Welcome to Mortgage Talk with Mark Harriston, the program that not only talks about mortgages, taxes, and interest rates, but Mark and his guest talk real estate trends and your home. He also answers your mortgage questions to help you make the right financing or refinancing decisions. Now here's Mark Hairston.
Happy to everybody, and welcome back to Mortgage Talk with Mark. I'm really excited you guys are back on to the show with me because I have been out of the studio for probably about a month or the holidays, and this is actually the first show of twenty twenty five, and I'm very very excited to introduce a friend of mine. As I usually say when I start, the goal here is to bring in subject matter experts on different subjects around real estate finance in general.
And today we have a true what I call experts.
She's so much of an expert that I've hired her for my own personal business.
So this is a conversation.
If you're over sixty two you certainly want to listen to, or if you have parents that maybe over sixty two, you want to listen to about how to leverage equity in a property and supplement your retirement income. And I'm really happy to introduce my friend, Christina harms Hike. She's hails from California. You're not affected by the fires, are you, Christina?
Luckily? No, not right now?
Okay, good, good, good. Well that's really a tragedy out there. What's going on. But I've known you about four or five years now, and I follow you on social media and we've talked about my own personal situation here in Austin, my wife and I have, so we want you to introduce yourself and then we're gonna start getting the meat of the subject here.
Yeah, thank you so much for having me on. It's an honor. Good So introduce myself. I'm Christina harms Hika. I am a certified reverse mortgage professional. I've been that for almost a decade now. I was the youngest to achieve that designation, and it's a little known unless you talk to somebody who is one. There's only about two hundred of us in the country. But that really is the highest level of understanding of reverse mortgages. And we hold a oath to ethics, so I think that's really
really important. It's a lovely designation and to get yes. But but prior to that I started, People are like, how have you been in this industry so long? I started my dad's office when I was sixteen, I was a mortgage broker, and so I learned the ways of mortgage and then I actually sold real estate for some time, and then when I closed my first reverse mortgage, my life was just absolutely changed.
She fell in love with it.
I fell in love with it. It was so weird and so customizable and so flexible for we fixed exactly what they needed and more, and it would just change my life forever.
Well, it's rare that I find somebody as passionate about their business as you, and I just love that. That's why I wanted to have you on there and speak to the subject that has a lot of myth around it misunderstanding too. And so let's start with kind of a high level conversation around what exactly is a reverse mortgage and how is it different than traditional loans?
Which did I do?
Absolutely? A reverse mortgage is a really cool, relatively newer mortgage. So it was created in nineteen eighty nine, which is pretty young for a mortgage. Right before that, we had VA in the forties, and so it's taken some time to work out some of the kinks, and so people have some idea or they may not understand it at all. But over time, the reverse mortgage has changed a lot to where we are today, where it's an amazing, amazing loan. It's for home owners either fifty five or sixty two
and up, depending on the program and state. The most common one you hear about is the FAHA Heckham Home Equity Conversion mortgage, and that is sixty two and up in every state, but there are other reverse mortgages for some people in some states for fifty five and up. Essentially, the main key points you need to live in the home as your primary residence. At least one borrower must remain or non borrowing spouse. You can pay your taxes and insurance. It's owning a home. That's a big thing.
People have a misconception that, oh, I'm going to make all the payments go away. A reverse mortgage allows you to choose if you want to make a payment or not. Most people choose not, but they still have to pay their taxes and insurance. Yeah, it's a it's a mortgage, which is a lean on title. The bank does not take ownership of the house any more so than they do with any other kind of mortgage. The difference is there's no required monthly mortgage payments. There's no well, no term.
The term is the youngest borrowers one hundred and fiftieth birthday, so we say no term.
But yeah, right right, not likely. That's pretty interesting.
Yeah, and it's really designed to be really flexible. You can get a lump sum of cash. Some people need to like fix a roof or they've got one of the cases. I had a huge i RS debt. Credit card debts really common right now. So there's just a lot of ways to do this thing. One of them is a lump sum. Another is a line of credit that actually grows and isn't frozen when the real estate market takes a downturn, which which is very unique for a line of credit.
Yes, that's why.
That's what I love about when you talk to me about my own personal situation, you know, because I don't think I'm that unusual as far as baby boomers go. I turned sixty five in October. My wife has recently turned sixty two. So we qualify for this product and We have a couple of three homes in Austin. One of them has quite a bit of equity in it, okay, and we are moving back there to become a homestead.
And what you showed me was how I could leverage that equity and have options to supplement any sort of retirement income down the road. Now, I'm not going to be doing that now. I don't need the money today because I'm still working and that sort of thing, but down the road I may. And so it's a sort of a safety net in case I do want to tap into at my equity and not have to move to get it.
