Who Is The Perfect Customer For A Reverse Mortgage?

Who Is The Perfect Customer For A Reverse Mortgage?
Who is the perfect customer for a reverse mortgage? It may not be who you think. Times have changed and so has the FHA Home Equity Conversion Mortgage. The perfect customer from 15 years ago may not be the perfect customer today. Listen now to learn more!

Who is the ideal reverse mortgage candidate? Well, now that depends. That’s my favorite answer. Depends are you asking me for 15 years ago. The ideal candidate or the ideal candidate today? Probably today. But we’re going to talk about both here on Reverse Mortgage Radio. So thank you for joining me today. Hopefully you enjoy the show. However, before we get into that, I do want to talk. Actually, there’s a punk rock group called Social Distortion and they have an unique song.

Called ‘The Story of My Life’, the way the rhythm goes is: “Life goes by so fast you only want to do what you think is right. Close your eyes and then it’s passed. That’s the story of my life.” Yes, we are aging. Everybody is. However, the US Census Bureau announced the nation’s 65 and older population grew by 34 percent during the past decade, of course, driven by aging Baby Boomers born between 1946 and 1964.

That’s a big population. I think that growth is like 13 million people or something added to the 65 plus population. How many of these people could benefit from a reverse mortgage? And how many of them are ideal candidates? Let’s talk about that. Before we do that, though, if you have any questions about reverse mortgages, please call me directly. My name is Bruce Simmons and I’m the reverse mortgage manager for American Liberty Mortgage here in Denver.

My number is 303-467-7821. You can also reach me online at Reversemortgageradio.net . I’ve been doing reverse mortgages now for 17 and a half years. I started January of 03. There is a fantastic book that I reference continually, at least once a week, if not more.

Called “Understanding Reverse”. This version is 2020.  It’s by Dan Hultquist,  who I think is the smartest guy in reverse mortgages. He’s not a loan originator. He works for a different company that has competing loan officers, although I don’t think their real big in Colorado. But he’s a trainer and he’s more on the higher level stuff. And I know him. Super nice guy shares willingly, information with everybody.

But his book that he puts out every year is very, very good. It’s called “Understanding Reverse 2020”. You just go to Understandingreverse.com and you can get his book. But what he’s talking about here is who is the ideal candidate? Because reverse mortgages, unfortunately, they’re often described as the product is not for everyone.  I’ve said this before and I’ll say it again, it grates on my nerves. I don’t like it when somebody says, “You know, this isn’t for everyone.”

Well, no kidding. What is for everyone? Heck, oxygen. Yeah, that’s for everyone. But, you know, a lot of people living in Katmandu at 20,000 feet don’t get enough oxygen. Other people can’t live at the ocean level because the air is too thick. Even when you’re talking about oxygen the air varies among people. Food varies. I love steak. My boss, who’s a strict vegetarian, does not.

If he had a steak, he’d probably throw up. Just keep that in mind. Yes, a reverse mortgage is not for everyone. Neither is driving a car or owning a house or having a family. But the thing is, that a lot of people still have these misconceptions about reverse mortgages. And some people that would be perfect candidates for a reverse mortgage will not consider reverse mortgages because misinformed advisors have painted the wrong picture of the product.

If you are a financial advisor and you’re listening to this, that’s probably not you. OK, if you’re listening to this show and you’re a financial advisor, you’re doing it to gather more information for your clients.  I applaud you for that. Thank you. I appreciate it. Call me with questions. I love to talk with you and run scenarios for your clients. But anyways, it’s the financial advisors and people just in general who have misconceptions about reverse mortgages and they’re not willing to have an open mind about this product.

If you know somebody like that, please try to get them to just listen to a couple of minutes of this show. Pick out the best couple of minutes. You can go to my Website and listen to the entire program, and you can pick out a little segment and say “Hey, spend two minutes and listen to this part of the program” where I’m talking about the ideal candidate.

 So what used to be an ideal candidate 15 or 20 years ago would be described as an older homeowner, cash strapped or somebody desperate, seeking a reverse mortgage as a last resort or house rich and cash poor.

