Running Things with Kimsey Hollifield
Unlocking the Potential of Reverse Mortgages: An In-depth Guide to Maximizing Retirement Finances
Ready to unlock the true potential of Reverse Mortgages? We promise to walk you through unchartered territories and unravel the financial secrets typically hidden in plain sight. We welcome Reverse Mortgage specialist Kellie Collins, who beautifully illuminates the numerous possibilities of this fantastic financial tool, serving as a financial lifesaver for retirees without a pension, or those needing home health care.
We dive deeper than just scratching the mortgage surface. This episode leaves no stone unturned, from strategies to maximize retirement income, to the potential pitfalls and the importance of understanding the various options available. In exploring these strategies, we discuss how to optimize mortgages, whether you're looking to buy a mountain house, a second home, or even a duplex. We also explore the link between Reverse Mortgages and Life Insurance and how the blend of these two instruments can provide financial security and peace of mind.
It's not just another episode on finance. It's more of an interactive guide that offers real-life scenarios and a deep understanding of the market. You'll hear from Kellie the different housing situations where a Reverse Mortgage can become a game-changer. We wrap up with a fascinating discussion on how these mortgages can be combined with life insurance policies. So, get ready for this financial rollercoaster ride that’s going to leave you well-informed and financially savvy.
Interested in learning more? Visit us at https://www.hollifieldfinancial.com/ or give us a call at (843) 400-3022.
Ready to unlock the true potential of Reverse Mortgages? We promise to walk you through unchartered territories and unravel the financial secrets typically hidden in plain sight. We welcome Reverse Mortgage specialist Kellie Collins, who beautifully illuminates the numerous possibilities of this fantastic financial tool, serving as a financial lifesaver for retirees without a pension, or those needing home health care.
We dive deeper than just scratching the mortgage surface. This episode leaves no stone unturned, from strategies to maximize retirement income, to the potential pitfalls and the importance of understanding the various options available. In exploring these strategies, we discuss how to optimize mortgages, whether you're looking to buy a mountain house, a second home, or even a duplex. We also explore the link between Reverse Mortgages and Life Insurance and how the blend of these two instruments can provide financial security and peace of mind.
It's not just another episode on finance. It's more of an interactive guide that offers real-life scenarios and a deep understanding of the market. You'll hear from Kellie the different housing situations where a Reverse Mortgage can become a game-changer. We wrap up with a fascinating discussion on how these mortgages can be combined with life insurance policies. So, get ready for this financial rollercoaster ride that’s going to leave you well-informed and financially savvy.
Interested in learning more? Visit us at https://www.hollifieldfinancial.com/ or give us a call at (843) 400-3022.
Hey, this is Running Things with Kimsey Hollifield Today. I'm really excited. We're talking to Kelly Collins about Reverse Mortgages. She's a Reverse Mortgage expert and she's going to give us some ideas, tips, strategies for things that she's doing for our clients and her clients and hopefully that you get a lot out of it and you can relate to a lot of this. All right, well, thanks for being here. I'm excited to hear some of the things about Reverse Mortgages, specifically how they can be used. So a lot of our clients are the same person we both work with. You know, my average client is about 62 years probably. What do you think?
Speaker 2:Well, when we're talking about the Reverse Mortgage base, 62 and up, probably average about age 70 is when they're willing to start talking about it.
Speaker 1:Okay. So I think Reverse Mortgages a lot of people you know, with a lot of the different financial products, if people don't understand them, I really think that they either get their opinion from a good or a bad experience, that they're brother's, cousin's friend, whatever, but people don't really understand how it can help, how you can use it. And we were talking the other day just about a lot of different scenarios and when we were talking I thought of four or five clients. Okay, that's really good there, that's really good there. So what I want to do is just kind of talk about some different ideas and some different, you know clients and scenarios that you typically see and just kind of go through it. You're the expert, so you go ahead.
Speaker 2:All right. Well, thank you again for having me Really appreciate it. So Reverse Mortgages are a great topic to talk about with people. They can actually add a lot to a whole financial plan, and so that's why I'm out here trying to get the word out about it as well. So let's just dive in. I actually have a scenario with a 70 year old home buyer. He lives in a really nice house $700,000 house but it's too big for him. He wants to downsize to something more, around a $500,000 house.
Speaker 2:You know what? That is great. That's actually happens a lot when you reach a certain age, especially with all of our retirement communities around here.
Speaker 1:You want everything on one level and one level.
Speaker 2:You want the golf cart life. You want the pool and the clubhouse and stuff. So he's buying a $500,000 house. He owns that house outright, so he sells it. After closing costs and stuff I'm going to use my cheat sheet real quick he has about $644,000 to use towards that purchase. That sounds great. That's more than enough to buy a $500,000 house right. After everything, he'd end up with $125,000 to invest and grow and live off of and buy that golf cart.