That's the key right there.
Yeah. Well, and I love your strategy because you're doing it while you qualify easily. Right, You've got income, you've got good credit, You've not hit any sort of life event that could damage those things. So you're putting in place now so that if anything happens in the future, you already have it. You don't have to qualify at that point, which some of my clients come to me. At that point when there is a life crisis and a financial corit.
It could be too late.
Sometimes it is. Yeah, it's often too late because we still have credit and income qualifying. It can't be you know, two years late on your mortgage and still make this thing work. In a lot of cases, sometimes there's magic, but in general that's not the greatest plan.
So let's talk about some regulations of the One of the myths around or confusions or misunderstandings around reverse warrants is the bank takes title to your property, and that's simply not true. So let's go through some of these myths that people just don't understand about them.
You know, clear that up, addressing that. Yeah, so biggest myth that the bank takes ownership and people think, oh, I'm selling the house of the bank. And I think that comes from the idea of a charitable life estate, because there is something weird with charities where you can't and I don't fully understand it myself, so I'm not going to speak to the high level of it. But where you can sell the property and then live in it for the remaining of your days, that's not a
reverse mortgage. A reverse mortgage is just a lean on title, just like any other mortgage. The difference is that it's not a thirty year term. You don't have to make required regular monthly payments, and there's a lot of flexibility in the ways you can manage the equity. Right the line of credit. You can get a monthly payment to you if you want, and you can manage that. You can pay payments if you want to or not. It's
fully up to you. I like to think of the reverse mortgage as finally being in control of your cash flow for your mortgage and your equity.
I love it.
I love it because on one of our properties, we have what they call a helock with a line of credit. And the distinction that you've taught me was there. The difference is primarily a line of credit on it, as a helock is a fixed term, you know, one hundred thousand dollars or one fifty whatever, and you have to pay it back, which we're doing currently because we have
a allline on it. But we were to roll that back into a reverse mortgage, you know, not only do we have an option of deferring that payment if you will, but the line of credit continues to go up over the years, which is a lot.
Of people don't understand that.
I didn't really understand that either, but the numbers you showed me were like, man, this is a this is a no brainer.
It's beautiful. Right. Once people see it, they're like, wait, what this this it's too good to be true, And then I have to remind them, no, no, no, you're paying for some cost to put this in place. It's not too good to be true. But it is really good.
Yeah, exactly.
So, so let's talk about if we've talked touched on this, but senior citizens, if you want baby boomers. I'm a senior citizen, which is kind of hard for me to say, but I am.
It's hard to say it. Looking at you, I'm like, no, you're not.
Oh, you're so kind, you're so kind. You know.
In my in my era, pensions have sort of gone away. Most people don't have a pension. Let's they work for the state or something like that. But a lot of people have four oh one K and you know, investment, so they're going to live on social security that sort of thing. But how can explain a little bit more about how this can supplement people's retirement and how they can maybe hold their assets over here and use this tax free He says tax free income.
Correct, Well, we can't call.
It tax free income, but it is tax free under the IRS laws. So it's cash flow. It's your equity.
Yeah, it's your own money basically.
Okay, yeah, so we don't call it income, but it is cash flow for sure. And I love that you're talking about that because the baby boomers all are more creative, they're more open in general to figuring this thing out and working with the finances the best way that makes sense, not some hard fast rule of I need the house to be paid off. But if we twist that a little bit, the goal of having a house paid off is to have no mortgage payment. Right. You want to lower your expenses in retirement.
Sure, well there's.
Only two ways to do that. Have the house paid off, no mortgage payment. No. The other one is a reverse mortgage, no mortgage payment. And so it really allows you to manage those assets. And I have to say your strategy is one of my favorites. Where you have some rentals because rental income keeps up with cost of living, it keeps spaking. Yeah. So some people will do a reverse mortgage.
They'll get a big lump sum of cash, and then they'll go buy a new property as an investment, and they'll remain in the one that they have the reverse mortgage on, and then that investment pays rental income.
Yeah. I love this, It's beautiful. Yeah.
I'm talking to a friend of mine about that right now. He's got a home free and clear. It's worth a little over a million dollars, I said, David, you could probably get you know, reverse mortgage for maybe four hundred thousand dollars or something like that, you know, and you could go buy a property for cash, rent it out and have additional income or use that income to pay down the pay down the loan, you know.
Yeah, and depending on his age, so yeah, by age sixty seven, okay, sixty it probably closer to like three hundred thousand in day's market, but still absolutely amazing.