That’s the way we used to describe an ideal candidate for reverse mortgages. Now we call, those are what’s called needs based borrowers. Will I help somebody who has spent all their money and now they’re doing a reverse mortgage as a last resort? You bet.

 In fact, I’ve got a customer right now, and unfortunately, she waited till she was pretty much out of money and she used up all her savings. She owns her home free and clear.  She has a five hundred thousand dollar home and it’s a nice home. But, she waited too long and now she’s not receiving any income. She was just living off her savings and investments, and now those are gone. She hasn’t gotten Social Security yet. She’s getting spousal Social Security. Well, she waited until the Covid 19 thing happened to get started on this. Now she’s having all kinds of trouble dealing with Social Security.   I need a letter saying how much she’s receiving from Social Security. She has to get this information from Social Security, and they won’t give her anything unless she proves, with a marriage certificate, that she was married for at least 10 years because she’s getting spousal benefits. Anyways, don’t wait till the last minute to get a reverse mortgage.

 There’s a great study I think was done in 2012 or 2013 called ‘Reversing Conventional Wisdom’, where financial advisors and an attorney together did a study comparing if somebody took a reverse mortgage out before they they used up all their money and they just used the reverse mortgage. Once that money was out, then they tapped into their investments. They compared it to somebody who used up all their investments and then did a reverse mortgage and used the reverse mortgage. And then they compared it to somebody using a combined strategy where they got a reverse mortgage, while they still had a lot of investments and didn’t need it right then. They could use the reverse mortgage sometimes,  then they paid it down some and the combined strategy extended the life of their portfolio by years. It makes a lot more sense to be able to do something like that.

 The bottom line here is don’t wait until last minute and don’t wait till your house rich and cash poor.  We do loans for people that who are just living on Social Security. If you’re in that situation, call me. There is a strong possibility that I can help you out and improve your financial situation.

 But today, a perfect candidate today is somebody who’s age 62 or 63 in their early 60s, still working. A lot of lot of my customers are still working, or they were before Covid 19, and have five to 10 years left on their mortgage. So they still have a mortgage payment and they may never need to use the funds of the reverse mortgage.

Let’s talk about these. So somebody is 62. The younger you are, when you start, granted, the less money you get.  I should explain what a reverse mortgage is. If you just tuned in, you’re listening to Reverse Mortgage Radio. And I haven’t talked about reverse motgages yet. So a reverse mortgage most of the time is an FHA insured product. There are non FHA insured loans. They’re unique. And I’ve done shows on those before.  They’re called proprietary or portfolio loans. But anyways, the ones I talk about most are FHA insured.

So they’re FHA insured loans that are specifically designed for people who are 62 and over. There’s no age maximum. You could be one hundred and five and get a reverse mortgage as long as you’re still living in the home and you’re keeping up on your taxes and insurance. But it’s for someone who’s 62 and over. It allows you to convert a portion of the value of your home into tax free money that you never have to repay as long as you or your spouse live in the home. You are still charged interest. It is a loan. You’re charged interest and mortgage insurance.  I’ve talked about that in past  shows too. The mortgage insurance protects your estate because it protects the lender if you ever end up owing more on the house than it is worth.  How could that happen? How could you end up owing more on a loan 5 or 10 or 15 years down the road than you do today? The reason is because you’re not making mortgage payments. Now you are paying your own property taxes and insurance because the house is still in your name. The bank does not take ownership of the house. The bank does not take your house when you leave it, if you pass away or you have to go to assisted living or something. The bank does not take your house. Your heirs still inherit it.

OK, but what happens is you’re still charged interest and mortgage insurance every month. That interest that you’re charged, you’re not paying it, most of the time. One of the benefits of this loan, and getting it early while you’re still working, is that you can make payments on it, but you don’t have to. It’s a payment optional system. But let’s say you don’t. That causes the loan balance to rise because the interest that you would normally pay, like with a regular mortgage payment, gets added to the loan balance over time.

