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Welcome to Dakota Retirement. Hi, I'm your host Bob Powell, and I'm going to urge you not to touch that dial. I'm about to say two words, and I know what might happen, which is you'll turn the dial and go to another podcast, but I don't want you to. The words are reverse mortgage, and my guest today is Don Graves. He's the founder of the Housing Wealth Institute. Don, welcome. Thank you, Bob. So here's, I want to preface our conversation by saying if you were a carpenter.Uh, you would never show up to a job with just a hammer, right, especially if you have to screw something into something else, and you would never just show up with a screwdriver if what you had to do was nail something into something else.And when I think about reverse mortgages, Don, and we're going to go into a deep dive here. When I think about reverse mortgages, I think that you would never, if you were a carpenter, show up without all the tools that you needed to do the job, right? Every single tool would be in the toolbox because there might be a tool that you need to do a certain task, and if you don't have it, can't do the task. And that's how I think about reverse mortgages. They're a tool in the retirement income planning toolbox that shouldn't be overlooked because for some people it might be appropriate. Yes.So let's start here.Basic 101. What is a reverse mortgage?

And you've heard me say this a few times. Do you ever mention reverse mortgage at the family barbecue?

Yeah, well, the good news about mentioning reverse mortgage at the barbecue is you get to eat all the food that that's there because everyone else is left.

ran from the table,

ran from the table. So you get the corn on the cob, the cornbread, hamburgers.

It's, it's just dangerous for something that's been around since 1961, um, under the sponsorship of the federal government since 1988. I tell folks it's not new, it's not spooky, it's not dangerous. Four letters, folks, it's just a mortgage. So what is a reverse mortgage? Well, the most common is called the home equity conversion mortgage, about 98%.And that's a federally insured loan for retirees aged 62 or older that allows them to convert a portion of their home's value, turned it into tax-free dollars without giving up ownership coming off title or having to make monthly mortgage payments.And so it's just a home equity loan for those aged 62 or better that gives them access to dollars without the burden of making a mandatory monthly principal and interest payment.

Yeah. So, like, who should and who shouldn't consider a reverse mortgage? You mentioned 62 as sort of the basic number, but there areother factors to consider. Sure,

now retirement, Bob, you know this because we talked retirement's gonna last longer than most people expected be more expensive and way less predictable. Now, because of that, the, the primary buckets that people have in retirement is their income bucket, Social Security, pension, employment, um, their investment bucket, and their insurance buckets, and those have to last them as long as they do. And the question I asked is, is that going to be enough? Is that gonna make it?And honest people say, I don't think so. And I said, well, you've got a 4th bucket, 87% of retirees in America around that own a home.And I said, if we could turn your home into a reserve fund that was growing, and increase your cash flow 5 things, really. He said, who, who should look at it what those who want to increase their cash flow, reduce risks, preserve assets, improve liquidity, or even add new dollars back to their retirement savings. The modern reverse mortgage is designed to do those fivethings,

OK? So, is there someone who shouldn't consider it? I mean, it sounds like, you know, sounds like the best thing since, uh, whatever, sliced

bread, sliced bread.Who, who should, you know, I actually wrote an article for your magazine, um, because you asked the question. I said, I've been doing this, and I'm in my 26th year. In those 26 years, I've talked to 16,000,

but you've been doing this since like infancy,

a long time. 16,000 folks I've had conversations with and 3000 went forward. And I tell folks that tells you two very important things. Number one, I've talked to a lot of people, and number 2, I know this resource is not appropriate for everybody. And so you asked me, well Don, who shouldn't do it?I wrote a pamphlet 16 reasons that you should pump the brakes on reverse mortgages. I won't go all 16, but, um, hey, I'm not planning to live in my home. The reverse mortgage is designed for those who, this is gonna be, um, preferably your forever home. Don, I don't have a strategy or or need for the dollars that a reverse mortgage could provide. And so sometimes that's usually at the top of the list. I'm not gonna stay here, and Don, I've got plenty of money. I've got $100 million andBut for everyone else, I think if you're doing a comprehensive retirement income plan or investigation.You can't leave out what the US Census Bureau says is the retirees' single, um, the boomers single largest concentration of wealth, their housing wealth. You can't leave that off the table and be comprehensive in your planning. OK,

so we talked about who should, who shouldn't, when should someone consider using a reverse mortgage.

