In this week’s episode Josh and Austin are discussing egagtrom! That’s right, egagtrom. No but really, they’ll be tackling the tough topic of reverse mortgages! Join them as they discuss what a reverse mortgage is, the rules surrounding them, and 6 ways to get money from them. They even throw in a few mustache moments featuring fun facts about Tom Selleck! Listen now!
Main Talking Points
[1:29] – Mustache Moment #1
[2:46] – What is a Reverse Mortgage?
[6:12] – Mustache Moment #2
[7:18] – Rules and Stipulations
[7:57] – HECM
[10:02] – Tax Tidbit
[10:35] – Mustache Moment #3
[11:30] – Amazon’s Bananas
[12:26] – 6 Ways To Get Money From Your Reverse Mortgage
[16:32] – Mustache Moment #4
[17:30] – Dad Joke(s) of the Week
[18:15] – Stats Regarding Reverse Mortgages
[20:24] – Mustache Moment #5
[21:27] – Does a Reverse Mortgage Make Sense For You?
Links & Resources
Invest With Us – The Invested Dads
Free Guide: 8 Timeless Principles of Investing
Social Media
Full Transcript
Intro:
Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.
Austin Wilson:
All right. Hey, hey, hey, welcome back to The Invested Dads Podcast, the podcast where we take you on a journey to better your financial future. Today, we are going to be talking about reverse mortgages.
Josh Robb:
Yes. So, it’s egagtrom. I think if you take mortgage and reverse it, that’s what you get. It sounds like a transformer name, doesn’t it?
Austin Wilson:
It does sound like a transformer name. That’s not exactly what we’re going to be talking about today, but every time I hear about reverse mortgages or think about-
Josh Robb:
Yes.
Austin Wilson:
… reverse mortgages, I picture Tom Selleck telling me that they’re not a scam on TV, because-
Josh Robb:
They’re not a scam on TV, but they’re a scam in real life. That’s what he’s saying.
Austin Wilson:
Yes, exactly. But I seriously see Tom Selleck once a day, during… Well, we have CNBC here in the office, it’s on the TVs. So Tom Selleck, once a day on CNBC, is telling me that reverse mortgages are not a scam.
Josh Robb:
With his mustache.
Austin Wilson:
So I am going to take the high road here and just admit I don’t really get into reverse mortgages or know much about them, so this is going to be a lot of Josh explaining his thoughts-
Josh Robb:
There you go.
Austin Wilson:
… on that, but I’m going to contribute to this episode.
Josh Robb:
Okay.
Austin Wilson:
I’m not going to leave Josh hanging, because I am going to throw facts about the man who rocks the world’s best mustache throughout the episode.
Josh Robb:
Aha, there we go.
[1:29] – Mustache Moment #1
Austin Wilson:
Because I’ll be of little value otherwise. So first up, my first fun fact.
Josh Robb:
What do you got?
Austin Wilson:
And probably the most shocking, is that Tom Selleck was actually offered the role of Indiana Jones before Harrison Ford.
Josh Robb:
Interesting.
Austin Wilson:
He was, about 1980.
Josh Robb:
I could picture that.
Austin Wilson:
Yep. So he was offered the role of Indiana Jones before Harrison Ford. However, and there’s actually a YouTube video of him doing a screenplay. There’s one out there left. I have seen it.
Josh Robb:
Okay.
Austin Wilson:
But Tom Selleck playing Indy, and he was unable to play Indy in the movies because CBS had just contracted him to play Thomas Magnum in their hit series, Magnum P.I.
Josh Robb:
So it worked out for both of them.
Austin Wilson:
They wouldn’t let him out of the contract. So yes, it worked out for both of them. But as I’m thinking about Indiana Jones, I’m saying, I don’t know if I can picture that being anyone but Harrison Ford.
Josh Robb:
But I could see him, because he-
Austin Wilson:
He would’ve been good at it.
Josh Robb:
At the time, he was young guy, popular, rugged, kind of that-
Austin Wilson:
He would’ve been good at it.
Josh Robb:
And a mustache.