Yeah, in that line of credit again goes up. So when he's seventy, seventy five, eighty years old, it could be worth half million dollars.
You know. Yeah, can I address why that happens real quick?
Absolutely? You're here, my guess you're the expert.
Well, it's really cool because they designed it's cool and it's a little silly, but it works in our favor, I think, as consumers. So they designed the line of credit and they said, Okay, if somebody's like sixty two and they're qualifying for the reverse mortgage, now, we don't want them to have to refinance all the time as their equity goes up because their property appreciates. So they added this feature onto this line of credit where it's a growth feature. So say you start with the line
of credit of one hundred thousand. Right now, the growth rate is a little less than seven percent, So in a year, it's going to be one hundred and seven, in two years it'll be one hundred and fourteen and a little bit more. Right in three years one hundred and twenty one. That just naturally happens so that you don't have to refinance all the time to get access to more of that equity because in those three years, your property appreciated and you're going to want to get
access to that equity and you're going to need it. Generally, most people want it, so why not have it there? And if you don't use it, it just is just home equity. Right, So if you sell that line of credit as part of your proceeds in.
The line of credit eventually kind of grows exponentially, you know, because of the compounding compounding effect it does, it's amazing. The other beauty of it, my opinion, is, you can do anything you want with the money. You could buy property, you could go on a vacation, you could pay off the debt that you have, you could pay off credit cards, whatever it is.
You know.
Yeah, it's your equity.
It's your money, you know. And you could keep your assets over here.
Let's say you have several hundred thousand or million dollars in four to one K money and you don't want to touch that, you want to let that grow.
You could access this to help you live.
It's a beautiful strategy. Right. People don't realize if it's you know, two thousand bucks a month for their mortgage payment, what that two thousand dollars a month could grow to if it was left in other retirement accounts.
Right, that's right, that's right.
So can The other question that people get confused about is can they outlive the benefits? You said one hundred and fifty years old? But you know what happens is something if you have a couple then one of them passes away. Can the spouse continue to live in the property.
Absolutely? So, really good protections built in today, you cannot get a reverse mortgage in just your name if you are married, so we can in.
Any state or just community property states like Texas state, all states.
Okay, guys, there are some exceptions for some of the non FAHA programs, so I'm just speaking to FAHA right now. So the FAHA heckham. If you are married, you have to include your spouse in some capacity. If that spouse lives in the home, then they're a full blown borrower. If they're age eligible, then their barrow. If they're not age eligible, we have something called the non Borrowing Spouse
Protection and it actually protects that spouse. So the way it'll work, so two people, let's say they're both age eligible goole sixty seven, and one of them passes. As long as they were both borrowers, nothing happens to the mortgage. That the mortgage will continue on until that second person passes or decides to sell or moves out permanently, or defaults on their taxes and insurance. Those are kind of the triggers for when the more excuse me, when the
mortgage is due. Okay, But let's say instead that there's one spouse who's sixty seven and one spouse who's fifty nine. Well, we have what's called a non borrowing spouse protection where that fifty nine year old isn't a full blown borrower. But let's say the sixty seven year old does pass first, the fifty nine year old is called a non borrowing spouse and they can apply for a deferral for the loan repayment, and often they're granted it. There's some paperwork,
it should be pretty seamless. They have to make sure that they were married at the time that they did the mortgage and it was disclosed. They were disclosed as a non bar spouse. So spouses who get married later on they're not protected. If like a single guy gets a reverse and then gets married later, that new spouse isn't protected. Okay, So a good strategy is refinance are
onto the loan. But the numbering spouse protection is a really nice thing because now that younger spouse can live out their days and the mortgage isn't due until they pass away, sell or move out permanently, or default on taxes and insurance.
Okay, now I've been doing forward loans. If you will purchase loans and refinance for forty years. So I'm very familiar with how that structure works in how people can qualify. Tell us a little bit more about the qualifications of how a reverse might work, because there's some people that it's in my opinion, there's like three categories. There's people who really need the money now, there may be people like myself who don't need the money now but maybe
wanted to have access in the future. And there could be just people who are rich and don't need the money at all. Okay, but it still could be a benefit for them. So put on your council hat and share with us a bit a little bit about how reverse may work for pretty much any senior and how people could qualify for that.
I love it. So let's start with the last example. So the wealthy. There was a loan after I interviewed not too long ago, and he said, you know, this client had fourteen million assets, he still did a reverse mortgage. And so what we talked about was, well, why because the wealthy don't view their money the same. The wealthy view this is a smart strategy. Why would I tie up all my equity and not have it working for me? And so wealthy will still do this and it's a beautiful,
beautiful thing. I actually find you and your situation kind of the middle ground between wealthy and needs based a beautiful I wish more people in your situation did this. I think this is a saving grace of the American retirement because just like you, you're like I may not need this money, but it's ready and available if you do so, you're not going to get into a situation where you're not paying your credit cards on time, you're not paying any other mortgage or property taxes. That's right.