Speaker 1:And he would probably. If he just did that, he'd probably be happy. He wouldn't have a and he'd have a little bit of money. Okay, All right, I got it. I've seen that a lot.
Speaker 2:But let's add a home equity line of credit in there and see how this averages out. So he buys that $500,000 house, gets $184,000 for the home equity line of credit to purchase that house. He only needs $316,000 to put down.
Speaker 1:Okay, because the other?
Speaker 2:because the other portion is covered by the home equity line of credit he is left with $328,000 to invest to grow and buy that golf cart.
Speaker 1:Okay, that's a nice golf cart. Okay. So by doing it that way, he has less money coming from house one into house two, yep, and the home equity line of credit. He still has no mortgage.
Speaker 2:He still has no mortgage payment in both of these scenarios.
Speaker 1:Okay, and then so he can take that now 300 and something thousand and put it into something that if he actually wanted an income off of, he could then have an extra much more income obviously, or he, you know, much more of a buffer, nice, okay, is that difficult to do? I mean, it sounds pretty simple.
Speaker 2:It's pretty simple. So, basically, when you are looking to go into a home equity line of credit I mean, all these reverse mortgages are a line of credit- yeah.
Speaker 2:Basically what it is. But when somebody's going into it you have to be for a HEMAG, 62 or older, okay, and you have to have an equity in the home. So there's charts and stuff that are put out. They factor in interest rate, age and purchase price to see how much what that equity factor is, but typically 50% or more worth of equity. So if they have, in this case, $316,000 on a $500,000 house he can move into that.
Speaker 1:Oh yeah, he can do it, because that would be under the 50%. Yeah, what's for those who don't know what's what's HEMAG? Oh, HEMAG I know you were telling me a minute ago.
Speaker 2:So a HEMAG is just basically the home equity mortgage conversion. Okay, so it's the term for the FHA backed reverse mortgage. There's FHA backed reverse mortgages and privately owned reverse mortgages, so there's lots of different avenues for those. Don't need to worry about the actual term.
Speaker 1:In this scenario he gets $180,000, something thousand dollars home equity line of credit deceit and then he's taking that and putting that into the house and then that's going to have some sort of interest.
Speaker 2:Yes, it will grow interest that doesn't have to be paid back until he leaves the house.
Speaker 1:Okay.
Speaker 2:So once the house is no longer his primary residence. And so one of the biggest factors people come to me when I even mention the word reverse mortgage is they say no. I know my grandmother's best friend lost the house. There were some reverse mortgages when they first came out that weren't done well and they didn't factor in the need for the growth of equity and things like that. So that's why you can't take 100% of the value of the house, because we don't want to leave somebody where they're upside down in a house. But the great thing is is, let's say, the real estate market crashes and real estate values drop 50%, he still will never have to pay back more than the value of the house.
Speaker 2:His heirs will never have to pay back more than the value of the house.
Speaker 1:Oh, that's interesting because that's something that when I was a kid I heard that if you get a reverse mortgage, the bank takes you home and then. But so a couple of questions Is that something that happened back, maybe, when, like, regulations were different and now things changed at some point?
Speaker 2:Yes, so that was when regulations were different, guidelines were different, they had different tables where they didn't require as much equity. Okay, so when 2008 came around, they changed a lot of these products to ensure that not ensure, because you can't ensure anything, but so that In the scenarios you're more likely to have equity. Okay even if you take money out and live to your hundred.
Speaker 1:So there is a similar scenario with life insurance universal life insurance years ago, where, because I started my career in life insurance and we would sell a lot of life and but older universal life, we would call them dying ULs I don't know if that's a technical term for it but they weren't done correctly. They didn't earn the interest that they thought. And then the cash the cost of insurance was higher and the cash just started going down. I would see a lot of people and this is probably 2008, 2010, 2012 where their insurance was going to go away and so you know, sometimes that got a bad reputation because of old ones and I would really know. But now everything's different with that. So it sounds like the reverse mortgage business went through a similar thing.
Speaker 2:It is when, any time a new financial product comes out, there's always going to be hiccups and things people didn't look out for. But now they are geared to protect. They're geared to be a helping tool, not a detriment to somebody.
Speaker 1:That's interesting, that if the real estate market crashes, they still don't have to pay back more than. I guess that's the bank, that's their risk, that they're taking over.
Speaker 2:Yep, they're non-recourse loans. So the HEMAC that I keep saying, the FHA, backed reverse mortgage. There is a 2% mortgage insurance fee at closing and that is so that if the house is upside down and the loan balance is higher than the market when the heirs need to sell the house, that's why they don't have to pay more than the whole value.