Austin Wilson:
So anyway, that is my-
Josh Robb:
If you picture Indiana Jones with a mustache. I don’t see it.
Austin Wilson:
We’ll see about that. Yeah. I hear there’s one more coming.
Josh Robb:
Okay.
Austin Wilson:
… by the way. It’s Indy’s last ride.
Josh Robb:
All right.
Austin Wilson:
Because Harrison Ford’s really old.
Josh Robb:
He’s like 70 something, isn’t he?
Austin Wilson:
Yeah, he’s pretty old,
Josh Robb:
Old for a action hero.
Austin Wilson:
Right. Of course.
Josh Robb:
Because what we’re going to talk about today, reverse mortgages, is actually… There’s an age restriction on this too. You said you’re not really into. It’s probably because you don’t qualify.
Austin Wilson:
Aw, man. So close.
[2:46] – What is a Reverse Mortgage?
Josh Robb:
Let’s start at the high end, and let’s define it.
Austin Wilson:
Okay. Go for it.
Josh Robb:
So a reverse mortgage, I mean those two words really describe it. Instead of the homeowner owner making payments to the lender or the bank for ownership of the home, it’s reversed, where the person, or entity, bank, institution, is paying the homeowner backwards to get possession of the home in the future timeframe. And so in a sense, they’re taking equity, and equity is just what you owe versus what the home’s worth. So if the home is a $200,000 home and I have $50,000 I owe, $150,000, the difference-
Austin Wilson:
Right.
Josh Robb:
… is equity, meaning that’s value in the home that’s mine.
Austin Wilson:
Absolutely.
Josh Robb:
And so a reverse mortgage says, okay, if you have $150,000 equity and you want that, you normally have to sell the home to that equity. But they would then say, “I’ll pay you in some form of payments.” We’ll talk about what different ways you can do that for that equity. And in the end, we’re then going to own the home, or more of that home, so then at some point in the future, we’ll then be the owner of that.
Austin Wilson:
Yeah. Gotcha.
Josh Robb:
So, high level, that’s where it is. They get to choose how their payments are received, so there are some auctions. We’ll talk about that. They pay interest on using that money, so then the bank or the institution then is having a growth in their investment, similar to the other way around. When you lend money, you pay interest on it, but you don’t actually pay it. So that’s the thing about reverse mortgages, the person who is using the reverse mortgage gets money and does not owe anything.
Austin Wilson:
Right.
Josh Robb:
So although you’re accruing interest, you’re not obligated to it. It just added to the value or that total that will then be owed at the end. The homeowner gets to keep the title, which is great. And really, you’re trading the debt. So you have your equity and you’re replacing it with an obligation over time. So high level, that’s what a reverse mortgage is. The home is the collateral. In other words, that’s the value. You cannot do a reverse mortgage if there is no equity in your home. And in fact, there’s some rules and stipulations-
Austin Wilson:
They’re all based on percentages.
Josh Robb:
Yeah. And if you have 10% equity, you probably can’t get reverse mortgage. You have to have a certain amount of equity in the home for this to work, because the banks are taking risk, and that’s what they want to have, is something there to protect against it. We’re going to talk about some more nuances of it. But from high level, as long as you’re in the home and maintaining property tax, insurance, and upkeep, you’re going to stay in the home. They cannot take it from you.
Austin Wilson:
Right.
Josh Robb:
So, that’s great. So let’s say, again, going back to my example, you have a $200,000 home, you have home equity of $150,000, and let’s just say for simplicity’s sake, you are able to get $150,000 of a reverse mortgage. That’s not the case. We’ll explain why in a minute, but in general, there’s that. So over the time, let’s say you start taking it in monthly payments and you live a really long time, and they actually pay out more than the home is worth.
Austin Wilson:
Yeah.
Josh Robb:
There’s insurance and stuff that protects these come from that. It does not impact that homeowner. They don’t stop getting it. If they set it up for lifetime payments, they’re going to get it for the rest of their life. And so at no point where, even if it goes beyond the value, that the homeowner is forced to sell or move out or anything like that. And if your joint owners in the home, if one of you dies or moves into a nursing home and the other one still stays there, you get to still stay in the house and keep your house.
