Did You Know a Reverse Mortgage Can be Used to Help Older Adults Age In Place?

Reverse Mortgages have been around for decades, however they are becoming more popular than ever before. This type of loan can be used to help finance home improvements, new furniture, in home care, and even vacations. Of course, there are certain criteria that must be met in order to qualify for this type of loan and it may not be right for every person over age 65, nonetheless, it is an option worth exploring. Please listen to my conversation with subject matter expert Sue Haviland, CRMP, Speaker, Advocate, and Trainer- to learn more about this versatile loan product. Sue is also a Board Member of the National Aging In Place Council (NAIPC).

Educational Link: Use Your Home To Stay AT Home

Transcript

[00:00:00] Janet: Hello everyone, and thank you for being with me today. Our guest is Sue Havilland. She is a speaker, a coach, a trainer, an author, and an advocate for helping older adults age in place. Sue, thank you for being with us 

[00:00:19] Sue Haviland: Janet, thank you so much for having me. It's a pleasure to be here.

[00:00:25] Janet: Well, I invited you to be on my show because I saw that you were an expert in the reverse mortgage arena. You've been doing this for over 20 years, and I am always looking for ways to educate professionals as well as consumers on how they can pay for home modifications. , so please educate us.

[00:00:53] Sue Haviland: Absolutely Janet. I think the best place to start is to talk about what a reverse [00:01:00] mortgage is. There's been, there's still so much confusion and misinformation that surrounds this product and a reverse mortgage. Now we're speaking about. The F H A insured product, which is the most popular product in the marketplace today. A reverse mortgage is simply a special type of loan product available to older adults, 62 and over. It allows them to access a portion of the equity in their home, and they don't have to make a repayment. There are no payments. um, mandated they can make a payment, but they don't have to as long as they uphold.

[00:01:38] Sue Haviland: The terms of the loan and the terms of the loan are generally pretty simple. They live in the home as their primary residents and they keep property charges like their real estate taxes and their homeowner's insurance up to date. at all times. This product has evolved over the years. The very [00:02:00] first F h a reverse mortgage was done back in 1989.

[00:02:05] Sue Haviland: It's hard to believe that reverse mortgages have been around that long. The F H A product. and it, it has over over seen it has seen a lot of evolution, a lot of changes, a lot of improvements over the years, and it is, it is enjoying such popularity with older adults who want to stay in their home. And who want to age in place due to the safeguards and the flexibility of the product. And that's one of the reasons it's so important that we get that information out there.

[00:02:43] Janet: I'm glad you said that because I wasn't aware that the reverse mortgage is becoming a popular op. For people who want to age in place, and that's why I invited you because I wanted to learn more about it. And I also [00:03:00] want you to tell us about this, these safeguards that you just mentioned.

[00:03:05] Sue Haviland: Yeah, very, very important that anyone who's considering a reverse mortgage understand the product and how it works for them. I look at it as, it's like any other financial decision. You have to do what's right for you, but the flexibility and the safeguards offered by the reverse mortgage really do make it a.

[00:03:24] Sue Haviland: A popular option and something that everyone at least needs to consider. First of all, the F H A product. As with just about all reverse mortgages, they are non-recourse loans, meaning that the house literally stands for the loan. It is a negatively amortizing loan, meaning that the interest and fees are allowed to build or accrue, as we say on the loan.

[00:03:49] Sue Haviland: So it's a rising debt loan. However, one of the biggest protections is this non-recourse feature, which says that if there is a deficit, if [00:04:00] the loan balance at the time of payoff is higher than the home value, the borrower. The heirs and other assets are not at risk. No one else is held liable for any deficit. It is paid through F h A who ensures the loan. So the heirs, the adult children, the other assets there are everyone's protected because they're not gonna be held liable for any deficit.

[00:04:35] Janet: So the what makes a reverse mortgage unique is that. it, not only does it accrue interest, but the interest rate actually rises as time goes 

[00:04:50] Sue Haviland: the

[00:04:51] Sue Haviland: the interest builds on the loan. It's negatively amortizing. If we think about, and this is a great question and it's an important distinction that we, that we make [00:05:00] on a regular loan, on a, as we call them, a forward loan or a conventional loan, the borrower's principle balance reduces by the principle and interest payments that they are required to make.