Speaker 1:Okay, I like that. For that guy that does seem a lot better because he would have more money. He's not at risk for any of the things he's really worried about. More flexibility to take vacations or whatever he wants to do. That's cool. I like that, Okay. And then he can move into Dell Web and his one-story house and play pickleball and get a really sick golf cart, Exactly, Okay, all right, what's?
Speaker 2:the next one, maybe even get a boat.
Speaker 1:He could get a boat for that. Yeah, okay, what's the next one?
Speaker 2:So some of the not-so-fun reasons that people need to take out a reverse mortgage is long-term care.
Speaker 1:Yeah, yeah.
Speaker 2:So long-term care. Most people don't think about long-term care insurance because they didn't get to a guy like you in time until their health isn't good enough to get it. So I actually have worked with people in the Bluffton area many, many years ago where the only option was a reverse mortgage. They paid cash for their house, so they had $500, $600,000 worth of equity sitting there, but their income would not cover home health care and one of the spouses needed that. So instead of selling the house, instead of taking out a home equity line of credit where they're going to have to have monthly payments on it that likely they couldn't afford on a fixed income, you can get a reverse mortgage. You can turn on an income stream from it to help cover those costs. So if two spouses just really need that extra $2,000 a month for home care, this is a way to get that done.
Speaker 1:That's yeah, that's interesting. That's something that people don't get early enough, and that's another financial product where it used to be a lot different than it is now and so people don't get it. So you're saying if there's someone they have a paid-off house or a lot of equity in the house, they could get that, not turn the income on until they needed it and then I guess one of the things that could be good with that is the money's going to them so it doesn't have to go to a facility or a nurse.
Speaker 1:You know, they can really use that how they want to.
Speaker 2:It doesn't have to be certain fettings and they don't have to have so many out of the. What are they called?
Speaker 1:Living activities, daily living. Normally you cannot do two of the six, so it sounds like this kind of gets around that even.
Speaker 2:Yeah. So let's say somebody just I mean just needed help doing two or three things for a few hours a day. This can be a way to help that. So then there's not that burden on the family. The family still gets to enjoy their family. Nobody's having to leave work to go take care of an elderly parent or something like that, and they the surviving spouse or the spouse that's healthy will still have income because they're not depleting all of their assets.
Speaker 1:That's true. Yeah, that is true, because a lot of times in that situation, one of two things happens Either they spend all their money and they have nothing left, or the child, like my wife's grandmother, is going through this right now, where my father-in-law is taking care of her and staying there with her right now. And I read recently that the business, if it was the industry of family members caring for older loved ones is actually would be a $600 billion industry. That's what those people are giving up an income to do that. So it's very prevalent. That's a situation that a lot of people have.
Speaker 2:Yeah, and I mean they did well for themselves. They own a house, outright.
Speaker 1:Yeah.
Speaker 2:Most of these people. I heard a statistic the other day that most retire at 40% of retirees own their home outright.
Speaker 1:Wow yeah.
Speaker 2:And over 60% have less than 50% of the value.
Speaker 1:Yeah, that's probably right. Yeah, wow, and that's their biggest asset. My grandparents, similar, own their own, or my grandfather owns his home outright and that's the biggest asset. And I've thought before in a similar way if extra income was needed, or reverse mortgage might be something that would actually be really good because that's the asset. Yeah, otherwise, I do see people like that, not even with the long term care, but they're on the fixed income. If they had $500 or $700 extra a month, everything would be easier for them. Yeah, just a little bit of extra, because so security and maybe it's not enough and they didn't get a pension, but they had this house. And that's what really got me thinking about reverse mortgages is thinking, okay, what if we could help this one person, this asset they're never going to, it's just sitting there and it's a big asset, it's their house. If we could just draw a little bit of extra money off of that in a way that made sense, then they would be able to enjoy their retirement as opposed to worry every day.
Speaker 2:Yeah, they won't have to stress out that a bottle of ketchup now costs five bucks.
Speaker 1:Yeah, yeah, that stresses me out, it does. Yeah, it's crazy when you say yeah, I know we're all going to the grocery store and we're all buying the same stuff and yeah, it's true, and if you're on a fixed income, that's tough, you know, and that's interesting that you could look at your, your biggest asset, which is your house, and really take away a lot of those things, yeah, and really have peace of mind on that. Nice, I like that. We were talking about a, an IRA strategy.
Speaker 2:Yeah.
Speaker 1:Which I thought this was really really interesting.
Speaker 2:So our big time savers, the people who met with you early, the ones who stocked away all that retirement, they get this nice little surprise when they turn 70 and a half they have to start taking from their IRAs and pay taxes on them.
Speaker 1:Yeah.
Speaker 2:And I have met so many people.
Speaker 1:They're like I don't want to pay taxes on that IRA.