Austin Wilson:
Wow.
Josh Robb:
Again, as long as you can do property tax, insurance, and upkeep-
Austin Wilson:
Yeah.
[6:12] – Mustache Moment #2
Josh Robb:
… you stay in there. So there’s just a high level reverse mortgages. We’re going to get in details a minute, but I need some more Tom Selleck news.
Austin Wilson:
I mean, come on.
Josh Robb:
Yes.
Austin Wilson:
Can you have too many? There’s going to be a lot of knowledge nuggets about Tom Selleck today. So another one is that he really didn’t strike it big until his mid thirties as an actor, and that was in about 1980, when he got cast for Magnum P.I. there. He actually went to USC on a basketball of scholarship-
Josh Robb:
Interesting.
Austin Wilson:
… before that. And he is 6’4, so that kind of makes sense. And when they were shoot Magnum P.I., because they were shooting in Hawaii. So he was living in Hawaii at the time, which must have been a really hard-
Josh Robb:
That’s hard to do.
Austin Wilson:
It’s a hard job.
Josh Robb:
Rough.
Austin Wilson:
Someone had to do it. I bet he could take out the Ferrari occasionally on his own.. So yeah, someone had to do it. He was working in Hawaii.
Josh Robb:
Yep.
Austin Wilson:
He actually was a member of the national guard, however, in the late sixties, I believe. But he actually played some really… He was a really competitive volleyball player, because he is also tall and volleyball’s big on a beach.
Josh Robb:
Yeah. Did he get… Or he’s going to go to USC.
Austin Wilson:
And he was an honorary member of the 1984 men’s Olympic volleyball team.
Josh Robb:
Interesting.
Austin Wilson:
Honorary, he didn’t actually play, but-
Josh Robb:
He was listed.
[7:18] – Rules and Stipulations
Austin Wilson:
Anyway, that was my next Tom Selleck fun fact. Josh, give us some more knowledge nuggets on reverse mortgages.
Josh Robb:
Here’s just a couple items about it. I mentioned that you weren’t eligible. So one of the things is you have to be over 62 years old to qualify or to be able to apply for a reverse mortgage.
Austin Wilson:
And that number does not really align with many others?
Josh Robb:
Well, it’s the beginning part of social security, so that’s the trigger point for that. So 62 is the earliest you can claim social security. So they figure at that point, if you’re claiming social security early, maybe you do need fixed income at some point.
Austin Wilson:
Gotcha.
[7:57] – HECM
Josh Robb:
So that’s part of where that idea comes from. You convert home equity into cash, like I mentioned before. There’s really three different types, but I’m not going to mess with most of them because they’re really for extreme ends, high value homes. The one that most people will see is what’s called a home equity conversion mortgage.
Austin Wilson:
HECM.
Josh Robb:
H-E-C-M, HECM, it’s how they abbreviate that. So a HECM mortgage, there’s limits. It’s a home value under $822,000 in 2021. So they adjust that for inflation going up. So that’s the size limit of the home. So that’s, again, why I come back to saying people who are looking at reverse mortgages fall into that. So as I mentioned, if you want to keep this active and stay in your home, you have to make sure you’re current on property taxes, home insurance, and the home has to be in good repair. And so they will come out and inspect to make sure at that point, because again, that home is the collateral for the it’s loan.
Austin Wilson:
Right.
Josh Robb:
And so they want to make sure that that asset that it’s tied to is being kept up.
Austin Wilson:
It’s less risky to them if you take care of it.
Josh Robb:
Yep. So if you stop living in the home for more than one year, then you have automatically need to repay that loan. Now, notice I said repay the loan. Does not mean, and I think this is one of the misconceptions, that the bank automatically owns your home.
Austin Wilson:
Right.
Josh Robb:
You have a loan obligation that’s tied to that asset. If you have money outside somewhere else, or let’s say you pass away in your estate, your heirs, whoever is receiving your money, could choose to just use some assets to pay off the and keep the home. That’s just a collateral piece that they use to come up with the money if need be.
