What is a Reverse Mortgage? -with Alan Blood
30m
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Thrive Retirement Planning Podcast
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Reverse mortgages can be a financial tool to use during retirement in some situations. Technically, reverse mortgages are called Home Equity Conversion Mortgages or HECM by HUD, and have changed over the years, which has led to misinformation and some skepticism. My guest today is Alan Blood, a mortgage professional in Bountiful Utah, who has extensive experience with reverse mortgages, how today’s products work, and when they might be beneficial. This article summarizes much of the discussion with Alan Blood. See the audio the complete discussion. A LITTLE ABOUT ALAN BLOOD Alan Blood is the owner and Lending Manager at CFG Home Loans. Alan has helped homeowners throughout Utah understand and obtain great mortgage financing. He graduated from the University of Utah College of Law with an emphasis in environmental and real estate law and holds a BA in Economics from Brigham Young University. Alan has been working as a mortgage broker since 1996 and served as the president of the Utah Mortgage Broker’s Association and a national delegate to the National Mortgage Broker’s Association. PEOPLE GET PARALYZED Those who are heading toward or are close to retirement might be feeling additional stress because of all the negative news because that is what is getting attention. The reality is that the market isn't as negative as people think and there is still a lot of opportunity for those who are wanting to make a move or explore different financing options. As human beings, when the boat begins to rock, we often hold and become paralyzed with fear. At times, inaction can be a good thing, but it can be a major mistake. We can mistakenly say that I shouldn't do anything until everything is ok. Opportunity can exist, even in the midst of uncertainty and chaos. Doing nothing can be a good solution, as long as it is part of a plan and not the default. A great solution can be the decision to do nothing but far too often people don't really look at options or take action because they are paralyzed with fear. FIXED INCOME (SOCIAL SECURITY) AND REVERSE MORTGAGES Some people may only have their Social Security and their home, but very few other financial assets. One of the options for a reverse mortgage is to supplement income in a situation where limited fixed income exists. Clearly inflation and the cost of living is increasing faster than most fixed income sources. Those who rely on fixed income from Social Security may be getting squeezed tighter and the budget that worked two years ago isn't working today. For someone in retirement and on a fixed income, a reverse option may be a financial tool to consider. You can use a reverse mortgage to create a supplemental income source and make it so that you have non-taxable income each month, depending on your situation. You can also use the reverse mortgage as more of emergency fund, if the water heater breaks or other repairs are needed. Also, if the mortgage is not yet paid off and you're in a fixed income situation, refinancing into a reverse mortgage can free up the need to make a monthly mortgage payment. WHAT IS A REVERSE MORTGAGE? To begin, all reverse mortgage loans are not HECM (Home Equity Conversion Mortgage) loans, which go through HUD. Some reverse mortgages that are not HECM, could have negative components that are undesirable. Because it is a complex financial instrument, you need to be well informed. Today, we're talking about a HUD reverse mortgage. It's a program where you can use the equity in your home to service debt or create monthly income. With the mortgages we are most familiar with you get a loan from the bank and then make monthly payments to the bank to service the mortgage. You then use your income or your assets to pay the loan. With a reverse mortgage, instead of using your income or assets to pay the debt, you're using the equity in the home. So instead of the loan balance going down over time, the loan balance will increase,
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