Speaker 2:I save that money. I want that money to go to my kids because I've got these other four accounts. So this is a strategy that is for people who did well for themselves and are true savers. What they can do is take out the reverse mortgage and because a reverse mortgage is on your primary residence, if you can itemize your taxes, you itemize that interest, use the RMDs to pay it off and you defer some of that tax gain. So that is something where we get the CPA involved to make sure it's the right strategy. But it can be a great strategy to defer some of those tax costs and still let you have that cash.
Speaker 1:Yeah, because if you're taking the RMD, okay. So let's kind of like recap this so you have somebody that has X amount of money, let's say $500,000, in their IRA, and they have so security and a lot of these people they just don't spend their money, you know. And so here they get, in their 70s, they have to start taking the required amount of distribution for the sole purpose of paying the IRS, and so we could actually okay, so you could do a reverse mortgage and the RMD amount could come over into and pay the interest.
Speaker 2:Pay the interest.
Speaker 1:Because it's interest, it's deducted off of your taxes. It can be deducted.
Speaker 2:because it's interest on your primary residence, it can be deducted off your taxes.
Speaker 1:And so essentially now, now you're able to take the mortgage, the reverse mortgage payments, out if you need it, tax-free.
Speaker 2:Yeah, you can take the income out and you can take income from it. You can just take lump sums to go on that really fancy vacation once a year, all of those things, and this is a way to defer some of that taxable liabilities that you have.
Speaker 1:That's a big concern that a lot of my clients have is we'll do a 401k rollover or we manage a lot of IRAs. It's probably 85% of my business is managing people's IRAs and the issue that we're having right now is that taxes. They don't feel like it, but they're actually historically low, the top tax bracket being 37%. Did you know that in the 70s the top tax bracket was 70? And it went up to 94 at one point After the Great Depression, but it was at 94.
Speaker 1:So my conversation that I'm having a lot is I see these clients that have all their money basically in IRAs and 401ks and if tax rates go up which they probably are going up it's basically like the IRS is going in and taking more money from them. And I like this strategy because you could if you work with the CPA and you get everything lined up correctly, you could take the R&D which they have to take out. You don't have to actually really worry about taxes going up as much because if you're paying the interest, that's deductible and now you still have your IRA, which you would have had anyways. You have the line of credit which you could do over here, which you can take out without taxes and that's fantastic. That's actually really an interesting thing that I could probably talk to a lot of people about. I like that a lot.
Speaker 2:And it's just about using these financial products together and not just talking to just your mortgage person, just your financial advisor and just your CPA. All three of those should be working together for your benefit.
Speaker 1:That's true. That's true. That's a thought I've had a lot about. Everything really does need to work together, because I'll talk to clients sometimes and either they don't have a CPA or it's somebody still from New Jersey that they just mail their taxes to and the CPA, even if they're doing the taxes, they just get it and they just run the numbers. And I think, man, if we could work together, I know some things that I could do through the year that would make that tax number a lot better. And the same with this. I mean, if everybody works together for the client. It's kind of like with a medical situation If you have a big medical issue, it would be nice to have a team of a few people as opposed to just your primary care physician should really talk to your specialist and your surgeon and it's kind of like that. But this is a fantastic idea.
Speaker 2:Definitely like that, and so adding all of these strategies together will help. I mean, the biggest concern for a lot of these people I talk to are I want to leave something to my kids, and so working strategies like this will give them more money where they can leave something to their kids or maybe the kids don't want the house. I know that can be a huge hassle for a lot of families, but they have more money in their investable accounts where they were able to carve off some money and pay for life insurance or something like that. That's an easier asset to leave your family.
Speaker 1:Oh gosh, yeah, yeah, because you just get to check.
Speaker 2:And yeah, yeah, and then it's less stress, nobody has to go in clean the house. Deal with real estate agents, deal with closing, deal with negotiations.
Speaker 1:I have a couple clients dealing with that exact situation right now. Exactly, okay. So if you die with the reverse mortgage on the house and let's say the house is worth $500,000 and the reverse mortgage is, the balance is $250,000. The bank has to be, you know. Do they have to sell the house or what's?
Speaker 2:No, so the bank just needs their $250,000 back. So that can be done with a refinance. So, somebody wants to stay in the house, they refinance it to pay off the balance, or they go and sell the home. They get to keep all the equity and then the bank gets their $250,000 and the other $250,000 goes to the heirs.
Speaker 1:Okay, that's not bad. A refinance would be pretty simple for, you know, for a lot of people, especially if there is a few kids. Somebody's got to be able to do it, you know yeah absolutely.
