Why I probably shouldn’t consider a reverse mortgage?

Ralph
00:00:00

Are you feeling trapped by mounting bills and wondering if tapping into your home's equity to a reverse mortgage is the answer? Maybe you've seen those celebrity endorsed commercials promising financial freedom, but something doesn't feel quite right.

Well, stay with me today as we uncover why these loans might not be the blessing they appear to be. And I'll share a personal story that could save you from making a costly mistake.

Podcast Announcer
00:00:25

Welcome to the Ask Ralph podcast, where listening to an experienced financial professional with over 30 years of experience can help you make sense of confusing questions, current headlines and industry trends about taxes, small business, financial decision making, investment strategies, and even the art of proper budgeting. Ask Ralph makes the complex simple by sharing his real world knowledge from a Christian perspective with all things financial.

Now here's your Host, Ralph Estep Jr.

Ralph
00:00:55

[00:00:28] Ralph Estep, Jr.: Well, thank you for joining me today. And I'm grateful that you've chosen to spend some time with me. I always like it when you come by as we explore how to honor God with our finances. Now if you missed yesterday's show, we talked all about preparing for that dreaded 2024 tax return. I covered some essentials that could help save you thousands of dollars and more importantly, keep you in compliance with the IRS. So if you miss it, I'm going to encourage you to go check it out and you can see all of our episodes by going to askralph.com.

[00:01:00] Ralph Estep, Jr.: Now today's listener question comes to us from Margaret from Cincinnati, Ohio, and she writes this.

[00:01:06] Ralph Estep, Jr.: "Dear Ralph, I'm 68 years old and living on a fixed income.

[00:01:10] Ralph Estep, Jr.: My late husband and I paid off our home years ago, but with rising cost, I'm struggling to make ends meet. I keep seeing Tom Selleck on TV talking about reverse mortgages, and it sounds tempting. The idea of getting money from my home's equity while still living here seems like an answer to prayer. But my children are concerned.

[00:01:30] Ralph Estep, Jr.: What's your take on this?" Well Margaret, I've seen those commercials too and it's funny they get all these celebrity folks to endorse these things. So first of all, thank you for your question. And you're right about those commercials. It does sound tempting. It's almost like you want to call them right away and get to that promise that they're saying, but I'm glad you want to clarify that because there are some things you need to understand about reverse mortgages and that's exactly what I'm going to do on today's show. Well, if you've got a question just like Margaret, you've got a financial question you want to have answer,

[00:02:03] Ralph Estep, Jr.: go to justaskralph.com because the truth is this show exists to help you navigate on your financial journey. And don't forget to join us every Tuesday night when the Ask Ralph show goes live. That's right. Every Tuesday night, 7:00 PM Eastern time, you just go to this website. That website is askralphpodcast.com/live.

[00:02:24] Ralph Estep, Jr.: We tackle your questions in real time. Got a nice community going over there. So I'm gonna encourage you to check it out. Again, that's at askralphpodcast.com/live.

[00:02:36] Ralph Estep, Jr.: You know your question Margaret reminds me of a book of Hebrews chapter 13, verse 5, which tells us, "Keep your lives free from the love of money and be content with what you have, because God said, 'Never will I leave you; never will I forsake you.' And if you think about it Margaret, that speaks directly to your financial decision that you have to make. And that's how to be wise while trusting in God's provision.

[00:03:06] Ralph Estep, Jr.: Well, I told you I'd share a personal story with you.

[00:03:08] Ralph Estep, Jr.: Let me tell you about a client I had a few years back and her name was Patty. And Patty's story really transformed my perspective on reverse mortgages. I was working as her financial mentor. She was a widow and she was facing some crucial decisions. And I've worked with many people in this same position that have these difficult decisions to make.

[00:03:29] Ralph Estep, Jr.: So this is a common thing. Let me tell you a little bit about Patty. She had recently been widowed. She had been with her husband for 42 years. They had a great marriage together. They worked hard. They paid off their modest ranch home. But she was starting to struggle on a fixed income. She had social security. She had a little bit of a pension.