Austin Wilson:
Right.
Josh Robb:
And depending on how you set it up, and this is again, coming back to some of the misconceptions is, if the home is owned by both the husband and wife or the two spouses, that is then… If one still can stay in there. If it the is in one person’s name and they have the reverse mortgage-
Austin Wilson:
Yep, exactly.
Josh Robb:
… you could lose that home or be forced to find a way to cover that cost if that home owner, the one in the mortgage title leaves or has to go into nursing care or passes away.
Austin Wilson:
Potentially not what someone signed up for.
Josh Robb:
Right. So do your homework and make sure ahead of time you have things titled correctly, because the home reverse mortgage is in one person’s name normally.
Austin Wilson:
Yes.
Josh Robb:
But the title’s in two names, and that person can still maintain.
Austin Wilson:
Right.
[10:02] – Tax Tidbit
Josh Robb:
So just do your work on that. The crazy thing is, the reverse mortgage proceeds, whether you get in lump sum or monthly payments, is not taxable.
Austin Wilson:
Not taxable?
Josh Robb:
It’s not taxable.
Austin Wilson:
I love tax free.
Josh Robb:
The reason is, they consider that a loan, an advanced loan on this money.
Austin Wilson:
Right.
Josh Robb:
All right? So that’s a little tidbit there. Probably save you money.
Austin Wilson:
Is that because they’re anticipating that you would probably pay the tax at the sale of the property anyway.
Josh Robb:
Yeah.
Austin Wilson:
That’s why it’s an Advance.
Josh Robb:
It’s rolled into all that. Yep. Yep. That’s tied to an asset that is a taxable asset, so it’s an advance on that.
[10:35] – Mustache Moment #3
Austin Wilson:
You ready for another mustache moment?
Josh Robb:
I need to know. I need to know.
Austin Wilson:
Mustache moment number, I don’t know, three, Tom Selleck lives on a 65 acre avocado farm, and he hates avocados.
Josh Robb:
Interesting.
Austin Wilson:
But he likes the income, which I’m sure he doesn’t need.
Josh Robb:
How many avocados can grow in 65 acres.
Austin Wilson:
I’m thinking a lot of avocados.
Josh Robb:
How did they grow? I mean, is it like a couple of-
Austin Wilson:
They grow on a tree.
Josh Robb:
Yeah, but is it a handful on a tree, or is it like an apple tree where it’s like they’re all over? You know what I mean?
Austin Wilson:
I think it’s like an apple.
Josh Robb:
Is it like a banana? Only one bunch of bananas grows on each tree.
Austin Wilson:
Huh? Really?
Josh Robb:
But they usually grow together, so each individual tree… I think I’m pretty sure I read that once that there’s one bunch of bananas per tree.
Austin Wilson:
Do you know that in a lot of countries, the people who pick the bananas often pee on them-
Josh Robb:
Interesting.
Austin Wilson:
… to keep the bugs away.
Josh Robb:
Interesting.
Austin Wilson:
… when they’re down the ground, before they can collect them.
Josh Robb:
That’s crazy.
Austin Wilson:
That is crazy. That has nothing to do with what we’re talking about right now.
Josh Robb:
Did not know that. I’m going to make sure-
Austin Wilson:
So think about that next time you hold a banana.
Josh Robb:
I guess it has its outer shell, which by the way-
Austin Wilson:
The shell? Peel?
[11:30] – Amazon’s Bananas
Josh Robb:
Yes. They have protection. The reason why Amazon gives bananas away is because of that, because then there was no need to wrap or contain them, and giving them away. They have stands outside of Amazon headquarters.
Austin Wilson:
They do? I don’t know that.
Josh Robb:
Free bananas, free bananas.
Austin Wilson:
Really?
Josh Robb:
… for the workers, just walk in, they’re trying to have them eat healthier.
Austin Wilson:
Yeah.
Josh Robb:
And they debated different things. Apple. There’s no wrapper.
Austin Wilson:
And they’re biodegradable.