Speaker 1:And you keep the house or if you sell the house, you're going to sell the house anyways. They spent the money on, you know, when they were alive, on whatever they spent it on which? Listen, I'm a big believer that when you retire, it should be about you and not about the kids, like I know. If, if any of my clients children are listening, I'm sorry, but you know what I mean. I'm always trying to get the retirees to enjoy their retirement and we can leave money to the kids in different ways. But if you took a reverse mortgage out and you spent some of that money, there's nothing wrong with that. But is there a way to say, all right, so you're going to get X amount of dollars per month out of this. Is there a way to kind of adjust that? For we could do a little bit extra and maybe put funnel that into like a life insurance or something that then we can. We could then pay that 250 off.
Speaker 2:Absolutely so. Life insurance can be paid in lots of different ways so we can create an income stream. So let's say the person needs 800 a month.
Speaker 1:Yeah.
Speaker 2:But with the balance available we can create $1,100 a month income stream. They keep the 800 and keep that extra. 300 goes towards life insurance.
Speaker 1:Yeah, so we do that with pension sometimes where they have a couple of different options, and we'll take the higher one and then leave that to the spouse.
Speaker 2:There's also an option where they can pull out a lump sum of money and do a single premium life insurance policy that would grow over time, and then they don't have to worry about taking extra income. That's interesting.
Speaker 1:I'm thinking of two ideas right now that kind of combine a couple of things that we talked about. So a lot of the life insurance policies right now have living benefits. So it's a way to get around the old long-term care where you pay these big premiums, you hope you never use it and then you die and the insurance company keeps all the money. Now the strategy is typically you do that in life insurance and you get a $300,000 death benefit but you can spend $250 or $270 in long-term care situations and that's actually kind of combining two or three things that we've talked about. Now you have your long-term care covered, you have your extra income. If you die and the kids get the house, then they have money to pay that off. That's an interesting way of thinking about it. That would kill two or three birds with one stone.
Speaker 2:Yeah, this is something that is missing. This is a missing piece to a lot of people's financial puzzle.
Speaker 2:And it's not just for the people who are struggling. So a big misconception out there is that reverse mortgages are for the people who just didn't plan appropriately, or they're for the ones that just didn't have enough savings or that kind of thing. No, they're. I mean, the ultra rich are the ones who use these products most of the time. There's products out there where you can get a very, very large reverse mortgage and so it's just again part of that full strategy to use. Is it smart to use your biggest asset for income instead of taking money out of stocks or something like that? So there's something else and kind of incorporating that I'm going to pull up a couple numbers. We don't know what future returns in the market are going to be. So we're going back, we're going to pretend that this is 1973 and we're talking to a 62 year old. They are taking out a reverse mortgage. They need to start with their annual income draws to add to Social Security of $26,000 a year.
Speaker 1:Okay, and we're going to have they've got $374,000 for their portfolio.
Speaker 2:They've saved that's their 401k, and in 1973, the market actually went down about 11%. Okay so that means they lost about $40,000.
Speaker 1:And they pulled out 26.
Speaker 2:And they pulled out 26. Okay, so the next year the market went down about 15% and they lost $50,000. So if you pull, what happens when you pull from a portfolio that's already low?
Speaker 1:Well, you, instead of buying low and selling high, you're buying high and selling low. You're locking in your losses.
Speaker 2:You're locking in your losses. So instead of start, instead of doing that, if the 62 year old took out a reverse mortgage and they could take lump sums as they needed them? So when those markets were low, instead of taking that money out of their portfolio, they took $26,900 because we're adjusting for inflation. And then $27,000 the following year out of their reverse mortgage. About, let's go down to age 79. Their portfolio would now be $700,000.
Speaker 1:Okay, yeah, that's fantastic. We have a similar chart that we show. Go ahead.
Speaker 2:Yeah, so because market grew for the next 15 years or so and then there was another down year in 1990. And then the market grew again. So at age 89, this client with this coordinated strategy took three withdrawals from their reverse mortgage totaling a little around $100,000 or so. They end up with a total portfolio of $1.2 million. So let's say they didn't do this. They said I don't like the reverse mortgage product. I've heard the horrible things, I don't trust it. So instead they took portfolio draws according to the same income schedule. They start out the same. At age 86, they've got $12,000 left in their portfolio. They no longer can create that income. Yeah, wow. And I have met with too many people lately that are in their mid to late 80s that I've done this exact same thing and now they're stuck with whatever their social security is.
Speaker 1:Yeah, yeah, I see this a lot. So one of the things that I talked to people a lot about is income and retirement, and the number one fear of most people is running out of money. There was actually a study recently I forget the company, it might have been Allianz that put it on but over half of the people that responded said that they would rather die than run out of money when they get older, which is pretty strong, but so we call this the volatility buffer and I use fixed index annuity for this a lot. We have a chart very similar to this and it is remarkable I mean, this is wild numbers. It's remarkable how, if you can take the down years out, how much longer your money actually lasts. Yeah, you could probably adjust. If you redid this chart, you could probably adjust. Well, you could adjust it. You could go up a lot on the income if they needed more income, and they'd still have a lot of money left over.