Your loan balance grows larger and larger and larger. Every month you get a statement in the mail and you’re going to see two charges on there. One is for interest and one is for mortgage insurance. Those charges get added to your loan balance. Your loan balance will be higher next month than it was last month. And that’s the way the program is designed. That’s why we only loan between 50 to 70 percent of the value. We don’t loan 80 or 90 percent of the value, regardless of how old you are.

The older you are, the more you get. So somebody that’s 90 or 95 is going to get closer to 70 percent of the value because they’re not going to be living in the home as long. That is just the way actuarials look at it. You might live in the house for three or four or five more years. And during that time period, the loan balance can’t grow as large as it would if you were, say, getting the loan at age 65 and you might live there 20 years. The loan balance will grow a lot more over that 20 year period than it would over a five year period.

So anyways, what happens is the loan balance gets larger and larger. Now, odds are the value of your home is also increasing. Most likely, it’s increasing a lot here in Colorado and even through this Covid 19 thing. It’s still increasing. In fact, I think there was an article recently that came out that said housing prices are still growing in Colorado. From all the stories I hear, I would have to agree with that.

But anyways, the loan balance gets larger and larger. There is the possibility that your loan balance could exceed the value of your home. In that situation, let’s say you have a three hundred fifty thousand dollar home. Let’s say we loan you one hundred and seventy five thousand or fifty percent of it. You keep that loan for 20 years. Twenty years goes by.

Now, your home went up in value. Say it went up from $350,000 to $600,000. But then in year 18, boom, 2008 happens all over again. Property values tanked by 50 percent. Now you’re six hundred thousand dollar home is only worth $300,000. But your loan balance started out at one hundred and fifty. Maybe now that loan balance has grown to three hundred and fifty. In that situation, you’re fifty thousand dollars upside down.

In other words, the value of your home is only $300,000 but the loan balance is $350,000. You know what’s gonna happen? Absolutely nothing. As long as you live in the home, you or your spouse, and you pay your taxes and insurance and maintain it,  nothing will happen. You can continue to live there. The loan balance will continue to rise. But it doesn’t matter because we can never, ever kick you out.

 If you’ve got money available in a line of credit, or you’re receiving a monthly income from the loan, either option is possible, you will continue to have availability of that money. Meaning access to the line of credit or continue to receive the monthly payment. However, when you pass away or you have to move to assisted living, now your heirs inherit the home. Remember, the bank does not take your home.  Your heirs inherit it and they look at the statement. They say, “Oh, my goodness. Mom and Dad owe four hundred thousand on this house now and it is only worth three hundred thousand.

Your heirs are not responsible for that hundred thousand dollar difference.  In that situation, they can walk away from the house. Just mail the keys off to the lender and say, “here’s your problem”. In that situation, the lender sells the home for three hundred thousand or whatever they can get for it. They apply that to the loan. So they have one hundred thousand dollars shortfall. They apply it to the Mortgage Insurance Mutual Mortgage Insurance Fund to make up the difference for that loss.

What happens is, the mortgage insurance pays the lender for that loss and the lender will is not losing money.  Because they’re not losing any money, they’re not going to come after your heirs, your estate, or you, for that money because technically they didn’t lose any money. So it directly protects the bank, but indirectly, the mortgage insurance protects you, your estate and your heirs. That’s how a reverse mortgage works in a nutshell.

So keep that in mind while we’re going through this. But somebody that’s age 62 doesn’t  get as much money. They might only qualify, for fifty  percent of the value of their home. Whereas if you wait till you’re 90, you might get 70 percent, it depends on interest rates.

The way a reverse mortgage works is we have to pay off whatever mortgage debt is owed on the house. If you qualify for two hundred thousand dollars and you only have a one hundred thousand dollar mortgage, that means you have one hundred thousand left over and we can set that money in a line of credit that actually grows over time.

I’ve done whole shows on the benefits of the line of credit and how it grows over time.  You can go to my website at reversemortgageradio.net  and scroll through. I’ve got like three and a half years worth of radio shows on there. There’s a little two or three line description below each podcast that says what the show’s about. Find one about the line of credit and listen to it and you’ll learn a lot about lines of credit and how they work.