Josh Robb:
Yes, but for health reasons, if you were giving an apple, they needed to wrap each one individually. So they debated an orange and banana. Orange, the peel was a lot harder to do banana. So I read this once, we’re on a whole big tangent here, but-
Austin Wilson:
Yeah, we are.
Josh Robb:
… that if you go to grocery store around the area, it’s hard to find bananas, because all the grocery stores realize anybody can walk by and grab those bananas. We’re not going to sell anything, because why would you pay for a banana when you can get a free one right over there at that cart.
Austin Wilson:
Yeah.
Josh Robb:
And so it’s hard to find bananas in grocery stores around Amazon headquarters.
[12:26] – 6 Ways to Get Money from Your Reverse Mortgage
Austin Wilson:
That is funny. So that is my next Tom Selleckism. Let’s talk about six ways to get money from your reverse mortgage.
Josh Robb:
So like I mentioned, how you get that funds is really up to you, based on what your needs and situation are. So we’ll talk a little bit about qualifying. I’m not going to… It really depends on your situation, credit, equity, all that stuff, because there’s closing fees, all that stuff. But in general, once you get that reverse mortgage, they’ll kind of ask you, “Well, how would you like this money?” So, you can get it in a lump sum, which is pretty straightforward. I mean, it’s a chunk right there to you, all the proceeds get to you at once. Once your loan closes, you get the money. It has a fixed interest rate. So I mentioned that there’s an interest charge for them giving you this money. And so again, the high level example is usually, they’ll do somewhere around 50% of your equity, because again, they need a cushion built in there, but they’ll give you whatever that lump sum is, and then they’ll just start charging interest on that. And that’s what a accrues over time, that then their goal is, if they run their tables right, that when you pass away or are done, it’s about where the home value is so they don’t lose any money on that or below it, is what their goal is.
Austin Wilson:
Yep.
Josh Robb:
So lump sum, that’s an option. A lot of people will do that. Maybe they do have a little bit of mortgage remaining. And so for cash flow reasons, they’ll get a reverse mortgage, lump sum, pay off their mortgage, so then they owe nothing and they don’t have any payments on this loan.
Austin Wilson:
Right.
Josh Robb:
And then at the end of their life, their asset used pay off that loan. And so in a sense, it just frees up cash flow.
Austin Wilson:
Right.
Josh Robb:
Or if they’re going to do some home improvements, that’s another way. So you get that reverse mortgage, you do your house exactly how you want, live in it the rest of your life, and don’t have to, in a sense, pay for that improvement, knowing that that asset will be probably used to pay off that loan down the road.
Austin Wilson:
Right.
Josh Robb:
So that’s one option. Equal monthly payments, in our industry, that’s an annuity.
Austin Wilson:
Yes.
Josh Robb:
And that’s the term for it. Now, there’s different timeframes, and we’ll talk about that. The popular one is for as long as you live. So as long as that’s your primary residence, they’ll pay you for the rest of your life.
Austin Wilson:
Right.
Josh Robb:
Now, usually you get a smaller amount, because it could be stretched out pretty far.
Austin Wilson:
It’s a risk for the giver of the money. It could be the bank or whatever in the case.
Josh Robb:
The unknown there, they’ll use their actuarial tables and all that stuff. Along the same way, you can get equal monthly payments for a term or a fixed time period. So you could say, “Hey, I’m 80 years old and I want some extra cash flow or I want to do something. I’ll get this, and just pay me it out in the next 10 years. And that’s kind of my plan setup.”
Austin Wilson:
Right.
Josh Robb:
And so then they’ll have a set time period. And then once the 10 years is up, it stops and that’s it. You can also do what’s, in a sense, a HECM line of credit.
Austin Wilson:
A HECM line of credit. It’s like a HELOC-
Josh Robb:
Yes.
Austin Wilson:
… but not.
Josh Robb:
Home equity line of credit. And for the younger people, you can do that, and are doing the exact same thing, borrowing against your equity. But in that case, you have monthly payment obligations.
Austin Wilson:
Right.
Josh Robb:
In this case, you have a line of credit that’s available to you at any point in time. It’s similar to a lump sum, but you’re only charged interest on the amounts that you pull out or use.
