once we normally do all these are all normal right. And she is just perfect I can. Okay so we're gonna invite Nancy and dancing that you know it's a good tease okay he's going to it's going to be a podcast coming up soon hopefully it's. We'll take you so much thank you for Africa's truth truth as always great fun in the cheered. 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