Keeping yourself afloat on those things put you in a better financial situation for all credit, including the reverse mortgage, and it protects you. I mean, that line of credit can grow so big. It can pay for care when you're in your nineties if should you need it, or a new roof, or you know, people joke about the vacation, but that's not typically what I see.
I know, I know, But it could be to maintain your property. I mean, let's say it, Yes, absolutely, hvac's ten thousand dollars. Yeah, just to maintain your property or update your property. Things like that too.
Yeah. I had a lady who who redid her reverse mortgage every now and then we can refinance them and when rates drop we often do. And that was her thing. She goes, I just need ten thousand dollars because my water heater went out right, right, That's like, that's ten thousand bucks for the water heater.
Yeah. Crazy.
So we've got that middle ground that I wish everybody in that middle ground would do this. It is such a smart thing.
And I heard a stat that I don't know how accurate is, but it came from financial news source I forget. But in the senior market, let's say, in the baby boomer over sixty two, there's about seven trillion dollars of equity in the in the country.
Is that Is that somewhat accurate?
At thirteen trillion is the most recent.
Thirteen trillion dollars, and only about four or five percent of seniors actually taking advantage of this?
Is that correct?
Our market penetration is somewhere between two and four percent. You're right, it's but it's partially because it's misunderstood, it's unknown, and it's weird. People are just in the habit of paying a mortgage. When I tell them you don't have to pay it anymore, they go they just psychologically. It's like they can't quite get themselves there.
Well I got there pretty easy, right.
Some people are like, oh heck, yeah.
Yeah, I like that option. It's nice to have flexibilion options. I mean, let's face it, I don't care what you you know. Well something my kids always ask me, Dad, why do you drive right down the middle street?
Because I said, I like to have options. You know which way I'm going to go.
Well, that brings me to the third group of people. You were talking about, the needs based yes, which a lot of my clients still are. And here's kind of what.
What do you mean by needs based? Define that a little bit.
More needs based. So the common thing in financial planning, which I'm not a financial planner, but a common thing that has been of the past is use everything and then do the reverse mortgage.
As your last got it.
So that's what I mean as needs based. It's often an adult child in their fifties or sixties themselves coming and saying, okay, mom and dad or mom or dad or you know, in their nineties. I don't want to move them to a care facility. We all know how there's some problems there and they don't want to go. It's their home. They should be able to pass in the dignity of their own home. But it's expensive. I just talked to somebody that care is twelve thousand a
month just for twelve hours a day, seven days a week. Wow. But the reverse mortgage is coming in and paying for that care. So unlike your situation where you're going to have more than enough giant line of credit when you do the reverse marriage, when you wait like that, the line of credit doesn't have time to grow, so they're limited in the amount. And it just is like I wish I could grab these families and be like, do
this twenty years ago, you'll have double. I can't say for sure double, but you might have a lot lot more available if you do this early rather than waiting. But in any case, somebody in their nineties gets a decent size loan amount and so their needs based where
their credit might already start be getting damaged. They might be low on income, which reverse mortgage is easier to qualify for because there's no mortgage payment required, So we don't need as much income, but we still need some Sure, we got to prove you can pay your taxes, insurance, get the lights on, and so it just kind of puts those things in jeopardy. The people who wait and wait and wait, and it's a lot of shame and
guilt and fear that stops them. And it's like, Okay, I get that the unknown can be scary, and for whatever reason, they think, Oh, if I have to look at the home equity, I've failed somehow. And it's like, but that's the biggest investment, the best investment you've ever made. That's right, You're not going to touch it.
Yeah, And I would suspect for most people, most seniors, that their real estate is probably the largest portion of their net worth.
You know it is from the numbers I've seen.
And they've made good decisions around that in the past, So why not take advantage of it while you can. That's that's my opinion on that for sure. So uh So, let's talk about if you're giving advice to seenor which you are right now you're giving You've given me great counsel around my own situation, and I'm on board with the deal for sure, But in general, how do you speak to seniors around that? How do you give them good counsel and alleviate some of their fears around that.