Austin Wilson:
Yep.
Josh Robb:
And so back to my example, if you have $150,000 reverse mortgage and you pull it out as a line of credit and you say, “I don’t need that right now, but I want it available just in case.” And for five years, you don’t touch it. No interest, no growth. It’s there.
Austin Wilson:
Yeah.
Josh Robb:
In fact, most of them apply some sort of growth to that line of credit, because your equity it’s tied to is growing over time. So you actually may grow higher until you start using it, but then only the money you pull out, do you own interest on-
Austin Wilson:
Gotcha.
Josh Robb:
In that timeframe. Then the top things I just said for line of credit. So you can get an equal monthly payment from your, and a line of credit. So in other words, you say, “I got $150,000. Give me 50 upfront, and then the rest, you could split it up however you want.
Austin Wilson:
It’s like a cash out refi.
Josh Robb:
Yes, really is what it is. And then you can also do a term with a line of credit. So you can say, “Give me 50, give me that over the next five years, and then the rest, keep it as a line of credit.” So you could do all those fun things. And so there’s some flexibility there in how you get paid once you qualify for it.
[16:32] – Mustache Moment #4
Austin Wilson:
Well, that is riveting, but I’m about to blow your mind a little bit here. So you’ve seen Friends. I know Steph’s seen Friends a lot, right?
Josh Robb:
Mm-hmm (affirmative). She loves it.
Austin Wilson:
Jenna and I have watched a lot of Friends. So Richard, Tom Selleck, he was actually cast as more of a fling for Monica in Friends when he played Richard in the show. It was only expected to last a couple episodes, but their chemistry was actually so good that it made the writers really elaborate on the relationship and continue it a long way. And thus, he was in multiple seasons. And he actually garnered another generation of fans from that, because he was famous in the eighties.
Josh Robb:
Yes.
Austin Wilson:
This was in the nineties and early two thousands, so that kind of brought his fan base to a whole different generation there. He actually met Courtney Cox because of a screen test they did together for another show. That was one of the main reasons he chose to take the part, just because they really hit it off.
Josh Robb:
Yep.
Austin Wilson:
He was actually told it would hurt his career to be in Friends.
Josh Robb:
Interesting.
Austin Wilson:
But it actually did the opposite, and he received an Emmy nomination for his role.
Josh Robb:
There you go.
[17:30] – Dad Joke(s) of the Week
Austin Wilson:
So, there you go, little fun fact there. And I’m not stopping there-
Josh Robb:
Don’t stop.
Austin Wilson:
… because I have got two dad jokes of the week, and there’s a theme and you’re going to pick up on it.
Josh Robb:
Okay.
Austin Wilson:
And one’s more of a thought.
Josh Robb:
Thought.
Austin Wilson:
I spent 20 years traversing across the globe searching for the best mustache. It turns out it was right under my nose the whole time.
Josh Robb:
Ah, there you go.
Austin Wilson:
Well, mine was until my colleague and office bully, Amy, made me shave it.
Josh Robb:
Yes, that was sad.
Austin Wilson:
That was sad. Here’s a good joke for you.
Josh Robb:
Okay, great.
Austin Wilson:
So how does a mustache support his family in the event of his untimely death?
Josh Robb:
Ooh, I don’t know. A must mustache needs to support his family?
Austin Wilson:
Yeah.
Josh Robb:
How does he do that?
Austin Wilson:
By investing in a shavings account.
Josh Robb:
Shavings account.
Austin Wilson:
Yeah.
Josh Robb:
I like it.
Austin Wilson:
It’s pretty good stuff.
Josh Robb:
All right.
[18:15] – Stats Regarding Reverse Mortgages
Austin Wilson:
So, hit me with some more stats.
Josh Robb:
Yeah. So in general, you say, “Okay, he’s on the TV. I hear Tom Selleck talking about these things.”
Austin Wilson:
“It’s not a scam.”
Josh Robb:
They’re around.
Austin Wilson:
That’s what he says.
Josh Robb:
And we will talk about that in a minute, but is this even a big deal? So you had to be 62 or older.