The line of credit grows over time. Well, if you take this loan out when you’re 62 or 63 or 64 the loan balance has more time to grow. But so does the line of credit. There’s a lot of benefits to people taking out the money early before you need it so that line of credit gets larger, larger, larger. Then when you do need it, say when you’re 75 or 80, you’ve got much more money than you would if you waited till you were 75 or 80 to get the reverse mortgage.  Especially right now because values are really good right now, and who knows what’s going to happen in the next 10 or 15 years.  Interest rates are so low right now, they’re record lows. It’s just crazy to be able to get mortgages under three percent. But that’s where we are. So that’s one of the benefits of getting the loan when you’re 62 or 63 or 64.

If you’re still working, why would you get a reverse mortgage? You don’t need it. You’re still working.

Well, one of the benefits with reverse mortgages is you can make payments on it if you want to. You don’t have to. But it’s a payment optional program. Let’s say you’re working and you’re earning decent money and you can pay your mortgage. If you pay off that hundred thousand dollar mortgage it will save you five hundred dollars a month in principal and interest.  Remember, you still have to pay your own taxes and insurance.

Now you’re saving five hundred dollars a month. Well, you could, if you wanted to, apply that five hundred dollars or any portion of it to the monthly payment to the interest that’s growing on your loan every month.  You can apply it to your loan. You get two benefits. Number one is, your loan balance won’t grow as fast, or you may even reduce it depending on how much you pay. But the money you put in to that will be added to your line of credit.

So now you pay five hundred dollars this month, your loan balance drops by five hundred dollars. Your line of credit grows by five hundred dollars. That’s a huge benefit. You do that even just six times a year. You know, and now you’ve got an extra three thousand dollars in your line of credit and your loan balance is three thousand dollars less than it would have been otherwise. Even more than that, because when we factor in compounding, which obviously I don’t have time to get into about now.

 I’ve got this customer who I’m talking to now. He’s been delaying doing a reverse mortgage, and now I think he’s close to deciding to do it. But he’s he’s been unemployed. He’s been living on savings. He just started his Social Security. By the way, he mentioned to me just today you can backdate your Social Security. So he was talking to somebody about getting his Social Security and he said, “well, I want it effective as of, say, last year, a year ago.” Well, he was able to get twenty seven thousand dollars. That’s the his first payment and that’s what he’s been living on during this time. But he’s gets fifty dollars less a month, but he gets his big lump sum because they backdated the start date for his Social Security. 

In his situation, he says, I’ve been interviewing with a company from Paris. He sells medical equipment and he knows, because of his experience, he can sell and make well over six figures  a year.  He said “I don’t know that I’m going to need the reverse mortgage.” Well, I think he’s finally come to the realization that it makes sense to get it in place now. He owes less than one hundred thousand dollars on his first and second mortgage, and he can make payments on it. So if he does get this job, which has been delayed over and over again because of Covid 19 but he may get it come the fall. He may not. Who knows? But he has a reverse mortgage in place, and if he does get it, then he can start making payments on the reverse mortgage. He’ll just increase the amount of money he has available to him later in life, and he’ll owe less money than he would otherwise.

So it’s a win win win situation. He’s finally waking up to that. We’ve been talking off and on for the last four months. He is a super nice guy. This is what happens, people go through this process in their mind, and the only option I have is to be patient with you. I have talked to so many people who are saying, “You know, we’ve been researching this for three years now. We’re finally ready, we think, to pull the trigger. And can you give us a quote?”  Yes, definitely.

Then I talk to some people who are just starting that three year, or one year, or maybe it’s only a month process. Everybody goes through this at their own pace. If you’re ever talking to a lender and you feel they’re pushing you to do it now, do it now, do it now…. Hang up; don’t do it.  Certainly don’t ever give your Social Security number to anybody that you’re just wanting a quote for a reverse mortgage from. Some companies, especially ones that hire Tom Selleck to be their spokesman, always ask for your Social Security. They say they need it to give you a quote. THEY DON’T. Don’t give anybody your Social Security number until you’re ready to do business with them. This is a little tidbit.