[00:03:47] Ralph Estep, Jr.: She had a little bit of savings. And the other problem with Patty is her children, and they were adults of course, they live far away. But for Patty, it was a pride thing. She wanted to maintain her independence. And I don't forget she came to me, she scheduled a consultation and we sat down together and she presented me.

[00:04:06] Ralph Estep, Jr.: She said, Ralph, I keep on seeing these beautiful commercials on television about these reverse mortgages. You know those ones with Tom Selleck and all that kind of stuff. And she said Ralph, she said it was the answer to prayers. And she told me, she said, Ralph, I was so enticed by it that I actually went to a sales seminar.

[00:04:25] Ralph Estep, Jr.: And boy, I'll tell you what Ralph this is what she's telling me. She says they put on a great demonstration about how this would relieve pressure. And you know, she was feeling that burden of living on that very fixed income and her husband had always handled the finances. And now she found herself struggling.

[00:04:42] Ralph Estep, Jr.: She found herself worrying about how is she going to pay for some home repairs. She was worried that if something happened with the car, she wouldn't have the money to have it fixed. She's also worried about going to see her grandchildren because they had moved away with her adult children. And she told me, she said, Ralph, I was close to signing this paperwork and I happened to see an advertisement for your company on Facebook. And she said, you know what?

[00:05:06] Ralph Estep, Jr.: I figured I would reach out and seek some guidance. And that's why she scheduled that consultation with me. And what's interesting is the way I looked at Patty, so here's the thing you need to understand about me. For me, Patty wasn't just another client. When I sat down with Patty, she represented exactly why I started this Ask Ralph show. Because here is a woman of modest means. I work with a lot of people like that. I work with working class individuals. And she was just trying to navigate her own financial journey, but she was growing in her faith at the same time. And she needed someone to understand both her financial and her spiritual concerns.

[00:05:47] Ralph Estep, Jr.: She didn't know what to do. She saw the glitz and glamour of these TV commercials about these reverse mortgages and she pictured how she didn't have to worry about things anymore. She'd have money in her bank account. And the house will be fixed and she'd have an emergency fund set aside. She could do some traveling and it all looks so appealing. But her Christian discernment led her to reach out and speak to me and talk about what does this really look like? And with her, I needed her to see the clear picture. I needed to break down that Hollywood glitz and glamour. And I said, listen, let's just talk details. Again,

[00:06:23] Ralph Estep, Jr.: this wasn't about emotions, this wasn't about judgment, I just wanted to break down the details of what she's looking at. So she pulled out the paperwork and we started looking at this. And the first thing I saw was right at the jump, they were charging her a $6,000 origination fee. So think about it.

[00:06:42] Ralph Estep, Jr.: That's a fee just right off the top. So let's say her house was, I don't remember what it was worth, but I think it was about $200,000. And she was going to get a $50,000 reverse mortgage loan. So they wanted $6,000 right up front. Hey, that's more than 10% as an origination fee. And here's the kicker. They also wanted another 2% upfront for what they called their mortgage insurance premium, which floored me.

[00:07:10] Ralph Estep, Jr.: There was a $200,000 value on this house. And they wanted a 2% upfront mortgage insurance premium. They had plenty of equity. And then they also wanted a half percent annual balance charges for any grow that she made on it. And if you think about it, that $50,000 loan, if she took this reverse mortgage, in 10 years would grow to $77,000.

[00:07:37] Ralph Estep, Jr.: So I said to her, I said, this doesn't seem like a very good deal just from a financial perspective. And then we got into the details. And I explained to her, listen, there's a huge risk of foreclosure if you miss any payments. This particular type of reverse mortgage required her to make at least an interest only payment. The other problem was if she was sick or had to leave her home for 30 days, and a lot of people don't know this about reverse mortgages and I am not a reverse mortgage expert. But I've seen this happen to several clients.

[00:08:09] Ralph Estep, Jr.: Let's say you have to go for surgery and in you're in rehab and you're out of your home for 30 days. This can actually trigger the reverse mortgage company acted in foreclosure on your place. So those were some scary alternatives and scary outcomes. And Patty says, Ralph, she says, I'm so glad that I reached out to you.

