Transcript
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Ralph: We received this message just the other day from a listener named Paul.
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Paul: Hey Ralph, I've been seeing these television commercials about something called a reverse mortgage and they really seem too good to be true.
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I've been struggling to pay my bills and now I have some medical bills which need to be paid and I simply don't know where I'm going to find the money.
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My house is paid off and besides needing some repairs is really fine for me as I get older.
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But the thought of having some extra cash is really appealing.
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I just don't want to make a huge mistake.
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I've asked my children about it, and they said to do what I think is best, but I am still struggling with the decision.
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You asked for questions, so this is one for the show.
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I hope you can shed some light on this for me and help me make the right decision.
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Thank you, Ralph, and God bless you and the show.
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You are truly helping people like myself make better financial choices.
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Ralph: Well, we're going to answer your question today, Paul.
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But are you a senior wondering if a reverse mortgage could help unlock equity in your home?
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We'll stay tuned to hear the pros, the cons and steps to take when considering a reverse mortgage, we're going to break it all down for you.
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So don't miss today's show.
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welcome back to the show on this beautiful Sunday here on the form.
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I'm telling you the sun is shining.
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The rain has stopped.
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The weather's getting warmer and the cows are shedding their winter coats.
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And they're eagerly awaiting to be set free onto their greener pastures.
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After spending the last few months on concrete and mud.
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I guess it's like a spring break for them.
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I am really excited to share today's topic with you.
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In today's episode, we're diving into the world of reverse mortgages here.
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You've seen these commercials on television with people like Tom Selleck.
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We're going to decipher what they are.
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We're going to tell you what they are, how they work, the pros and cons.
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But most importantly, we're going to talk about how to determine if, one may be right for your unique situation.
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These reverse mortgages have become more popular in recent years as ways for seniors to access home equity.
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Without having a sell or downsize.
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That's the cool thing about them.
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But truly my friends, they aren't for everyone.
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And it's important to fully understand how they work before moving forward with one.
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So, whether you're considering reverse mortgage for yourself, or want to advise an elderly parent.
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This episode is for you.
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So let's get started.
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Before I get started, don't forget to subscribe to the show and join our email list.
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You can do that at askralphpodcast.com.
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Cause you don't want to miss tomorrow's show where I'm going to discuss.
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giving it over to God.
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That's our spiritual Sunday topic for this week, giving it over to God.
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And letting him handle it for you.
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So let's jump into our topic for today.
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First, let's start by understanding what exactly is a reverse mortgage and how does it work?
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This is not rocket science.
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But it's a little bit unusual.
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Reverse mortgage is a special type of loan that allows homeowners age 62 and older.
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And that's the key.
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To convert part of the equity in their home and to cash.
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You can receive funds as a lump sum.
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You can get a line of credit.
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They'll pay you monthly payments.
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If you wish, or a combination there of.
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But here's the unique part.
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You don't have to repay the loan as long as you continue to live in the home.
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And that's where it gets a little bit cloudy.
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So you want to make sure you read the fine print on this, but basically if you're 62 or older, And you have equity in your home.
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The reverse mortgage would allow you to receive money from that home to use for your finances.
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With a traditional mortgage, you make monthly payments to the lender.
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That's what all of us become accustomed to every first of the month or whenever you have to make your mortgage payment, you send them a check or you go online and make that payment to them.
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But a reverse mortgage works in reverse.
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That's why it's called a reverse mortgage.
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The lender pays you.
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And you don't have to worry about monthly payments.
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Here's the way it works.
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The loan simply accrues interest and is eventually paid back.
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When you sell the home.
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Move out or unfortunately pass away.
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So let's talk about some potential pros to these things.
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And this is obviously the biggest one.
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It gives you access to tax-free cash.
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From your home equity without having to sell or downsize.
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That's the key to this, so if you've got a home.
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That's worth $200,000.
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You've got a ton of equity.
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Now let's say you don't have a mortgage at all.
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You've got a ton of equity there you could use by getting reverse mortgage.
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Now there are rules and regulations about how much they'll lend you.