[00:05:12] Sue Haviland: They must make those payments right or they risk foreclosure on a reverse mortgage. There are no mandated. Monthly mortgage payments, so the interest is allowed to build on the loan. So the loan balance rises over time. Now the borrower can make payments. There's nothing that prevents them, them from doing that, but they're not obligated, which is why it is such a popular option for older adults who want to age in place, and maybe they even need to make changes to their home when they're aging in place.

[00:05:50] Janet: Yes. So. , I want to ask you about specific modifications. The bathroom is one [00:06:00] of the most popular rooms in the house to modify, and a lot of times people need to modify the bathroom in order to be able to do their activities of daily living independently. For example, bathing or toilet toy toileting, grooming and hygiene.

[00:06:22] Janet: If someone wants to remodel their bathroom, let's say it's $20,000 and they are considering a reverse mortgage, tell us how a reverse mortgage is a better product or a viable product when considering the different types of loans that are 

[00:06:48] Sue Haviland: That is a great question, Janet. And, and let's, that's a, that's, I love that you brought up that specific, so for someone, say, who is considering, um, a modification such as that, [00:07:00] that's a, that's a, you know, $20,000, that's a significant amount of money. Someone may not want to take that out of their assets.

[00:07:06] Sue Haviland: They may not wanna liquidate assets to do that. They may not have the assets to do that with a reverse mortgage. They can access that cash. And they can use as much or as little as they need. And it becomes part of an overall strategy because maybe they're not only just looking at doing the bathroom, perhaps they look at the bathroom modifications they want to make, and then they say, well, now that we've done that, we think that there might be other things that we want to do. And with a reverse mortgage, the borrower, the borrower accesses the funds in the way they want when they want. So they might have the option of establishing a line of credit within the reverse mortgage that they can access when they need. Maybe when they're ready to do some modifications, they access those funds. They [00:08:00] could set up the reverse mortgage where they receive regular monthly payments. Notice I said they receive regular monthly payments. Think of a mortgage in reverse. The lender is actually sending money to the borrower. So really they could use this for aging in place, modifications to the property. They could use it to supplement their cash flow so they don't have to drain their assets. Lots and lots of strategic uses for the reverse mortgage, particularly when we're talking about aging in place and modifications to the property. One of the other. Um, one of my other activities that I'm involved in is I'm the president and c e o of a nonprofit called Step Smart, and we are located in southwest Florida where I live, and we talk about the importance of educating older adults and those who love them on fall prevention. And I know that that's something that in your role [00:09:00] you are, are very keyed into. We feel that, um, the overall holistic look at the home for aging in place is so important and the reverse mortgage can play a significant part in reaching those goals to allow an older adult to safely age in place in their home.

[00:09:22] Janet: Yes. Thank you for mentioning that because I cannot talk about aging in place without also talking about fall prevention, and as you said, if we prevent a fall, then. That is what is going to allow people to continue to have quality of life in their later years and be able to make choices about where they live and how much assistance they will need.

[00:09:54] Janet: And as I have mentioned in many other podcasts episodes that [00:10:00] people fall for four main reasons. One is muscle weakness. Two is. visual impairment. Three is taking medications incorrectly, and number four is having hazards in your home. So the one that we are fully in control of, well, actually two of them because everyone can exercise but is making your home safer.

[00:10:29] Janet: And so if you remove these hazards from your home, and not only remove the hazards, but also make it easier to live in your home, make your home more comfortable, make your home more visitable, then you will likely prevent a fall or some type of accident. Maybe not for yourself, maybe for someone who's visiting your home.

[00:10:53] Janet: So thank you for mentioning that. Now, I wanted to piggyback on something. else that [00:11:00] you had said earlier. So you said that someone can use these funds for aging in place, so that would mean not only making changes to your home, but perhaps also hiring a paid caregiver. Am I correct?