[00:08:27] Ralph Estep, Jr.: She says, if I had signed that paperwork, I will be sick right now. She said, I just saw the allure of that money and that Hollywood glitz and glamour. And it was an opportunity for me to mentor her. And I said to her, I say, see, here's the difference. From a secular perspective, you just saw the money side of it. But then your Christian faith and your Christian discernment made you think about it.

[00:08:49] Ralph Estep, Jr.: It made you take a double-take. So she said, Ralph, what do we do now? And I said, Patty, I've got some great ideas. So we sat down together and we started looking at her finances. When we did, we started off on as I always do. We did an assessment. Let's assess where we are right now. Again, no judgment facts, black and white figures. And when we sat down together, we did this budget.

[00:09:13] Ralph Estep, Jr.: We actually found $320 in monthly savings that would give her a reduction in her expenses. At the same time I said to her, I say, you're a senior. There might be some assistance programs offered in the community and sure enough, she found some. And one of the big things for Patty, she wanted to have that peace of mind in the event that something happened that she needed that quick repair or something like that.

[00:09:37] Ralph Estep, Jr.: So I introduced her to a loan officer at the local credit union. And they actually put together a home equity line of credit so that if she needed something, it will be as simple as going to the credit union and getting an advance on that. She didn't have to take the loan out if she did need it, but it gave her that peace of mind. We also leverage some church support. There was a lot of ministries and her, she

[00:10:00] Ralph Estep, Jr.: didn't go to my church, went to another church, but her church offered a lot of ministries for seniors. There was actually one ministry where there was local young people in the church who actually came out and did service projects where they helped elderly people fix up their house or maybe clean up leaves or shovel snow. So those things were all things that helped her.

[00:10:20] Ralph Estep, Jr.: And another problem that Patty shared, she said, Ralph, sometimes I get forgetful and I forget to make payments on some of my loans. So the other thing we did for her is we implemented automatic payments on all of her accounts, because she had enough money in her checking and savings account. She just got to the point where she forgot to do it.

[00:10:37] Ralph Estep, Jr.: So I said, Hey, let's resolve that right now. Let's remove all those late penalties that you've been suffering and we'll just go ahead and implement automatic payments. So you might be saying, Ralph, it sounds like you really helped her out. I sure did. But we worked together as a team. It was me, it was her, it was her church.

[00:10:55] Ralph Estep, Jr.: It was the local credit union who did that home equity line of credit. And in the end, here was the outcome. She maintained independence and she didn't go for that reverse mortgage. And actually, when she looks at it from a objective perspective, she actually said this to me. She said, Ralph, you've strengthened my financial position and I found peace of mind. And now she's an active member of the Ask

[00:11:19] Ralph Estep, Jr.: Ralph show. She attends our show on Tuesday nights for the live show. Sometimes kicks in some questions. And she serves is what I talk about in the community all the time. She serves as a success story for others who are in that same position. Listen, I deal with this every day. There are a lot of people at all walks of life, at all ages of life who are struggling with their finances. And maybe you're considering a reverse mortgage yourself.

[00:11:46] Ralph Estep, Jr.: I've had several clients that have done. Even had some family members who have done. So I'm going to share some action steps that you should take in just a few moments. But first, let me ask you this. Are you looking for assistance just like Patty? Are you feeling overwhelmed by financial challenges? Whether you're buying a home, refinancing a home, or even considering a reverse mortgage, maybe you're looking for ways to find financial peace. Maybe you're running a small business or maybe you feel like Patty did, you feel like you're living paycheck to paycheck.

[00:12:17] Ralph Estep, Jr.: You're on that fixed income. Here's the truth. You don't have to walk this journey alone. Like many others, you might be watching your dreams slip away. You might be struggling with mounting debt. You might be feeling stuck and frustrated. Maybe you're a small business owner, you're trying to balance a business and personal finances and you're just having a difficult time doing it. You might be feeling overwhelmed.

[00:12:42] Ralph Estep, Jr.: You might be feeling like you've lost all your hope. But I can assure you this. There is hope. Together we'll create a path to help you find financial freedom while at the same time honoring your Christian values. And here's how I'm going, I will tell you how we're going to get there. The first thing I do with everybody is we assess your current situation, just like I did with Patty. No judgment, black and white here are the details and the data. That's what I will do with you.