The best I can do is try to stand in their shoes. So my process is to ask a bunch of questions, some informational, some just tactical, like is your home safe for you to be able to stay there? Are you comfortable? And sometimes these conversations, well, you know there are three set flights of stairs and the driveway is eight miles long hill. Yeah, so sometimes it's like, should we be looking at the reverse for purchase and maybe get you into a home that's better suited for
your needs. But my job is really to do my best to stand in their shoes, and sometimes like handing a holding hands with their family or their kids, and so, okay, what's the best solution in this case? And I'll present the best reverse mortgage. You know, if they have some debt, let's get that paid off. If you need some extra income cash flow every month, let's figure that out. If let's leave a line of credit as a safety. I
like to do the mix and match. We can do it, so why not make it super customizable?
Yeah?
And then honestly, most of the time the feedback is, oh my gosh, this just took so much worry off my life. I had somebody who said that she beat cancer because it took the financial strain.
Wow, now that's a testimony right there, for sure. And you brought up a point I want to hit and a fail to do so the far. But we got a few minutes left.
Let's talk about reverse mortgage for purchase as well, because most people think about it. I'm in a house and I'm going to refinance it and get a line of credit. But they could also, like you, sell that if the property doesn't suit them anymore, the master bedrooms or whatever upstairs and they need to move for whatever reason, they could take that equally, sell that property and take that and mine on the property, you know, So talk about that.
Yeah, so it works similarly, you're going to have the same loan amount whether you're whether you're changing houses or not. So like if it's an LTV loan to value, which we don't speak in LTV terms, but it'll be the same number. So let's say you can get a loan for a reverse mortgage for about thirty percent, which shocker, the numbers are lower because we want you to have equity. We want them to be equity for your errors to inherit and generally.
There are well that's penal age too, so sixty five there seenty five.
Yeah, so a sixty five year old can't get as large of a loan amount as a seventy five year old, who can't get as large of a loan amount as eighty five year old. Same thing as a ninety five year old. But it pales in comparison to that line credit growth rate. So some people say, oh, I'll just wait, that's not the right strategy. But if you are older, you will get a larger loan amount at the time you put this in place. So talk about purchase. I have a client right now, exactly what you said. House
is about a million. She's got a two hundred thousand dollars mortgage that she'll pay off, so she's going to come away with eight hundred thousand cash. She wants to buy a house for about six hundred thousand. And now these are California prices. I get they might be high, but so she wants to buy a house for about six hundred thousand. If she were to do that with just cash, she would have about two hundred thousand left, right, But that's all she has. This is the rest of
her retirement. Everything was in the equity the home, and so with the reverse mortgage. Now the reverse mortgage is coming in to finance two hundred thousand of that new purchase. Okay, so she's got to bring in four hundred thousand. The reverse mortgage is going to cover two hundred thousand. That gets us to the six hundred thousand. But what just
happened to her cash flow? That turned in from two hundred thousand to four hundred thousand in her assets and retirement accounts that will continue to grow and protect her. So rather than sinking all the cash in, she's doing the reverse purchase and she's meetings in goals. No new mortgage payment, right, that was the big key. Still has to pay taxes and insurance and live there as a primary residence. But that's what she was going to do anyways.
Right.
Yeah, it's people just need to That's why I had you on because people need to know this. This is really really important stuff. You know, we've only got about a minute left. Talk about it a little bit about the downside. Are there any negatives people need to know about or the cars?
Yeah, it's a financial tool, so there's always pros and cons. Some of the cons are you have to live in the home as your primary residence, so you can't move out, and sometimes.
You can't rent it out.
You can't rent it out, Yeah, and you need to if your plan is to go into assisted care, maybe a reverse mortgage isn't the best plan unless that's a long ways away. Sometimes it's the stop gap, right, keep me in my home until I can't stay anything longer. Okay, But also if in markets that don't appreciate very well, I don't like doing reverse mortgages unless they really really have a good case for it, and sometimes they do. But I like to be able to meet three goals.
What do you need now? What do you need through retirement? And let's leave your air something at the end, and the way we constructure that works the best in markets that actually experience some appreciation. It doesn't have to be crazy high, but something.
Well, we could keep talking for another hour or.
Two, but the show is running out, man, and I really appreciate your time, Christina, and your expertise and your passion, and I can't wait to close my deal with you here in the next few months.
Thank you, Mark. It's been an honor to be on and Thank you for helping getting the word out. This is an amazing financial tool. It can be used for good or bad, and I like to use it for good.
Amen. All right, well, you take care, we'll talk soon.
This has been Mortgage Talk with Mark Hairston. Mark is a mortgage advocate with Texas Mortgage Source LLC, offering personalized mortgage solutions, fast customized quotes, great rates and service with integrity. Contact Mark at Markhirston dot com. Mark Hairston dot com. You can call our text Mark at five one two seven eight nine sixty nine sixty seven. That's five one two seven eight nine sixty nine sixty seven and come back next week for more mortgage talk