Learn The TRUTH About Reverse Mortgages with Todd Christensen | Ep. 268

Intro/Outro: You know what it is? That’s right. It’s time to talk money with your money nerd and financial coach. Now tighten those purse strings and open those ears. It’s the money talk with Tiff podcast.

Tiffany Grant: Hey everyone. I’m so excited because I have Todd Christensen on the line. Now once he gets started talking, you might be like, Oh, this guy sounds familiar.

Well, you’d probably be right. Actually you are right because he was on episode 188 of the podcast where we talked about spending personalities and that was a really good episode. So if you haven’t listened to that, please go back and listen to it because you might realize what kind of spender you are.

But today we want to talk about reverse mortgages. So, hey Todd, how are you today?

Todd Christensen: It’s so good to be with you again. I’m doing great. Thanks.

Tiffany Grant: Awesome. Awesome. I’m glad to have you back. I love repeats because there’s a lot to talk about. Uh, so with this topic, um, I wanted to get into reverse mortgages because for one, I’ve never talked about it on the podcast before.

And then for two, I feel like a lot of people don’t even know what they are. And so let’s just start off there. What are reverse mortgages?

Todd Christensen: So it’s a great question because, uh, we’ve heard of them. A lot of people may have heard of them, but they have no idea what they mean, what, what they, how they work. So reverse mortgage is a way of, uh, for Um, people who are 62 or older to tap into the equity in their home and use it, uh, for whatever purpose they choose and, and then not actually have to have a monthly payment on that, on that mortgage.

So it’s a way of getting, not only getting rid of your mortgage, but also getting some Uh, cash income, uh, cash flow through your senior years.

Tiffany Grant: Wait a minute. Wait a minute. Wait a minute. So. That’s too good to be true, right? Exactly. That’s exactly what I was going to say. And I remember seeing, you know, when I would, used to watch like, um, you know, Television and seeing like the little infomercials come up about reverse mortgages.

And I’m like, this just seems, sounds too good to be true. So I know there has to be some catches with this.

Todd Christensen: Yeah. So you’re using the equity in your, in your mortgage. That’s what the lender is, is doing there. They’re giving you money against the value of the home that you own. Basically, when you take out a reverse mortgage, The lender pays off any mortgage that you have left and you, so you’re, you’re getting some cash, whether you’re taking out a lump sum, there are some, uh, limitations, uh, for how much you can take out or whether you get it over a certain term or whether you get it over a lifetime, uh, but at the end of the home mortgage, basically it doesn’t have to be repaid until the owner of the home either passes away.

Okay. The borrower passes away or they move out of the home, at which point the mortgage gets paid off by the, typically by the sale of the home. Or if a family member wants to pay for it, they have the option to buy, to buy it. Uh, but the home is usually, uh, the, the value of the, what you borrowed. So the value of the mortgage is going up every month instead of coming down.

But it’s still generally less than the value of the home. So you can pay off the home and there still might be some, uh, equity left from, from that, that you can distribute, have distributed to your heirs. That’s not always the case. That’s kind of the catch is you don’t know. I mean, the longer you live.

The more, uh, the less equity you’ll have in the home to disperse your errors as you’re passing.

Tiffany Grant: I see. I see. Okay. So I heard you say that it’s for 62 and up. Why is that stipulation there? Is it because the life expectancy?

Todd Christensen: Yes. Yes. The, obviously the, uh, the longer we live. Uh, the less we’re going to be able to borrow from that home equity from that, um, the reverse mortgage as the calculations take that into account.

So if, if you want to have a short, if you want to lump sum, uh, you only get a certain percentage of the equity that’s available. If you want to take a 10 year. term, that’s, you’re going to get a little more money than if you take a 20 year term. Or if you give a life, there are options where you can just say, I want a certain amount.

I want a payment every single month for as long as I live in this home. And the calculations take that into account so that the more, the longer you’re likely to be in the home, the lower your monthly payment. So there are stipulations, but at 62, uh, that’s, that’s kind of the, just the limit. They have to put a limit there.