Austin Wilson:
Yep.
Josh Robb:
And you had to have equity in your home. So is there a lot of people that actually qualify for this?
Austin Wilson:
Well, and if you recall the episode we did recently on should you have a mortgage in retirement-
Josh Robb:
Yes.
Austin Wilson:
… there actually are a lot of people who have mortgages, even sizeable mortgages-
Josh Robb:
Yes.
Austin Wilson:
… in retirement. And that number is a lot bigger than it used to be. So I don’t know how that would relate to the numbers we’re talking about here.
Josh Robb:
Well, you have to have enough equity.
Austin Wilson:
More people would’ve mortgages, but they would have less equity probably. So, maybe less than it used to be.
Josh Robb:
Yeah. But according to the national reverse mortgage lenders association, there’s a whole association-
Austin Wilson:
There’s an acronym on that, isn’t there? The NR-
Josh Robb:
The NRLA, NRLA. They did a survey back in 2021. And as of the first quarter of 2021, people over age 62 held 9.57 trillion, with a T, in home equity.
Austin Wilson:
That’s 10 trillion dollars.
Josh Robb:
Yes.
Austin Wilson:
Yeah. And that’s not in necessarily in reverse mortgages. That’s in equity.
Josh Robb:
No, no, no. They’re saying that’s the home equity. And the argument there is, and this is what they talked about is, a lot of people in retirement, your home has a lot of untapped equity-
Austin Wilson:
Right.
Josh Robb:
… that you may want or need in retirement. So to the tune of $9.57 trillion.
Austin Wilson:
Yeah.
Josh Robb:
And so for a lot of people who maybe are on a fixed income or struggling, their biggest asset may be their home, and they have a hard time realizing that, because it’s not like a retire of an account where you can say, “Hey, I want a monthly withdrawal from this.” That’s exactly what a reverse mortgage is, is a way of tapping into that equity.
Austin Wilson:
Absolutely.
Josh Robb:
So, there is a lot out there that may consider this, and again, as time goes on and people are retiring and looking at those different asset classes may say, “I don’t know if my kids want my home. Why don’t I utilize it for my best retirement?”
Austin Wilson:
Gotcha.
Josh Robb:
They’re not going to be the one that wants to pass from generation to generation. You saw maybe with farms and things like that where the family wanted to stay there, but reverse mortgage is not the right idea for that.
[20:24] – Mustache Moment #5
Austin Wilson:
No. All right, so another mustache moment.
Josh Robb:
Yes.
Austin Wilson:
Tom Selleck once took part in major league baseball spring training, which I know is a source subject right now.
Josh Robb:
Yes, I’m so mad about that.
Austin Wilson:
The lockout continues. It’s really dumb. It really is. It’s selfish, on everyone’s part.
Josh Robb:
It’s the sport that I can remember multiple times of this happening in my lifetime.
Austin Wilson:
Yeah.
Josh Robb:
It just seems like, of all the sports leagues-
Austin Wilson:
Right. They work it out beforehand, before it gets that far.
Josh Robb:
Yes. Yes.
Austin Wilson:
It is quite dumb. Anyway, in preparation for his role in the 1992 film Mr. Baseball-
Josh Robb:
He had a mustache in that movie.
Austin Wilson:
… he had a mustache in that one, he spent three weeks at spring training with the Detroit Tigers. So having been born in Detroit, he was actually a big Detroit Tigers fan and felt that it was the most prepared for a movie he had been in his career.
Josh Robb:
Yeah.
Austin Wilson:
And speaking of Detroit, his signature Tigers hat in Magnum P.I. was actually his choice.
Josh Robb:
Ah, there you go.
Austin Wilson:
He actually got to kind of make the costume, the whole get up.
Josh Robb:
The layout, what he would be.
Austin Wilson:
He figured out what his look would be, which was traditionally a Hawaiian shirt, Detroit Tigers hat, and some really, really short shorts.
Josh Robb:
Short shorts.
Austin Wilson:
It was the eighties, really short shorts.
Josh Robb:
Yeah.
[21:27] – Does a Reverse Mortgage Make Sense For You?