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I'm not even going to get into that today.
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We're just talking about an overview of these things.
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The other thing it will do is allow you to receive extra money monthly.
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To cover expenses in retirement.
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So let's say for example, that you haven't done a great job of planning for retirement.
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But you've got this equity in your home.
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Well, one of the things you can do, we talked about, you can get a lump sum.
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You can get a monthly payment, you can get a monthly payment each month to subsidize your living expenses, rather than taking it all at once.
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And incurring all of that interest all at once.
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You can receive these payments on a monthly basis and then your loan amount just increases each month.
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So obviously your interest is going to grow as well.
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Now let's say that you already have an existing mortgage.
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Well, one of the things you could do with a reverse mortgage.
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Is pay off your existing mortgage.
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You could also pay off your credit cards Or other debt you've may have incurred.
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And, free up monthly cash.
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Another thing it can be used for.
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And a lot of people don't think about this.
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It gives you the ability to afford in-home care services.
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Now this has become very vital for people that allow you to age in your home.
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Rather than having to go into a nursing facility.
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This may give you enough money to hire that home aid or that visiting nurse or something like that to help you stay in your home.
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It's also a way to finance home improvements.
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And modifications or accessibility.
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I've had a couple of clients that have used it to put ramps in, or one that put in one of those chair lifts for their stairs.
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So it's a way to finance home improvements.
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It can also cover emergency costs like medical bills or home repairs.
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Like Paul mentioned, he's got some upcoming medical bills, so this is a way to handle those things.
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And of course with anything.
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When there's pros, there's always going to be some cons.
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So let's address those right now.
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The thing you need to understand with any kind of loan and especially reverse mortgage is there are some upfront costs.
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You're going to have to pay an origination fee.
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You're gonna have to pay for an appraisal fee and there'll be other closing costs.
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Think about it.
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Just like when you bought the home or you did a refinance, they're going to be that same sort of thing.
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The lender's going to want to see.
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How much the house is worth.
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You're going to have to go to an attorney.
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You're going to have to do this reverse mortgage because they're going to have you sign documents that basically.
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Give them a note on the house, the thing you also need to understand it.
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They don't talk a lot about this on the Tom Selleck commercials.
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The interest rates for these loans are generally higher than traditional mortgages.
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So you may be better off to refinance your home.
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Maybe take a cash out refinance.
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Yes, you're still gonna have a monthly payment.
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But there are ways that you can structure that because these interest rates on these are generally a little bit higher and the terms aren't great.
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I am not an expert on reverse mortgages.
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But you've got to really read the print.
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For example, if you had to go into some sort of rehabilitation for more than 30 days, there are all kinds of rules about having to stay in your home.
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The other thing about these reverse mortgages, they're very strict on the amount you can borrow.
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Depends on your age.
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It depends on your home value and the current interest rates.
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Another thing you need to be aware of.
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Is your equity in your home is going to decrease over time as the interest accrues on the loan.
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So since not making those monthly payments.
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Basically the way that it goes instead of the balance coming down on the loan.
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Actually the balance is going to go up on the loan over time.
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So your equity is going to decrease.
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So, what does that mean?
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Well, at end of this, your heirs will inherit a lower home value and have lower equity in your home.
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It also may trigger an income tax issue if you receive more than a value on that, but not really seeing that play out, but in my research, in preparation for today, that's one of the things they mentioned.
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So Ralph.
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How do you determine if a reverse mortgage is the right move?
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And that's what Paul's basically asking.
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Hey Ralph what do I need to do here?
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Right my kids.
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Aren't really giving me a lot of guidance.
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And I appreciate that.
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I think his kids are just trying to let dad make his own decision.
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So here's some key steps.
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This is critical review your overall financial situation do you have enough retirement income without tapping into home equity?
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I really think this needs to be a last resort.
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These commercials that make it glamorous and this is fantastic.
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Yeah.
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Maybe.
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It depends on your circumstance are there other options to bridge gaps like downsizing are you really better off not being in the home?
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Is there a second floor?
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And as you get older, do you really want to be going up and down steps?