This was a question that was brought up. Dr. Wade, who, you know, was asked this question. Uh, Wade's a good friend of mine says, when, if this reverse mortgage is going to allow people to convert their home into dollars.Um, and those dollars are growing, that reserve is growing. We haven't talked about that yet. Well, when, when should a person do it? Wade says if you're planning to stay in the home, and this is backed up by MIT, Texas Tech, the American College, if you're planning to stay in your home, then setting up the reverse mortgage line of credit as soon as possible is a prudent strategy because of its compounding effect and because of all the applications it has for creating a, a sustainable retirement outcomes.

So, uh, you think about the reasons that someone might use it. You, you mentioned, I think supplementing retirement income, maybe paying off debts, uh, or just using it for a rainy day fund in the case of maybe there's a healthcare shock or maybe there's a down market and you don't want to take money from your.Retirement portfolio.

Sure. Uh, the, the low hanging fruit, uh, it's like, Don, what, what do people use it for? I let me, I didn't say this. How much money can you get from a reverse mortgage? I know that may come later, but I want to share it now and I'm gonna draw this triangle in the camera. That's not some sort of gang sign. That's justI know I'm in New York. It's not a rap sign. Don't, don't come to the office here and get us. And I said, but it's uh the, the benefits of reverse mortgage based off the age of the youngest, spouse, the value of the home, and the future projected interest rate. So if someone has a $700,000 home and they're 6.5 years of age, let's say they may be able to get $300,000. If they have a mortgage against the property or some loan, that's got to be paid off from the $300,000 but if they don't, whatever's left, that's called a growing line of credit. Now that line of credit is growing. And currently today at the time of this recording, around 7%. So that means I've got access. Don, you're telling me I have access to a growing line of credit, yeah. Could it surpass a million dollars? Yeah, $2 million or more.Now, when you think of that, that's something that most people don't know. This is what got the Financial Industry Regulatory Authority, FINRA, to change their position from reverse mortgages should be used as a last resort to they should be used in a prudent manner, holistically, comprehensively. So,Having said that, how many of the people watching or listening today have parents, grandparents, or they themselves retirees and have a loan payment on the house, mortgage, second mortgage, home equity line of credit? And here's the question. Here's the number one way people use a reverse mortgage. Mr. and Mrs. Flintstone, if we could eliminate your mandatory monthly mortgage payment, $1500 2500 dollars, $3000 a month, would that make a difference in your retirement satisfaction? Nearly 100% of the people would say yes, it would.That's what a reverse mortgage does. So now all of a sudden I free up a $2500 mortgage payment, $3000 pre-tax. Oh my gosh, that means I, I can draw less for my retirement savings. I can spend more. I can sleep better. There's so much I can do just by eliminating a mandatory monthly mortgage payment.And most people don't

know. Yeah, so that it's an interesting point, Don. We've had Olivia Mitchell come on the show and she talked about how more and more older adults are retiring with a mortgage or even a home equity line of credit.And, uh, and what we also know from the Bureau of Labor Statistics from the Consumer Expenditure survey that housing expenses run about 30 to 40% in some cases of a retirees's budget. So if you can remove the $3000 or take the 30% down to 20% or the 40% down to 30%.You've now perhaps freed up some income that they can spend on essential expenses or maybe even discretionary expenses.

Absolutely. Housing expenses and retirement are ginormous and growing. I mean, just look at the homeowner's insurance crisis in America, just since the the wildfires. People in Florida, California, Texas,They're experiencing, and there's just a few reports that says homeowners insurance is going through the roof. And so, uh, carriers are leaving, um, the states, or if they're staying, they're saying things like, Bob, you've got to remove your trees, you've got to reinstall um a fireproof decking, and this could be thousands of dollars. So those are the the daily living.And having a reserve fund could could do something greatfor that.