Austin Wilson:
So Josh, let’s kind of bring this all to close here. Does a reverse mortgage make sense for listeners potentially?
Josh Robb:
Well, what am I say?
Austin Wilson:
I kind of know what you’re going to say.
Josh Robb:
What am I going to say this time?
Austin Wilson:
Oh man, I set you up.
Josh Robb:
It depends. And it really does in this case, because a reverse mortgage is tapping into an equity source that you’re going to then have an obligation to repay down the road. And so depending on what those needs are and what that asset is planning for in your estate planning and your retirement plan, whether or not it makes sense, for people who maybe need some extra cash flow and their home is a large equity piece and a bigger piece of their overall estate, maybe it makes sense for them to utilize that. If they don’t think that anybody in their family really wants the home or is going to sell it anyways at the end, could be an option. If you’re looking at doing repairs later on in retirement and you’re saying, “You know what? This is just for me,” maybe it’s making it more accessible, things like that, and then we’re just going to sell it, those type things may make sense, but you really need to spend a lot of time. In fact, when you’re qualifying for a reverse mortgage, one of the requirements is you go through a course on whether or not it makes sense for you, which I think is a great thing.
Austin Wilson:
Yeah.
Josh Robb:
I think more things should have that requirement in there, because it’s a big decision for you and for your family. Because again, if there’s spouses involved, you got to make sure it upright that if something happens to one or the other, you’re able to maintain the home and it still be considered your primary residence.
Austin Wilson:
So would you say that based on the financial situations you’ve seen, there are more instances where it doesn’t make sense than it does, or vice versa?
Josh Robb:
I think in the industry we’re in and kind of the clients we work with, a lot of times, there’s other ways of accessing cashflow.
Austin Wilson:
Yeah.
Josh Robb:
And so I haven’t seen as many opportunities, but coming back to Tom Selleck and just in general, early on, it was kind of this fringe piece that really desperate people maybe looked into.
Austin Wilson:
Right.
Josh Robb:
And since they’ve really expanded and offered new… And that’s part of this. I mean, this is in the banking industry, and this industry is designed for, if they see a need, they’re going to adapt to find the most efficient way of doing it. And so they’re, like I talked about, six ways of getting your reverse mortgage paid to you, they’re adding options, adding new ways of doing it, that maybe are more beneficial for people. Now, there’s still a lot of scam and a lot of misinformation out there. And so if you are considering this, make sure you do talk with a financial professional before doing it, because a lot of times, it’s hard to undo these things, because there are a lot of upfront costs. And so if you’re going to pay all that and then realize it’s not for you, there really is no way getting that money back. So talk with a financial advisor before you make any decisions, but in general, it really just comes down to, what do I want out of this asset long term.
Austin Wilson:
Right.
Josh Robb:
Is there something that my family or what my goals are long term are counting on, or can I utilize it and take some more cash up front or during my lifetime?
Austin Wilson:
Right. On that note, as always, check out our free gift to you. It’s a brief list of eight principles of timeless investing. These are overarching investment themes meant to keep you on track to meet your long term goals. No, we do not talk about reverse mortgages for some of the reasons Josh kind of just alluded to there. So check it out. It’s free on our website. Josh, how can people help us to grow this podcast?
Josh Robb:
Yes. Make sure you subscribe. That way, every Thursday, you get our most recent episode sent right to you.
Austin Wilson:
Haven’t missed one yet over two years.
Josh Robb:
That’s right. That’s right. And leave us a review on apple podcast or Spotify, wherever you listen. That always helps other people find us. Have any questions or anything or clarity on this, because it is a kind of complex topic, shoot us an email at hello@theinvesteddads.com.
Austin Wilson:
And I’ll make sure Josh gets that.
Josh Robb:
That’s right. And then if you know somebody who was talking about this or asking questions, share this episode with them as well. All right, well until next week, have a great week. All right, talk to you later.
Outro:
Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey toward a better financial future doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review, click subscribe, and don’t miss the next episode. Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin, or any podcast guest are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decision. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who had attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns. Securities investing involves risk, including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.
