Should I Get A Reverse Mortgage Or Refinance My Home
Hi there, Bridget Mackay here with the law offices of Bridget Mackay in Petaluma, California and we practice in the area of the state planning and elder law. And I have Jeremy Forcier here with me, with Peoples Home Mortgage. And we’re going to talk to Jeremy about a couple of topics. The first is, and it’s a question I get a lot in my practice, is should I get a reverse mortgage on my home? Or, should I refinance my home to get my payment down and my budget a little more workable for my life? So, Jeremy what are your thoughts? I know most clients end up doing a reverse mortgage because the appeal of not having a mortgage to pay and having a little more cash flow is strong.
Jeremy: Yes. So, the answer is overwhelmingly depends. Like, it really depends on the unique situation for the individual. So, I think there are some buckets that you really have to kind of check into and check off to see if a reverse mortgage is going to make sense for you. So, the one major one is, do you have significant liquid assets or retirement funds?
Jeremy: Because if you do..
Bridget: So, like IRA’s, annuities?
Jeremy: Exactly 401k’s, IRA’s, annuities, investment account, cash, anything.
Bridget: Something outside of your general social security income?
Jeremy: Yes. Yep, if you have any type of significant retirement funds or liquid assets. Sometimes, most times the reverse mortgage doesn’t make sense. Because you kind of already have, that’s what the reverse mortgage technically is replacing, is that you’re creating kind of an annuity for yourself.
Jeremy: So to speak. So now with that said if you don’t have those things and you do have a lot of equity and your wealth is really in your house and trapped and you don’t want to move. You want to stay in your house. You don’t want to relocate to a different area.
Bridget: So, let me ask you this. So, you don’t want to move. Why is that important for a reverse?
Jeremy: So it’s important for a couple reasons. So, number one is what I was referring to is that a lot of people don’t want to move outside of that area where they’ve lived for a long period of time.
Jeremy: Right? But it’s expensive where we live. So, they have to make a choice. I can’t afford the lifestyle here.
Jeremy: And I can’t afford the monthly payment. I have to get rid of one. So, sometimes people don’t want to relocate out of state or to a different area that’s more affordable. It can make a lot of sense to stay.
Jeremy: But the second reason that you have to want to live in your home is that a reverse mortgage is only for owner occupied residence. Which means, you literally have to live in your house in order to get a reverse mortgage. So, you can get a reverse mortgage eliminate your payments and then rent it out and go move somewhere else. You can’t do that.
Bridget: OK. So, the summary sort of is if you have other sources of income outside of Social Security. Whether it’s or even outside of your pension. Like tapping into an annuity or an IRA or any type of vehicle like that. It it doesn’t make sense, if those accounts are significant. Significant being between three and five hundred thousand?
Jeremy: It’s subjective. It depends on your lifestyle. That’s why it’s always like,’depends’. It’s like a hard thing to answer. But really the easy rule of thumb for me is, do you have, and we’re talking about retirement age people.
Jeremy: So it’s good to make sure everyone knows that.
Bridget: Is there age limit for a reverse mortgage?
Jeremy: There is an age minimum, right. So, you have to be a minimum of 62 years old.
Jeremy: So, so, we’re talking about usually people who are getting reverse mortgages that we’ve done them for are 70, 75, 80, 85. Because the older you are the more equity you have access to and it’s an equation. But basically, if you have 10 years’ worth of assets, liquid assets that you can draw from. A reverse mortgage it might not make sense. Because you can always get one if you run out of the assets.
Jeremy: It’s not like you have one chance to get one.
Bridget: And then a follow up question to that is, do you have to have capacity to get a reverse mortgage?
Jeremy: Yes. Yes. Right.
Bridget: I get an adult child who says, ‘we’re going to get a reverse mortgage on mom’s house, so we can pay for her care and keep her in the house but she’s incapacitated’. Mentally she can’t.
Jeremy: It happens a lot. That’s the, usually people wait too long to start that planning process.
Jeremy: So, usually I’d say 50 percent of the cases that come across my desk are people that are have power of attorneys already. That their father and mother can’t think for themselves.
Jeremy: We cannot give that person a loan.
Jeremy: Because that’s predatory lending. I mean that’s a protected class and it’s to protect, you know, the person. So, it’s really important that when things start to change, and you are starting to plan for the next 15 of life.
Jeremy: If you’re, you know, a sibling or a child helping your parents. It’s really important to start early.
Jeremy: Because they have to take a course, pass a test, show that they have cognitive ability in order to get a reverse mortgage.
Bridget: Right. I mean that makes sense.
Bridget: So, the last question I have is there’s a lot of, you know, practitioners out there in your area. And I see that there is, you know, people who just do reverse mortgages and advertise that. And then there’s more conventional lenders that also do reverse mortgages, like this one mortgage. So, what is your opinion on sort of what the best approach is? Do you want someone who has a broader tool belt to really talk about the options or someone who just really does that one focus thing?
Jeremy: So, my opinion is. First of all, you have to know how to do reverse mortgage. So, you know, the school of thought is like specialized, totally know how to do it. Or, like, you don’t really know the product.
Jeremy: Which isn’t true. You can learn any product and really know it. My opinion is to have a much broader view. To do both because there are oftentimes people that will come across your desk that a reverse mortgage really doesn’t make any sense.
Jeremy: And you might see a different option doing a cash out refinance, self-funding so own stuff through equity in your house. If the person still working, does it really make sense to do a reverse mortgage? So, I think that working with an institution and especially an individual that does do both and that understands it, you’re going get the best advice. Because you’re not just looking at one singular product.
Bridget: Right. And oftentimes that is the question that we started with. They want to know, do we do this conventional loan, what do we do?
Jeremy: Right. And then because, what happens is if you do, do just one product, you’re gonna get referred, if you want options, to two different people who are sales people. Let’s not forget that. And they’re selling their product. So, it makes it more intense because you know the person’s being pulled…
Bridget: Here’s some competition.
Jeremy: Yeah. So, I think it’s better if you’re going to get the best advice possible. Work with someone that represents all the products and look at all the options next to each other.
Bridget: Yeah. Good. Well thank you Jeremy.
Jeremy: Thank you for having me. Yeah, it’s really great. Thank you.