So I wanna, I want to turn back to something that you mentioned. FINRA has evolved in its thinking about reverse mortgages, but, you know, there are a lot of misconceptions, uh, and also, you know, some, I told people not, don't turn the dial because we're gonna say the words reverse.mortgages and people have images of these, uh, commercials that they saw on TV some years ago where, you know, in some cases reverse mortgages were not being used by appropriately, let's put it that way.

Fair enough. And who hasn't heard a story that you, you go to your cousin Tracy's again for the barbecue.And Uncle Junebug comes out of the spare bedroom and everybody says, What are you doing in there? And he says, well, I live here now. And they said, Why? He said, I got a reverse mortgage and I lost my house and everybody at the barbecue says, I knew it I knew it. And they come to me and they say, Well, Don, did you hear this? And, and.Before they get to me, the whole town, everybody knows that someone had a reverse mortgage, lost their house, and they're terrible. And they come to me and they said, did you, what do you say? And I said, it's 100% true. Uncle Junebug got a reverse mortgage and he lost his house, and they point their finger, you're the evil doer. And I said, Well, wait a minute. There are 4 requirements when you get a reverse mortgage. You gotta live in the property, take care of it, keep, um, homeowners insurance in force and pay your property taxes.I said, Uncle Junebug didn't pay his property tax for the last 4 years, but he didn't say that at the barbecue, because that doesn't make a good story. And so some of the misconceptions and and the um um myths that persist.are around there. Certainly they were bad actors. Something that's been around this long. You had some bad actors, but they got rid of that. The Federal government got rid of the bad actors. They're bad actions. I took all the money, went down to the riverboat, and I spent it and now I can't pay my taxes and insurance, and I blamed insurance, uh, I blame the reverse mortgage. But the product has built in safety features. Um, we're not, they're no, the architects of the program, the Federal Housing Administration.Uh, 1988 signed the 40th president, Ronald Reagan signed it into law at the 100th Congress. The consumer protectors, you have to go to counseling before you get a reverse mortgage. And so there's some consumer protections, and they've they've, um, again, it's, it's a safe resource.When used appropriately, I can't stop you from going to the river boat, but I can certainly help you to understand, here are the 52 ways that you can structure a reverse mortgage to help you have a retirement that lasts longer and is more satisfying.

All right, Don, we have to take a short break and when we come back, we'll talk more about the mechanics.And the cost and maybe some more of those consumer protections when we get back to our toolbox. Don't go away. Thank you, Bob. Welcome back to Decoding Retirement. I'm talking with Don Graves. He's the founder of the Housing Wealth Institute, and we're talking about reverse mortgages. My hope today is that with Don.That we can take someone from street level to curbside and perhaps to advisor's doorstep. So if the advisor should ever mention a heckha with a line of credit, their eyes don't glaze over. That's right. All right. So let's, let's drill a little bit deeper into the mechanics and the costs and some of these consumer protections. So give us a little more detail about how the reverse mortgage actually works, uh, the different types, and then how the loan amounts are determined.

Sure. So the reverse mortgage again, um, the most common is called the home equity conversion mortgage.And that's about 98% of the market. That's the federally insured reverse mortgage. There's some jumbo reverse mortgages, properties up to $10 million and you can get those at age 55. They're less common, but they're out there. And so the amount of money gets the age of the youngest borrower value of the home, future projected interest rate, that makes a certain amount of money available from that we have to pay off.Any mortgages against the property,