Otherwise it’s kind of, you know, if you’re, if you’re 40 and trying to take out, wanted to take out a reverse mortgage, uh, you know, we’d be talking about 20, 30 a month, you know, 50 a month. It would, it would be probably pretty minimal, but, uh, it just depends on the size of the home and the amount of equity you have in it.

But when I’ll tell you, I tell you one of the things that, um, I used to, until I became a reverse mortgage, uh, was, was. Uh, was certified. I’d heard a lot of bad things about reverse mortgage, and I don’t know if you have, uh, heard that, but you know, Oh, if, if you die, if you pass away and your spouse is still living, they’re going to have to get kicked, they’re going to get kicked out of the home and that, that actually, those were some, those were some not Yeah.

Um, uh, irrelevant questions to ask years ago, but there were some changes that, that happened that, uh, if, as long as you get the, that your spouse is on the paperwork, whether they’re a borrower. Or a, um, or not a borrower if they’re not on the title of the home, then they, they at least get to stay in the home, even if the, um, the borrower passes away.

They may not, they may not continue to receive any more payments, but they can remain in the home, um, even after their spouse passes away.

Tiffany Grant: So the key there is if the spouse is on the title of the house.

Todd Christensen: Okay. Yeah. If they’re on the title, typically they’ll, they’ll be, uh, co borrowers, which is w and, and then the amount of the money, uh, the, the monthly Payout is going to be determined by the younger, the youngest, the age of the youngest borrower.

And it can’t be younger than 62, as I mentioned, if somebody, and I was just, I was just talking to a couple of last week, uh, where she’s 59 and he’s in his mid sixties. Uh, and so she could not be, uh, a co borrower cause she’s too young, but as long as she’s on the paperwork, um, if he passes away. And she would continue to be able to live there.

She just wouldn’t continue to receive a monthly, uh, the, the, uh, the payout.

Tiffany Grant: I see. So as someone who’s listening to this and I’m like, okay, you know, I’m thinking about my grandpa. Um. And just thinking about, okay, well, this fit for him. What are some things that we should be thinking about? Like if people were listening, like myself who have grandparents or parents that are eligible, um, what are some things we should be thinking about in order to educate them about this?

Like, Like, I know we went over what are some of the qualifications that you have to be over 62. Um, you have to have enough equity, but what else should we be thinking about if we want to, you know, give them this option?

Todd Christensen: Yeah, that’s a good question. The, uh, probably one of the biggest things for family members to, to understand is the effect of a reverse mortgage on the, the home’s equity.

It’s drawing down the equity as it’s paying out. The, um, the, this, uh, this payment every, every month, or if they, you know, you can actually get out the, the, the borrower can take out a, a line of credit instead of a monthly payment or both. Uh, there’s, there’s a lot of flexibility with it, but if the family member, um, and, and the borrower.

So that whether the child, a child or a grandchild of the, of the borrower is expecting to inherit that home, that’s, that’s an important conversation to have because if, uh, if they take out the reverse mortgage, it’s going to be more difficult to pay that off. Over time, because the mortgage is going is increasing.

As I said, usually not as much as the, at the value of the home. And even if it did, here’s, here’s, here’s something really interesting. Tiff, you got to, uh, it is, it’s pretty cool that even if the, if the value of the home or the mortgage exceeded the value of the home. The, the family is able to pay it off at 97 percent of the value of the home.

So they can actually get a 3 percent deal on the home if they, if they so choose. In many cases though, that’s not possible for, for the. Children or the grandchildren to pay off. So, um, the home does get sold. The children or the grandchildren are not responsible for paying anything more than anything. Uh, it’s not, it’s not a debt that is inherited by the children.

It goes to the estate, but the estate then sells it and, um, then, and that, then that’s the end of that.

Tiffany Grant: Interesting. Okay. So, and I guess I’ll get a little personal here because I’m just curious on how this could potentially work. So my grandma passed away in September, which was very, very unexpected. Very unexpected.