[00:11:17] Sue Haviland: Absolutely. And you know, you hit the nail on the head with your comments about fall prevention because I often say that one. Fall one, bad fall can completely derail even the best aging and place plan. But yes to, to my other comment about looking at this from a holistic perspective, right? Maybe someone needs to make some modifications to the home. Maybe they need to make some other changes. But yes, maybe they also need to hire a caregiver. And reverse mortgage funds can absolutely be used for that purpose as well. So that's why someone needs to consider, that's why I say they may be looking at redoing the bathroom to make it aging in place friendly. [00:12:00] But then when we have a more holistic discussion, we find, okay, maybe a caregiver maybe we need to start that conversation and think about having a caregiver. come in to help with certain tasks around the house. So the reverse mortgage can solve a multitude of issues where someone's looking at it and, and comparing it with other options and saying, okay, I really don't wanna move.

[00:12:26] Sue Haviland: I really do wanna stay in my home. What do I need to do to make that happen?

[00:12:35] Janet: now, we said that the money could be used for making home modifications for paying for a caregiver. . Another aspect that I want to bring up about aging in place is that it's not just what's behind the walls or the size of the rooms, but furniture for example, plays a big role in [00:13:00] helping people age in place.

[00:13:02] Janet: And the reason why I say that is because you have to have furniture that is functional, that you can easily. Sit down on and get up from, and I don't refer to only one piece of furniture. This has to be the case for the furniture in your dining room, the furniture in your bedroom, perhaps even furniture in your bathroom.

[00:13:28] Janet: One recommendation that I would often make to. Patients when I worked in home health was if you have enough space in your bathroom, it is a good idea to place a chair with armrest because when you sit down, it is much safer to get dressed and undressed and to dry off after you come out of the shower.

[00:13:53] Janet: Or do your makeup, take your medications. So there are lots of things that happen in the bathroom, [00:14:00] and having a place to sit is a very nice, comfortable option. So my question is, can someone use these reverse mortgage funds to buy new furniture?

[00:14:18] Sue Haviland: Absolutely they can. The reverse mortgage, if we think about the essence of a reverse mortgage, someone is just accessing their own equity. They can use those funds for any purpose at any time, whatever the amount is that they have available, it's their funds to use as they see fit, and that's why it's so important that someone speak with a reverse mortgage professional who really knows the ins and outs of the program and can answer questions that are specific to that individual's. Situation so that they can tailor the loan to meet their specific needs. So what, what have we talked [00:15:00] about? We've talked about some home modifications, we've talked about possibly a caregiver coming into the home. You mentioned furniture. That's, that's so important. You're right. We've gotta have all of those things in the home to make it aging in place friendly based on that particular individual's needs.

[00:15:23] Janet: we have mentioned a lot of pros, and you've really educated me on this product because I really didn't know very much about it. , I've been watching commercials for decades about it. . Um, now what are some of the cons about the reverse mortgage? And tell us why there is a, a negative stigma surrounding the reverse mortgage Janet, that's great and I'm glad you brought that up. I don't really believe that there are any cons. To the [00:16:00] loan. What I believe is that the person, the individual who's considering one, needs to have their own specific questions answered. And I think it's gotten such a negative, um reputation or there's, it, it's really misunderstanding.

[00:16:15] Sue Haviland: It's really, it's really that, um, that folks haven't been properly educated on how the reverse mortgage benefits them Now. I will also be, and, and over my years when I was actually doing reverse mortgages as an originator, I would be the first person to say, if I thought it was not a good decision. For example, if someone did not plan to stay in the home in the long term, if they were gonna be moving within the year. Okay. We probably need to think of a short term solution because they obviously have other things going on, so it's like any other. Financial decision, you really need to have a discussion with someone who knows the ins and outs and can explain the loan properly. It's all about [00:17:00] education, and I liken it to sometimes the, you know, the, the game you played in kindergarten where everybody sits in a circle and tells the story and by the time it gets. Back around. It's not at all the same as when it started. That's what tends to happen, I think, in the reverse mortgage space. Some of these, um, these myths and misconceptions, like, you're gonna lose your house. You have to sign your house over to the bank. No, no one is ever asked to sign title over to the bank simply for taking out a reverse mortgage.