including a home equity

lines, and credit, yeah, and then you've got money left over. Now you can take that money left over as a, um, a lump sum, though you can't get it all in one year. HUDD makes you do it over two years. But let's call it a lump sum, a line of credit, which is the most popular way to let it grow, or you can cut it into monthly payments. Don, I'd like to have a payment, uh, from this line of credit of $1000 or $2000 a month, so you can structure it.Whatever way you want to do it. You've got to pay your taxes, live in the house, take care of it, all of that. And then at some point, um, the last surviving borrower is going to move, decease, or going to a facility for 365 consecutive days. At that time, the reverse mortgage becomes due and payable. Well, Don, what becomes due and payable? Whatever money was advanced to you, you took some money out, interest has accrued.You're gonna pay that back, but something else was grown, Bob. That house you had, your $700,000 house 20 years later, has doubled in value. So now you've got a $1.4 million dollar home, your reverse mortgage balance is $500,000. I'm just making up numbers. The heirs, the estate, they sell the house for 1.2%, they pay off the 5. There's $700,000 left to the heirs or to the estate.And that's something that some people don't realize. Oh wait a minute, I thought that's the loan where um the, the bank loans you the money and when you die, they take the house. No, no, that'd be criminal. And but that's one of the misconceptions or, or Don, you can get put out of the house. Oh, don't get the reverse, no, Li in it, take care of it, pay your taxes, keep insurance, enforce those are the four requirements. So some of the mythologies of the common misconceptions are I can lose the house, I can get put out of the house, um, if I run out, if I spend all the money down at the river boat, they'll come.No,

no. So Don, a lot of times people ask when they think about a reverse mortgage is, well, I really want my children to inherit my home after I pass on. And is that even possible with the reverse mortgage in place? Absolutely.

Depending, there are 52 ways we, we teach to structure this. And I say, what if I told you that you could leave your children 4 times the amount of money by using a reverse mortgage? And that's the work we've done at the American College and other places that says, if you've got a portfolio.And a million dollars, and sometimes it dips, and if you're taking money out during the dips, that's going to contract um the length of that portfolio. So all advisors know if my clients are are you watching, maybe you're a consumer yourself, if I don't have to take money out during the dips and lock in the laws, um, that's going to prolong it, but I have to eat during the dips. So if you've got another asset, cash equivalent life insurance orThe reverse mortgage line of credit using that is going to prolong your portfolio and the research we've done says that if you do that 1 to 4 times early in retirement, the difference is amazing. It, it's, it's counterintuitive and so that's one way, so you leave your, if I said you can leave your children more, but the example I just gave you, I said you leveraged your house, you did whatever you needed to do, and you left your children whatever you left them.

So let's talk a little bit maybe about the cost, the fees, the how the loan amounts are determined. We talked a little bit about that, but, uh, maybe drill down a little bit more.

Sure, whenever you get a mortgage in America, they're typically costs associated with closing costs, and a reverse mortgage is no different. There are three primary ones. Number one is what's called mortgage insurance premiums. This is for the federally insured home equity conversion mortgage. That goes to HUD. And that's insurance, um, to make sure that if you live to 120.And your house didn't appraise in value. Now you're upside down, that you'll never be required to repay more than the loan the the home is worth, no matter what happens. No deficiency judgment will be taken against you, your heirs, or your state. Number 2 is origination. That's how lenders get paid. There's a limit on how they do that. And number 3 is their standard closing costs, title insurance document prep. All of that is financed into the loan.The out of pocket costs for the consumers very nominal, $450 typically, counseling, and that's one of the safety features that anyone who gets a reverse mortgage must attend counseling. And so with a FHA approved counseling agency, you have to attend a counseling session and they're gonna make sure you understand what you're doing, you know the the terms, how this works, that's a safety feature. And so you get a certificate from the Secretary of the United States Department of Housing and Urban Development that says you have completed.Your heckam counseling. That's a built-in safety feature, so it's very hard to to game the system when there are these features built in. So those are the costs, they're the safety features we talked about when the loan gets repaid. One of the things I wrote in in my last book, because some people say, well, my, my clients have never asked me about a reverse mortgage, and I said, oh, they have, they just didn't use the words, and I'll go back to your tool example. Um, last year,Several million people went to a hardware store and bought a drill, but none of those people wanted a drill, they wanted a hole.The drill was just a tool to get them there and in my last book I said there are 35 ways your clients have already asked you about reverse mortgages. They didn't use the word. They described the hole, the problem they're trying to fill, and the reverse mortgage really was the tool that could be used just like you had in your hands if you knew you had the tool in your toolbox.