Speaker 2:Absolutely.
Speaker 1:Yeah, I think that's one of the most important things that people can do and I was not aware I didn't really think about reverse mortgage as doing it in this way but having a portion of money that doesn't drop when the market drops, that you can pull from in those down years, because it's going to happen and a lot of people think about. Just in the last few years, covid hit right. That was 36% average drop. 2008 was a real estate bubble Around 911, that was a big drop. And so we have all these times where, yeah, if people are just investing in stocks and they don't have a volatility, a buffer like this that they can draw from boy, their money can run out really fast, especially if it happens in the early years.
Speaker 2:Absolutely.
Speaker 1:Yeah, this is fantastic, and so you do a decent amount of this here.
Speaker 2:Yeah, so we can run these scenarios coordinated, so we know average rates of returns for their portfolios and things like that, and we work together to make sure. Is this the right choice? Is it not the right choice?
Speaker 1:Is this the software that you have that you can? Can you plug in the different Yep yeah, okay, that's fantastic, because that's you know, a lot of what I do is just like this where we are trying to take, you know, we project how much money that people are taking out, where they're taking it from, and then it's amazing how you can do a projection and they're running out of money like this and you just a couple of tweaks.
Speaker 2:A lot of times, I think, when people meet with me or you.
Speaker 1:They think that I need to switch everything you know. But a lot of times it's not like that. It's just a couple of little things makes all the differences. Like, like an airline pilot, if your gauges are off just a little bit, you're going to end up totally different and it's the same thing. This is fantastic here. I like this a lot. Do you have? You can run this software all the way through the last few years? Yep, nice, this is really good.
Speaker 2:So we've got things like this, and then reverse mortgages can be for the fun stuff too.
Speaker 1:Yeah.
Speaker 2:So let's say you own your house outright. You have worked so hard, you've got a great house and you've got investments and you want to buy that mountain house. Instead of cashing out $300,000 out of your portfolio for that mountain house, what if you took the reverse mortgage on your primary house? Use that cash to go pay for that mountain house.
Speaker 1:Okay.
Speaker 2:Another great avenue to create you could Airbnb it. So you can do this and buy a rental or the reverse mortgage always has to be on your primary residence, but we don't dictate how you use it.
Speaker 1:Okay, so you can go out buy like anything you want. You can do whatever you want, okay, yeah.
Speaker 2:You could also sail around the world whatever you want to do and you have to be how old? You have to be 62 for most of them, and some instances you can be as young as 55.
Speaker 1:Okay, okay, man that's a great. If you do it right, that's a great age it can be. But yeah, you have to get the income right. This last slide is fantastic. A lot of people want that mountain house. Yeah, a lot of people want. They're at the beach and they want that second house or maybe to visit family.
Speaker 2:I know I do.
Speaker 1:Yeah, I would love a mountain house. I like the beach, but shoot, I love that I'm not 55 yet, or 62, but Now, what is this here? Which one is this? Oh, is this the downsizing?
Speaker 2:I've got. We talked about the downsizing, so let's talk about You've lived in your house, you've raised your kids and you want a nicer house. So this is upsizing, so this actually happens too. Not everybody in retirement was downsized. You've worked hard, you've got a growing family, you want to have Christmas morning and fit everybody in the house. So let's look at this scenario real quick. We are selling our $500,000 house, we're going to get after cost and everything about $460,000, and we want to buy a $650,000 house.
Speaker 2:Okay so we are going to need to pull $190,000 from somewhere. That can be a mortgage. That's going to cost extra. It could be just pulling from assets. If you don't want a mortgage, let's assume you don't want a mortgage payment. So we're same scenario. You're going to have $460,000. If you get by the $650,000 new home, get a reverse mortgage. You can do that using only putting $390,000 down and you've got $67,000 that you could invest, furnish the home with.
Speaker 1:I see yeah, that's a quarter of a million dollar difference. Yeah, so you're just sort of leveraging the reverse. Well, you are leveraging the reverse mortgage to keep some money back for yourself, not come up with. Yeah, that's good, and you don't have to go pull from all your investment accounts maybe the retirement accounts pay taxes on that, exactly, and you can do this and actually have money left over. The $190,000 you would have had to come up with continues to sit and grow. That's fantastic. I like that a lot.
Speaker 2:So I mean, that's not just about downsizing, we've got to think about everybody, and there each individual goals.
Speaker 1:I have a client who did this just recently. They went to a there's like a Jimmy Buffett community, like a Margaritaville community, and it's retirees but it's like a party area and it was the same situation. She sold her house, she got a new one, but this is fantastic because this actually leaves you. Yeah, I like this. I didn't know you could do this.