The other thing is, why would somebody who may never need to access their reverse mortgage do a reverse mortgage?

Why? Well, the bottom line is because you never know for sure.  It’s a security.

I was just listening to a podcast today about reverse mortgage counseling sessions. That’s one of the steps in the process to getting a reverse mortgage. You have to talk to an independent third party called a reverse mortgage counselor.  They’re approved by HUD. HUD is the Housing and Urban Development, it’s a government entity, and these counselors have to be approved by them. They will talk to you because they’re not looking to sell you something.

Whereas me, I’m a salesperson. I’m not going to try to push you into it. But there are a lot of people, like I just said, who will.  You shouldn’t sign anything until you talk to a reverse mortgage counselor.

 The number of people who are getting reverse mortgage counseling has increased since this whole Covid 19 stuff started. The reason is because, they realize during times like this, they like that safety net. There’s a number of customers that I’ve talked to that are unemployed now. Maybe they had a part time job.

One guy is a school bus driver that I’ve got an application going for now and he’s been furloughed from the school. We don’t need that income to qualify him, which is good. He is 81 years old. He’s thinking he’s going to work till he’s 85.  He’s still technically employed, but he’s not working. He has no income.  A reverse mortgage is really helping them out because we’re paying off their existing mortgage on it.  People just like to have that financial cushion.

There’s that sense of security if you know you’ve got access to money to either help yourself or family members.  I’ve talked to four or five people who’ve talked about either their situation or their family.  They’ve got their son and their grandkids recently divorced, and he can’t afford to be making child support payments. So the parents wanted to get a reverse mortgage to help him out so he could not fall behind on the child support. Now, they said he could, but I don’t know all the details about child support. I’ve been married 31 years and have never came across it myself. But I guess he could delay it. So there’s all kinds of situations why people who don’t necessarily need the money right now will get a reverse mortgage.  It’s a mindset.

 It’s just knowing that you have access to it and the other thing is, if you don’t use it, the line of credit grows over time. So that line of credit gets larger and larger and larger.  because you never know what’s going to happen in the future. You get this even at age 70.  Let’s say you’re 70, 72, 75 and most of the money is going into the line of credit. Let’s say you just have a fifty thousand dollar home equity line of credit right now in your loan. And I’ve done loans for people who got a line of credit at the bank and the home equity lines of credit only last 10 years. Then you have to reapply. Well, ten years ago, they were 65 and they were working still and then they retired. Now they can’t qualify to renew that line of credit, and they’ve used some of it. Now the payments gone up. Even though it’s just an interest only payment, now at the end of the 10 years, it becomes like a 15 year amortization. So they have to start paying back principal as well.  Even though the rates are low, the payment has increased because they have to pay interest and principal.

I’m getting way off the mark here. I apologize. But there is a lot of people who can benefit from a reverse mortgage if they just didn’t have the mindset that it’s a bad thing.

So if you know somebody like that, please have them listen to this show or call me. My name is Bruce Simmons. I’m the reverse mortgage manager with American Liberty Mortgage right here in Denver. We’re in the Highlands, they call it LoHi. Anyways, my number is 303-467-7821. Or my Website is reversemortgageradio.net.  I thank you so much for listening to the show today. I look forward to eventually talking with you and maybe meeting you, hopefully. Hope you have a fantastic day and stay safe.

Bruce Simmons

Bruce Simmons

I absolutely love what I do - working with senior homeowners to help them live a more comfortable, flexible and secure retirement. I have the absolute best customers in the world, and even though I worked in the forward mortgage business for a number of years, I could never go back to doing conventional loans. I'm a 100% reverse mortgage specialist.

Bruce Simmons

Bruce Simmons

I absolutely love what I do - working with senior homeowners to help them live a more comfortable, flexible and secure retirement. I have the absolute best customers in the world, and even though I worked in the forward mortgage business for a number of years, I could never go back to doing conventional loans. I'm a 100% reverse mortgage specialist.

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