So, uh, we mentioned some of the obligations that the homeowner has. You have to continue to pay for maintenance, property insurance, real estate taxes. Is that a place where people still get tripped up with the think about the obligations that they have and

not, not as much, not as much. I think most reasonable people, um, understand paying your property taxes has nothing to do with your reverse mortgage.and Founders, Kentucky, where daddy's from, if you don't pay your taxes, they're gonna run you out of the house and homeowners insurance and living there and taking care of it. So no, people, I don't think people get tripped up by that. Uh, often, they don't use the reverse mortgage strategically. Um, they went out and bought a big boat, gave the grandchild a Princess Di a wedding.Or something like that, and then down the road, because retirement's gonna last longer, be more expensive and less predictable, they don't have the funds they need. So not having um a strategic mindset about your fourth bucket, your income, insurance, investments, and your housing wealth bucket, they have to work together to strengthen and lengthen.One another,

yeah, so, uh, talk a little bit about the, I think what could be described as a sophisticated use of the reverse mortgage. So when I think about it, it's this notion of we're all trying to create tax sufficient income in retirement, right? Which, which bucket should we pull money from in order to uh avoid going into the next higher marginal.Tax bracket or avoiding Medicare Part B IRA charges, etc. So the reverse mortgage, right, if perhaps maybe you're not in R&D phase yet, you could say I could use my reverse mortgage here to avoid being bumped up into the next highest tax bracket or avoiding IRA charges. Talk about sort of like theThat kind of like sophistication. And

that's a lot of what I've learned from you and um and some some of your group about tax. That's an article that just came out last Wednesday, using the reverse mortgage to mitigate taxes and retirement. There are 12 ways I talk about. But here's an example. Um, there's a single lady, she's in the 22% tax bracket, retired age 65, and her, her income is such thatShe says, Well, I'm gonna pull $1000 to go see a concert here in New York, and she takes it from her taxable bucket. Now you would think her taxes would be $220 on that, but they end up being, um, about $407. How did she get to the 40% tax? There's no 40% tax rate. How's she paying 40% on those dollars? What has to do with Social Security and how it's taxed, the the levels you went over, and so they're little things like that. Hey, Don.I want to do this, I want to go on a cruise, I want to take some for my grandchildren, and if you take the wrong amount out of the wrong bucket, there are consequences that you may never have known about. But when you've got a 4th bucket, a reverse mortgage bucket, now you can choose, do I take it from here, here, here, or here?Now there are 12 ways that that can help you mitigate and and reduce taxes in retirement. They can go to your website and see that information. But those are some of the advanced tools. There there's a tool that says, if I can use this as a volatility buffer for my portfolio, so I'm not cannibalizing assets during the dips, it's gonna make my portfolio last longer. I can set up a 4th bucket.To do that. I can create a reserve fund for long term care, the biggest overlooked and underplanned for expense in retirement, but if at age 92 or 85 when my mom, um, her dementia called for, um, $7000 a month part-time home care, she didn't have a home. But someone who set up a reverse mortgage at age 65, at age 85, maybe they have a million dollars in their line of credit. Now they can begin to use that in seven different ways.To create a long term care plan using that. So we're not taking away, we're not using it in a frivolous manner. What we're talking about today is responsible people and listeners looking at a retirement that's gonna last longer, be more expensive and less predictable, saying if I've got the possibility of 1/4 bucket.Is it important that I at least become educated about what it could do? Yeah.

So, uh, we're almost out of time, Don, and speaking of education, if someone wants to do a deeper dive into the topic that we just broached in 23 minutes, there's a website that you can.

They, they someone can go to www.reversemortgagemasterclass.com. Reverse mortgage masterclass. That's me sharing 47 minutes a deeper dive. What it is, how it works, and some strategies to use it.And we're just educating folks, thousands of folks who have already been there. All

right, Don, I want to thank you ever so much for coming on and talking about a topic that hopefully everyone stayed and listened to. Thank you. I'm honored. Thank you, sir. So that's it for this episode of Decoding Retirement. We hope we provided you with some information to better plan for or live in retirement. And don't forget, for the latest retirement news and expert analysis, check out yahoo Finance.com.

This content was not intended to be financial advice and should not be used as a substitute for professional financial services.