Speaker 2:It leaves you with some money remaining instead of having to pull funds from somewhere else. Like I said, we can do it on jumbo mortgages, where you're going to go buy that house on the beach for $1.5 million.
Speaker 1:This is really up-sizing.
Speaker 2:So the same scenario. We can just put a reverse mortgage in place so that, instead of pulling funds from retirement, which is going to affect your income later in life, you just have funds remaining that you could leave to the kids life insurance, investments and dalmints, if you want to leave money to a charity or something.
Speaker 1:This is a $400,000 difference. That's a lot of money. That's a lot of money just planning it correctly. That's tremendous.
Speaker 2:Yeah, planning a purchase of a $1.5 or $1.8 million house. This is where we get into the real strategy of how do we do this best, and so also when we get into retirement, income is a concern. So one of the biggest things if you've ever read on the internet or if you've seen the internet anything- about home investing all these webinars that you can buy into. They call it house hacking.
Speaker 1:Yeah, yeah, yeah.
Speaker 2:So how that works. The simple version they're going to sell their $500,000 house. They're not going to buy a single family home, they're going to buy a duplex. There are some nice duplexes around. Yeah, there are yeah, but let's say that duplex is $700,000, because they're going to live in one side of that duplex. It's a primary residence.
Speaker 2:Oh, okay, yep, Okay so they can do a reverse mortgage. But let's say you didn't do a reverse mortgage, you did the traditional route. You're going to need $200,000 to upgrade to that duplex. After paying the mortgage, that $200,000 mortgage and getting, let's say, $1,500 to be super conservative on the other duplex, you probably make more, like a lot more. Yeah, nowadays, but you would have a cash flow of about $500 a month, which can help a lot of people, right?
Speaker 1:And if you did that, you would say you know, this is, even this left side is smart. Yeah, like that's good, but I like this other side better.
Speaker 2:But let's say they're going to do a reverse mortgage the reverse mortgage of about $240 to buy this house. They're going to have about $40,000 left after they put $460,000 into the $700,000 purchase. Then that $1,500 a month rent is pure cash flow. Wow, okay. So we're plus $40,000 in leftover funds and have an extra $1,500 a month in cash flow. That's fantastic.
Speaker 1:That is really great. And with any real estate investing, I mean the income, the cash flow, is that's the thing. You know, that's what you I mean you do it for other reasons, but it has to make cash flow and having this extra cash flow, that's a huge difference. The $40,000 is a lot, but if you're planning on keeping this thing for any amount of time, that $1,500 is the real number, Because I mean that's going to be massive.
Speaker 2:Yeah, it's going to be a huge difference and you just have to make sure the people that are in the duplex, because you're living right next to them, are good people. Yeah, yeah, that's cool.
Speaker 1:That's interesting. The house hacking, the whole idea of house hacking, is interesting. But I've not actually seen this with the reverse mortgage. But it's a lot better for sure, because then immediately you get the cash flow, you have the additional funds, so you could take that $40,000 and you could could you rehab the place a little bit? Absolutely, so you could actually take that $40,000 and then go and spruce it up a little, spruce it up quite a bit, yeah, and that's $1,500, then at that point, if you put $40,000 into, it might be more like $1,800 or $2,000, because now you can get a $1,000. A higher rent for it. Fantastic, that's wonderful.
Speaker 2:And you didn't add anything to your monthly debts.
Speaker 1:Yeah.
Speaker 2:And you didn't tap into the money that you worked hard and saved in those 401Ks and IRAs.
Speaker 1:Yeah, that's wonderful. I like this a lot.
Speaker 2:One of the other things that we're seeing a lot of is that our retirees want to gift funds to their grandchildren or children to go buy their own house.
Speaker 1:Yeah.
Speaker 2:And they don't want to wait until they die to give this away.
Speaker 1:Right, yeah.
Speaker 2:So a reverse mortgage can actually be a way to gift those funds without hurting the retirement strategy that you've put in place. Okay, yeah, because if they go and take $40,000 out of their retirement strategy, we've already seen kind of how that can affect them. Of course, yeah, will they have money when they're 90 years old, but if they use the reverse mortgage for it, they get to see their grandkids in that house.
Speaker 1:I think that's a really interesting point. A lot of times we talk about you talk about and I talk about with people you know, numbers oh, it's going to be a higher number or it's going to be a lower number. It's better. But a lot of times people don't actually go into what that means, for what you can do in retirement or what that emotion.
Speaker 1:I was at a retreat two weeks ago with some other advisors in Greenville and one of my friends had done something similar to this, where they actually funded college for the grandkids while they were alive and it was such a different experience because the kids are excited, because they've been worried about that. They were like stressing and saving and it took a lot off of them. The grandkids were now the grandparents are elevated even more in their eyes and the grandparents got to give while they're alive as opposed to from the grave. So they actually had to see that and experience that. And then my buddy, who had this idea everybody loved him because, you know, because he was the one who got it, you know got it done.
