A Fresh Look At Reverse Mortgages with Harlan Accola | FaithFi
November 10, 2023
A Fresh Look At Reverse Mortgages with Harlan Accola
Faith & Finance with Rob West
There’s no doubt that a reverse mortgage could make your retirement years more comfortable. Are there other reasons to take advantage of them? Harlan Accola joins us today to make that case.
WHAT IS THE BIGGER PICTURE AROUND REVERSE MORTGAGES BEYOND THE COMMON PERCEPTION?
A reverse mortgage is like a savings account or retirement fund but for your home equity, allowing you to unlock and use the money invested in your home.
It is government-guaranteed for safety, ensuring you can use your home's value without the risk of owing more than the home's worth.
It transforms a typically illiquid asset into a liquid one, providing financial flexibility in retirement.
WHAT ARE THE DIFFERENT TYPES OF REVERSE MORTGAGES?
It's crucial to differentiate between old 'Shared Equity' loans, which could be risky and lead to loss of ownership, and modern, safer FHA Home Equity Conversion Mortgages.
These contemporary reverse mortgages allow you to use a significant portion of your home's value while ensuring that you never owe more than the home's worth and don't have to repay until the home is sold or the owner passes away.
This provides a lifetime guarantee against the loan exceeding the home's value, regardless of market conditions.
CAN REVERSE MORTGAGES BE MISUSED?
Yes, like any financial product, reverse mortgages can be misused; financial tools can have both positive and negative effects depending on their use.
Misuse can be compared to other financial scandals where lack of understanding and improper use led to significant losses.
HOW DOES A REVERSE MORTGAGE AFFECT LEAVING A HOME TO ONE'S CHILDREN?
Contrary to common belief, utilizing a reverse mortgage can potentially leave more to one's heirs by freeing up equity to invest in life insurance or other assets.
It's a myth that children will always want their parents' home. Often they may prefer the liquidity of assets over inheriting a physical property.
A reverse mortgage allows for 'warm hand giving,' providing financial help to family or charities during one's lifetime with wisdom and conditions.
CAN YOU EXPLAIN THE 'THREE BUCKETS' IDEA?
The 'three buckets' represent different sources of funds: earned income, savings/retirement accounts, and home equity.
Reverse mortgages allow you to draw tax-free money from the equity in your home (bucket three) to bolster your other funds or continue investing.
WHAT ABOUT PEOPLE WHO CAN AFFORD THEIR MORTGAGE PAYMENT AND DON'T SEE THE NEED FOR A REVERSE MORTGAGE?
Even those who can afford to make mortgage payments might benefit from a reverse mortgage by redirecting what would be a mortgage payment into more giving, investing, or helping their families.
This strategy can increase cash flow for other uses while reducing home equity, which may be less crucial for some than having liquid cash.
WHAT ARE THE MECHANICS OF REVERSE MORTGAGES, LIKE AGE AND EQUITY REQUIREMENTS?
One must be at least 62 years old or have a spouse of that age and own more than 50% equity in their home.
Reverse mortgages offer flexible options for accessing the equity, like a line of credit, monthly payments, or a lump sum.
WHO OWES THE MONEY TO THE LENDER IN A REVERSE MORTGAGE, AND HOW DOES NON-RECOURSE LOAN WORK?
The borrower has no personal liability; the loan is non-recourse, meaning the home itself is the only collateral, and no other assets can be claimed by the lender.
The borrower signs a release of personal liability, unique to reverse mortgages, protecting personal assets from being used to repay the loan.
On today’s program, Rob also answers listener questions:
I'm not effectively using my finance degree and wonder if I should sell dividend-generating stocks to pay off my equity line that has a higher interest rate, or keep the assets growing.
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