[00:17:30] Sue Haviland: It's just not the way it's done. The whole point is for the borrower to keep their house. That's the intent of the loan. I often hear. That the children will be against it because they think they're losing their inheritance. Nothing could be further from the truth. When I have conversations with families, I find that a, um, involving everyone in the discussion. Um, once everyone's educated on the benefits of the program, the adult children really want what's best for mom and dad. That's what I find, [00:18:00] um, overwhelmingly so. Um, and, and, and I hear, well, there won't be any equity left. That's not necessarily true. Every loan is different, and that's why it's important that the, um, that the potential borrower have a discussion with someone who's well versed in the product.

[00:18:21] Track 1: Okay, so another scenario. Realistically, if someone wants to make their home accessible, functional, and beautiful,

[00:18:36] Track 1: today's economy, it will probably, depending on where you live, cost you. at least a hundred thousand dollars. Now, let's say that someone owns a home and they own it outright and their equity is 500,000 or [00:19:00] $600,000, which is very common in many places in the us.

[00:19:07] Track 1: What would that look like if someone takes out a loan for $100,000? , they make these changes. They enjoy this for some time. They make payments or, or maybe you could talk about it from both scenarios. Whether they make payments, they don't make payments. Let's say six years later, they pass away. Now what happens with this mortgage and this

[00:19:38] Sue Haviland: That's, that's a great question and I'm gonna kind of set the stage and tell you how the funds are calculated on a reverse mortgage. This is a very high level overview, and once again, everyone's gonna have a specific discussion tailored. To their individual needs a reverse. The reverse mortgage proceeds are based on a couple of factors. First of all, the [00:20:00] age of the youngest borrower. Now remember, for the F H A insured product, the most popular reverse mortgage is called the heck, or home equity conversion mortgage. The minimum age is 62. there are lenders out in the marketplace who offer proprietary products, meaning that they are owned by those specific lenders, not F H A insured.

[00:20:23] Sue Haviland: They're individual lender products, but the borrowers could be as young as 55. So that's another way that the product is continuing to evolve. So the calculations for the F H A product are the mi, the age of the youngest borrower. Minimum H 62, the value of the home. So the appraised value and the interest rate for the product that is selected.

[00:20:48] Sue Haviland: And there are various products, and once again, that's why it's important to have that discussion to find out the best product that meets your needs, so where the loan balance is going to [00:21:00] end. A few years down the road depends on all of these factors, how much the person used, the interest rates at the time, and um, did they use all of the money?

[00:21:11] Sue Haviland: Did they use a little bit? And yes, they can make payments, but they're not obligated. So once again, it's very, very individual discussion. Um, one important note to remember is that at the time, the home is sold when the last remaining borrower no longer lives in the home. If one spouse passes away or goes into a nursing home and the other spouse still lives in the property, that reverse mortgage can remain in place as long as that other borrower is living in the home and keeping up the property charges, like we said in the beginning, taxes and insurance, um, and condo fees if applicable, et cetera. So that, um, that la that other borrower can remain in the home, but at the time the loan is due when no remaining borrowers are living there. [00:22:00] Let's say that the, let's say that for example, both borrowers have passed away. We had a husband and wife, they both passed away and the estate is selling the property. If there are going to be proceeds, let's say, I'll just give you an example. We have a $700,000 house and the property's gonna sell for 700,000 and there's a $200,000 reverse mortgage balance at the time the home is sold. The estate gets the remaining money. It's just like there is a regular mortgage on the property. The the payoff is the loan balance. The lender will provide that and any leftover proceeds go to the estate or the heirs.

[00:22:44] Track 1: I see. , can you give us an example with, of course, without using names of clients that you have had and their different reasons why they took out a reverse [00:23:00] mortgage and how it played out for 

[00:23:03] Sue Haviland: Oh, absolutely. There are as many reasons I, I've, as long as I've been in the reverse mortgage space. The more people I talk to, the more reasons I find, um, some of them, some borrowers have very basic needs. They just wanna maybe supplement their cash flow on a monthly basis and everything will be good. that's great. We can help those borrowers. Some borrowers wanna establish a line of credit within a reverse mortgage and use that for future needs. Maybe they don't have an immediate need, but they're looking at long-term planning down the road and the line of credit within that F h a reverse mortgage actually has a growth feature built in, which is another planning discussion that someone can have with a reverse mortgage professional. Sometimes a borrower may just wanna take out some cash to travel. Maybe they just wanna enjoy their retirement. We think of all these needs-based things, [00:24:00] but there are a lot of wants based things as well. Sometimes they wanna establish an education fund for the grandchildren. Help them with give college tuition down the road.