Yeah. Thank you. And so. Uh, you know, funerals are very, very expensive now. She did have some insurance. She did have some life insurance, but it was, it didn’t cover the full cost. And so my grandpa had to get into a little debt in order to finish paying for the arrangements. And so, would. In this situation, would a reverse mortgage be, um, an option for him to kind of transfer, like to kind of refinance or consolidate that debt?

Or would other things be more feasible for that particular situation? Like who is this good for? Yeah,

Todd Christensen: right. That’s a good question. Here’s, here’s the thing. I mean, I, I obviously can’t give individual financial advice, but. If the proceeds are, can be used for any purpose, uh, what the borrower chooses to do with them is up to the borrower.

But generally there, I mean, you, you, you can, you can also, you can look at other alternatives. In fact, as you’re going through, uh, if somebody wants to look into a reverse mortgage, they have to meet with a reverse mortgage counselor. And one of the requirements of that counseling session is to consider alternatives such as what about just a standard.

Home equity line of credit, uh, which you can borrow against, you know, and you know, uh, the difference being that you have to make monthly payments on that and eventually pay it off or looking at, uh, maybe a county or city programs where you can have them put a stop to tax payments for. Uh, the remainder of the seniors, um, uh, residency in the home.

There are other options, uh, the, what you can do. I mean, there’s a lot of really cool things you can do with a reverse mortgage. There are, and, and, and so this might be something, cause I, I, when I learned about this, I went right to my wife said, okay, I’d never really thought about a reverse mortgage, but at least we got to consider this because you could even use a reverse mortgage, purchase a second home.

You could buy a, like a four plex. You could use it to purchase a four plex and rent out the, as long as you’re living in one of the units, a duplex, triplex, four plex, whatever you live in one of the units, collect rent for the rest of your life and never have a mortgage payment. Mm. I, it sounds complicated, but there’s, that’s one of the really interesting options that I have heard people looking at doing.

And I, and I told my wife, so that’s what we got to at least consider.

Tiffany Grant: Right. Right. And so are these reverse mortgage rates kind of like regular mortgage rates or like, what’s the difference there? They’re going to be

Todd Christensen: pretty close. Um, it’s, it’s not going to be, you know, Right now, for example, mortgage rates, and I haven’t looked at the reverse mortgage rates recently, but we’re currently at a 7 percent for a new home typically.

So reverse mortgages are probably going to be in that cent very similar to that. And, uh, of course the higher the interest, and most, except for the, if you take a lump sum, that can be a fixed interest rate. But most of the others are, uh, variable interest rates, so the interest rate will go up and down each, each, um, maybe monthly or yearly, depending on which one you choose.

But as the interest rate goes up, it’s going to be less available to you, of course, to borrow against the equity, the value of your home. So it will definitely have an effect on how much you get, uh, or have access to. But, you know, this is 7%. Uh, are we going to be, go back down to the days of the 4 percent and the three and a half percent?

I, I wish I could say yes. Historically, you know, you go back to the eighties where it was 12 and 15 and 18 percent other than those extremely high months, uh, years, a decade and are really low decade of the 2000s and early 2000. 2010s and early 2020s, 6 7 percent is pretty normal. But yeah, that’s probably about what you can expect going forward is just watch, watch the rates as they will vary and it will have an effect on how much you have access to.

Gotcha. Gotcha.

Tiffany Grant: So of course we have to hit on like, well, we hit on some of the cons, but who is this not good for? Like who should not be considering a reverse mortgage?

Todd Christensen: Yeah, it’s a good question. Yeah, you got to understand that even with the reverse mortgage, you still have to pay your property taxes. The lender wants to make sure that you’re keeping up the value of the home so that you have to do certain, uh, You have to keep the value, you have to keep the home in good condition, so you’re not going to be able to borrow, uh, against, uh, a home that’s, that’s about to fall down and whether now or in the future, so somebody who, who’s can’t really take care of their home is probably not a good idea, is probably not a good situation for them, um, they also have to it.