[00:13:10] Ralph Estep, Jr.: We'll identify what your God given dreams are. What are your big, hairy, audacious goals? What are those things that you want to do? And everybody is different. For Patty, it was about having peace of mind. For Patty was having that money in the bank or that line of credit that she could tap if there was a need to do some repairs on her home. And just like Patty, she wanted to align her goals with her faith and that's what the things I help people do.

[00:13:36] Ralph Estep, Jr.: I help you align your goals with your faith and I help you build a personalized financial roadmap, because if you want to get from point A to point B, you've got to have a plan of getting there. And once we establish that plan, I'm going to help you establish accountability. I'm going to show you how to track your success. I'm gonna show you how to create a process to keep yourself on track, keep yourself on that financial roadmap. And listen, there are no cookie cutter solutions.

[00:14:05] Ralph Estep, Jr.: There are no watch this or read this book and you'll have all the answers. It doesn't exist. It's just a practical faith based approach, tailored to your unique situation. So, let me ask you again. Are you ready to break free from debt? Are you ready to find financial stability and achieve longterm success? And do you want to grow spiritually while building wealth? Well, don't let another day pass feeling stuck or overwhelmed. Book your consultation

[00:14:32] Ralph Estep, Jr.: now. Just go to askralph.com. When you get there at the top, you'll see a banner that says book a call with Ralph. And let's create your path to financial freedom and spiritual growth together. Again, that's at askralph.com. You'll see at the top book a call with Ralph, and I encourage you to do that today. Now if you're considering a reverse mortgage, here's the things I want you to do.

[00:14:54] Ralph Estep, Jr.: Number one, just like I did with Patty. Calculate all the fees and long-term costs. Put it out pen to paper and look at it objectively. When we looked at Patty, you saw all those, I talked about all those upfront costs. I mean over 12% when you add up the money that they were taken right at the front end. The second thing I'm going to encourage you to do. We didn't do this with Patty because she didn't want to burden her kids, but I truly believe that it is best to discuss the implications of these reverse mortgages with your heirs. Have a sit down with your family. Explain to them your situation.

[00:15:31] Ralph Estep, Jr.: That might not be an easy conversation and you don't have to do it where you're going to be a burden to them. You just want to explain to them what you're contemplating because maybe they have some other ideas. Which leads me to number three and that's, like we did with Patty, explore those alternate options. Maybe it's time to downsize.

[00:15:49] Ralph Estep, Jr.: I've done a few shows on that. Or maybe go for a traditional home equity loan or that home equity line of credit. Like we work with Patty's credit union. Number four, just like Patty did, consult with a qualified financial advisor. The Bible talks all the time about surrounding yourself with Godly counsel. And last but not least, number five.

[00:16:11] Ralph Estep, Jr.: And I probably should've put this first is pray for wisdom and seek Godly counsel. Start all your financial decisions with a prayer. And a lot of people say, Ralph, you're telling me I should pray before I make financial decisions. Absolutely.

[00:16:29] Ralph Estep, Jr.: God is there to be the person that we can speak to when we have a question and we need an answer. And I'm not one of these people that believes is going to speak to you from this loud, boisterous voice. But I truly believe he will show you a path. So like I said, last, but not least, pray for wisdom and seek Godly counsel. Now tomorrow, I'm going to turn the tables a little bit.

[00:16:52] Ralph Estep, Jr.: We're going to talk about how top upgrades to your home could actually make your home harder to sell. I'm going to tell you about a client I met down in Tennessee. We did a zoom meeting together and how he had wrote a bunch of money into his home and ended up not duke it making us so well when he went to sell.

[00:17:10] Ralph Estep, Jr.: So that's a show you don't want to miss. Remember this. My passion is to help you achieve financial success. I want to see you live out your dreams. And I want to see you grow in your faith. Just like Patty, I want you to find that financial peace of mind. And I know working together, we can master your finances from a Christian perspective.

[00:17:28] Ralph Estep, Jr.: So as I always end this show, stay financially savvy out there and may God bless you abundantly.

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