Speaker 2:Exactly. Yeah, I think that's so important that people want to do, and this is something that is important to people and so many people I talk to. That's their main reason for not getting a reverse mortgage because they want to leave something to the people they love. So a reverse mortgage doesn't mean that you can't. It means you could possibly give it while you get to see.
Speaker 1:Yeah, your clients are actually doing the reverse mortgage taking some of that money and giving it to kids, grandkids, and going ahead and doing that, yeah, which is nice because they might need it now. You know the grandkids might be trying to save for college now or needing a house now or, you know, and when then they don't necessarily need. You know, the grandparent's house in 20 years, you know that's interesting. I love that idea. I've been thinking a lot about that recently. Is the emotional side of money and you know what it actually can do for the families.
Speaker 2:So great, and what they're doing is they're leaving a legacy behind, because now that grandchild, instead of waiting five years to go buy their house they got their house five years earlier gained all that equity, yeah, and now they can move on to the next one, or they started life without all the student loan debt, right, and so they're saving $300 to $800 a month in student loan payments that can go towards wealth and investing and things like this. That's huge.
Speaker 1:That's huge, right there. I like the way this is worded early inheritance gift. I think that's fantastic because, yeah, grandparents want to. You want to be there. You know it's the same if grandparents don't have a lot of money, you know. This is the reason why they're trying to give you things as they get older, like here take this, take that, take that, you know, because they want to see. You know they want to see your face and they want to have that experience. But this is a very, very interesting way around. Yeah, cashing out investments that the grandparents need, you have to take care of yourself first. I like that a lot. So you've done a lot of this here.
Speaker 2:We haven't done a lot of it, but we have counseled on a lot of it. Okay, and so this is just something that we've very recently come up with, and so we're getting a lot of momentum with people excited about the idea of giving earlier instead of waiting till they pass away.
Speaker 1:So tell me, I know you have more scenarios and more strategies and we could do this all day, but I know you have some other stuff you have to do, but tell me, how can people connect with you? And then, what are you doing right now to like educate people on different things, like this?
Speaker 2:So we offer consultations to every client. We don't just take loan applications, we do a dreams and goals call whenever we start, which hopefully makes us a little bit unique in the industry.
Speaker 1:I like that. I'm gonna steal that. That's good.
Speaker 2:Because I want to make sure that when we're talking with our clients, we're not just giving you a mortgage that you can't afford. We want to help you. We want you to be happy. We don't want you to be cash strapped when you move into your house. And then we want to help your family. We help your grandparents make the most of everything they did over their life. So we do work a little bit different with that dreams and goals call. We do a lot of education. I'm more of a teacher at heart and I'm a big nerd, and I love learning about the ways that all of this works together.
Speaker 2:So when just to get ahold of me, my website is lowcountrymortgageteamcom, All of my information is on there and I'm always available via email or cell phone or anything like that, and I'm sure you'll attach that somewhere.
Speaker 1:Yeah, we'll attach it. We'll attach all this stuff in Brady can put it wherever it. He probably put it. If I did my finger here, he probably put it right here. I don't know, he doesn't even have it. It's wild. Do you ever do live events? Yeah, absolutely, cause I do a lot of live events, but we could do like a joint live event. That'd be really that'd be interesting.
Speaker 1:Question and answer show some scenarios That'd be cool, or maybe we could do a I could do, like a client event. Oh yeah, all my clients are, you know, pretty much 60 to 65. And that would be interesting. I'm sure they would have a lot of questions. That would be kind of fun.
Speaker 2:I love questions.
Speaker 1:We could do. You know, you could give some different scenarios, give some background, and then we could do questions at the end, and I think that it would be fantastic. We do. I do a lot of events live and then we do like a state of the market and then like a half time report, and sometimes the questions that people come up with are sometimes they're kind of wild, but you know that's the best part.
Speaker 2:Oh, that's so fun.
Speaker 1:So we should probably let's think about that. Kim in my office sets up all the events, so that would be really great, really really great to do.
Speaker 2:Yeah, absolutely. And then, of course, they can go to you. If you see anything like this that might work for them, contact me. We can work on some scenarios and see if it really is a good fit for that particular client.
Speaker 1:Yeah, wonderful. Well, thanks for taking the morning. I appreciate it. I learned a lot and I'm sure that everybody that watched it they're gonna learn, and we'll probably get a lot of comments and a lot of questions and, yeah, we'll set something up.
Speaker 2:Well, thank you for having me on. This was fun, yeah, it was fun.
Speaker 1:Thanks for listening. This is Kimzie Hollifield, with Running Things with Kimzie Hollifield, and we will catch you next time, music PLAYING.