Continue to make HOA payments if there’s a HOA involved with if you stop making payments to any of those three things, those three entities, you stop making your property tax payments, your, uh, you stop keeping up the home and you stop or you stop paying HOA, you could default on the loan and you could lose the home.

Uh, somebody else who might not, might not be a great idea for if you know you’re not going to be in the home for very long. Uh, because it’s, you take out the mortgage, there are fees. A lot of those fees, uh, are incorporated, can be or are incorporated into the closing, which means that those fees are going to be gathering interest over the time of the, of the mortgage, of the reverse mortgage.

So if you’re only, if you think your health maybe not, may not permit for a few, um, more than a few years, it might not be a good idea. Or if you don’t plan on staying in the house more than a few months a year. Maybe you are a snowbird and you, you, you go south for the winter. You have to live in the home, um, at least six months and a day every, every year in order to, um, maintain a reverse mortgage.

Tiffany Grant: Oh, interesting. So that’s an interesting stipulation, but I guess it makes sense if they want you to keep up the house. Cause I mean, if you haven’t been there in half a year, you don’t know what’s going on. Right.

Todd Christensen: Right. Um, something else to keep in mind that if you are, uh, Um, if you get married, if you, maybe whether you’re single, uh, at the beginning of the reverse, reverse mortgage or you’re widowed, uh, and you remarry that new spouse does not have the same protections, uh, they’re not going to be on the reverse mortgage.

So that if something happens to you, uh, they’re at the, when you pass away or when you move into a, an assisted living for, I think it’s 12 months. Consecutive months, they’re gonna have to either pay for the home, uh, pay for, pay off the mortgage or move as well. So there are some definitely, uh, things, uh, cons, uh, considerations to, uh, be aware of.

Tiffany Grant: So, Todd, I mean, this sounds very, very interesting, um, and especially as someone who has, you know, a grandpa that does qualify. Of course, he’s over 62. And, you know, just thinking about, you know, my mom, when she does get up there in age, she’s not quite there yet, but mom, if you’re listening, I’m sorry. Um, but, um, you know, just thinking about this as a young person and how I could help like, You know, the older generation, you know, kind of understand another option that may be available to them.

So I just want to make sure that we’re hitting on all the pros and cons. Cause see, for me, like you said at the beginning, right, about the misconceptions for me, I saw those commercials, you know, the infomercials and I’m like, Oh gosh, here we go. Another scam or something. So, um. I want to make sure that people are clear, like this is a legit thing that you could do.

And you do have to go to a qualified person like Todd, um, in order to even, you know, get access to this. So that is good. Um, not just some Joe Schmoe can put you on a reverse mortgage. Right. Um, and then also just letting people know what it is and the process behind it. Now. If I have one more question, because of course my brain is always going, going back to if the person who has the reverse mortgage passes away, um, with the estate.

Okay. So the mortgage company, of course, they’re going to want their money. They take their money. Um, once they do that, then the house is the estates. Now it now gets passed on, or are there other, any other stipulations? If

Todd Christensen: the estate can pay, pay off the mortgage. Then it can be passed to the, the heirs, correct?

If, uh, if not, then it is the, uh, owned by the lender and they will turn around and sell it.

Tiffany Grant: Gotcha. Gotcha. So pretty much like any other mortgage, really. Yeah.

Todd Christensen: Yes. So one other thing I wanted, I wanted to share because, you know, you brought up the question, what happens if you’re in a home and after a little while you realize it’s not for you?

You’ve got the reverse mortgage. You want to get out of the reverse mortgage that you can pay off the reverse mortgage at any time. There’s no, um, there’s no stipulation saying you can’t, you have to maintain it. You, so let’s say, okay, well, I’ve got a reverse mortgage and we’re in it for five years and we realize, you know, This is, this is not working.