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Is it in the right location?
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Is it too big for you?
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So maybe the idea of downsizing relocating, or maybe something simple as getting a home equity loan would help bridge that gap and resolve this problem.
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Which leads me to the second step.
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You got to calculate your cost.
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You got to factor in all the fees.
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The loan interest, and most importantly, the decreasing home equity over time.
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And compare those costs to alternatives.
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Step number three, you got to consider your timeline.
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When you might need to move how long will this home serve your need?
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You don't want to lock into a reverse mortgage.
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And then six months later determine that you need to go into skilled nursing or something, some sort of assisted living.
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And here's the key folks.
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I stress this all the time and.
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I hope I give you good information on this show, but sometimes I have to say to you, look.
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This is complicated.
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You have to talk to a trusted advisor and I'm going to say that in this case, I would not recommend anybody getting a reverse mortgage without talking to a financial tax and legal advisor before committing to it.
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It is really important because there are all kinds of nuances to this and you don't want to make the wrong decision.
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Like Paul said, he doesn't want to make a big mistake.
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So seek those people.
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If you want to talk with me, you can go to my website.
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That's at askralphpodcast.com/store.
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There you can schedule a consultation with me.
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It doesn't matter where you're located in the world.
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Zoom has opened that up or we can actually do a telephone call.
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But reach out to somebody that you trust.
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Talk to a financial tax or legal advisor before doing it.
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And then once you really consider doing it, shop around you don't have to go with a guy that was on TV.
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Compare rates.
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Compare terms.
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And compare the closing cost to find its best fit with you.
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And then I think this is an important part to discuss this with your hiers.
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Like Paul said him each talk to his children about this.
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And they said do you do whatever you think is best dad?
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Now?
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I don't know whether that's a legitimate or heartfelt thing or was it just kind of blowing them off?
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I don't know.
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But I think it's important to discuss this with your hier and explain the impacts on their inheritance.
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You don't want them to be surprised when they find out that Dad's house is not paid off at all.
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And really there's no equity in it.
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And so we're going to have to scramble to sell it, just to pay back the loan.
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And this is the key folks.
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read the fine print.
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You would be shocked.
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How many of my clients sign things they haven't really read or fully don't understand.
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Ask questions.
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And when they give you answers, ask more questions.
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This is a big deal.
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Folks.
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You want to make sure you're making the right decision.
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The bottom line is that reverse mortgage can be helpful for some seniors.
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But they also come with trade-offs.
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You've got to take time to weigh all your options and seek wise counsel.
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With that said.
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With thorough research and planning, you can make the best choice to protect your financial security.
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Now, before we wrap up, I want to remind all of our listeners to visit our podcast page.
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That's at askralphpodcast.com.
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There you can leave us a review, share your thoughts like Paul did record a message for us to play on the show and we'll answer your questions.
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More importantly, make sure you join our email list to enter into our weekly $25 Amazon gift card drawing.
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We're seeing people.
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Coming in to that list and we're sending out our notifications when we have new episodes drop.
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So.
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It's a great thing to get involved with.
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So you'll know what's going on with the show.
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And like I said, you can also schedule a consultation with me to discuss your specific circumstances.
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Well, that wraps up our overview of reverse mortgages.
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What they are, the pros and cons and steps to take.
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If considering one.
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I truly hope this episode has equipped you to have informed discussions with your loved ones and your financial counselors.
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The truth is reverse.
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Mortgages can unlock home equity, but shouldn't be taken lightly.
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As always.
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I say this again.
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Pray for wisdom.
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That's what the show's about.
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We talk about finances.
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We also talk about the impact of that on your spiritual walk.
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And seek godly counsel as you steward the resources God has given you.
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Be sure to visit our website.
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Like I talked about at askralph podcast.com for more episodes on practical financial topics.
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With a Christian perspective, there's over 300 episodes out there.
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I encourage you to go back and listen to them.
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I apologize if the audio wasn't good when I first started, but we're learning.
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So my friends, as I always say, stay financially savvy.
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And may God bless you in all your decisions and in your financial life.