We’ve got to move somewhere warmer or somewhere closer to other family. Then you sell the home. And you keep the equity. I mean, you keep the difference between what you sell it for and what you owed on the mortgage, just like any other home. Um, the difference being that from the time you get the reverse mortgage, the interest is growing and the size of the, of the mortgage is growing, but it starts, it typically starts small and gets bigger.

So you can still move, sell the home, pay it off and use equity that’s available to you.

Tiffany Grant: Gotcha. Okay. So now that you say that, and along that same vein, is it possible to refinance out of the reverse mortgage? So let’s say you don’t want to move, but you, or you don’t want to sell the house because maybe you want to use it as an investment property or whatever, um, but you realize that a reverse mortgage is not.

The ideal situation for you, you know, maybe something changed. And so can you refinance back into like a conventional loan or anything like

Todd Christensen: that? I’m sure you can, as long as the value is greater than the more, the reverse mortgage that’s owed, uh, I’m sure there are going to, you’re going to be able to find, lender.

To basically, I gave you a mortgage on that. Yeah. Refund it basically refinance. Yes, you can refinance.

Tiffany Grant: Gotcha. Okay. All right. So cool. Well, I learned a ton today cause I, I came in, I came in very wet behind the ears when it came to reverse mortgages. So now I, I understand them a lot better actually. Um, and it’s not just, you know, some.

Yeah. The lenders have

Todd Christensen: to be approved. There’s a HUD approved lenders, a list out there. And we, uh, those of us who are reverse mortgage or what we call the technical term is home equity conversion mortgage or HECM, H E C M. Those of us who are HECM. Lives that a reverse mortgage, we can’t refer to a specific lender.

All we can do is refer to, uh, the list that HUD has. So it is, it is legit. But if you do see some of those ads, uh, there are some agencies, maybe there are some lenders that try and, and.

But I, I, of course, being a, being a HUD approved HECM counselor, I’m going to recommend you sticking with a, a HUD approved lender.

Tiffany Grant: Nice. Nice. And see, just when I said I’ve learned so much and thought that there was nothing else I could learn, I learned what HECM is.

Todd Christensen: Well, my HECM.

Tiffany Grant: That is awesome. You are always so helpful.

So I’m full of knowledge and I’m so glad that you brought it on the podcast today. So if people were interested in learning more about you, reverse mortgages, maybe they’re, um, they’re playing this for their, uh, grandparents or parents and they’re like, Ooh, I want to do this. How could people get in contact with you?

Todd Christensen: They can reach me at, uh, through our organization, money fit. By Debt Reduction Services and it’s money fit.org and or they can email me, Todd t o d d, at money fit.org.

Tiffany Grant: Perfect. Perfect. And I’ll make sure I have all of that information in the show notes. And I appreciate you coming on the show and.

Educating us. And I’m saying us because myself included on reverse mortgages. This was jam packed with information. And if you all are listening and you want to get in touch with Todd, I’ll have all of that in the show notes. So thank you so much, Todd, for coming on the show again. It’s been my pleasure.

Thank you. Bye. Sure. Learn what heckum

Todd Christensen: is. Oh, my heckum.

Tiffany Grant: That is awesome. You are always so, um, full of knowledge and I’m so glad that you brought it on the podcast today. So if people were interested in learning more about you. Reverse mortgages. Maybe they’re, um, they’re playing this for their, uh, grandparents or parents.

And they’re like, Ooh, I want to do this. How could people get in contact with you?

Todd Christensen: And they can reach me at, uh, through our organization, money fit. By Debt Reduction Services and it’s money fit.org and or they can email me Todd t o d d, at money fitt.org.

Tiffany Grant: Perfect. Perfect. And I’ll make sure I have all of that information in the show notes.

And I appreciate you coming on the show and. Educating us. And I’m saying us because myself included on reverse mortgages, this was jam packed with information. And if you all are listening and you want to get in touch with Todd, I’ll have all of that in the show notes. So thank you so much Todd for coming on the show again today.

It’s been my pleasure. Thank you.

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