[00:24:11] Sue Haviland: So they're looking at using those funds to help other family members, or perhaps they're helping their adult children purchasing their first home, helping them out with some down payment funds. So lots and lots of reasons why someone might take out a reverse mortgage. And really the, the, the sky's the limit.

[00:24:31] Sue Haviland: The borrower can use the funds for whatever they would like just based on their own particular needs and goals.

[00:24:40] Track 1: Well, that sounds like a great option, and it sounds like. A solution to many different situations that a person or family may have. Can you tell me what the interest rates look [00:25:00] like? I know you said that there are several different products that some lenders have proprietary products, but can you give me specifics on.

[00:25:11] Track 1: what the interest rates may look like for someone who's interested in a, taking out a reverse

[00:25:18] Sue Haviland: That's a great question, Janet, and like the forward or conventional mortgage market, reverse mortgage interest rates are changing all the time and there are so many different options. Options, depending on the product that someone's using. So I, I think it's best to have an interest rate discussion with a reverse mortgage professional because once again, the way the loan might be structured, how the person's taking the proceeds, that all may determine the type of loan that they're gonna take and how that loan might be, um, structured specifically for them.

[00:25:54] Track 1: I see. Do you know what are [00:26:00] the three top reasons why. , most people now are taking out a reverse mortgage. I know you said that It's becoming a very popular option for people who want to age in place. Now, whenever I think about aging in place, automatically I think about home modifications because that's what I do

[00:26:20] Track 1: But as you educated us on the many different reasons why people would be interested in having this cash on hand using the equity in their home. , what are the reasons why people are taking out reverse mortgages in your experience?

[00:26:39] Sue Haviland: that's a great question, Janet. And really any, um, one of the main reasons is if they currently have a mortgage payment, if they re have a regular mortgage on their home and as they're going into retirement, they're saying, you know, if I could get rid of that mortgage payment, I. Retirement would be good. So if there's a, an existing loan, if there's an existing forward regular [00:27:00] mortgage on the property, it is paid off with reverse mortgage funds, so the principle and interest portion of that payment goes away. And the borrower, once again is not, not obligated to make a, a mortgage payment. Now they of course, they always have to keep their real estate taxes, homeowner's insurance, and any other property charges in, um, current at all times. But the principle and interest payment. just goes away. They don't have to make a payment on a reverse mortgage. So for many borrowers, that makes retirement comfortable and then they can take a look at perhaps bringing in-home care or whatever else they need to do to make retirement comfortable. So that's number one.

[00:27:41] Sue Haviland: Paying off that current mortgage, we call that retiring their mortgage payment. Secondly, we have a lot of clients who look at this for, um, future planning. As I said, maybe they don't have a large mortgage that they need to, um, to get rid of or retire. [00:28:00] They just wanna have some additional funds for the future. So they might establish that line of credit within the reverse mortgage, knowing that it's safe and secure, and it will be there down the road if they need it, perhaps. One example might be someone who doesn't have long-term care insurance and they're saying, okay, if I have some needs down the road, how am I going to pay for that? We're putting that reverse mortgage line of credit in place sooner rather than later. Because the way the reverse mortgage works is the older you are generally the more money you have access to because they're based on actuarial tables. So doing that sooner might be a good idea. So that's just a couple of, of ideas that, um, why people are using reverse mortgages now.

[00:28:50] Track 1: Okay, great. Well, I learned a lot . I really had no idea that this was how it worked. and [00:29:00] I think it, it's worthwhile for people to research the options that they have. It's not going to hurt to get information.

[00:29:10] Sue Haviland: That's a great point. And what I, that's why I always tell people, look into your options if you d, if you educate yourself on the reverse mortgage and you decide that it's not the right option for you. Perfectly fine. You have researched the option and you've educated yourself on something. We also find that this product enjoys a tremendous, tremendous approval rating from borrowers who have taken them over the years. Many, many borrowers, the vast majority say that they're glad they did it and they would do it again. So that says a lot about the product and we get, we, we get often get calls from someone who will say, oh, so-and-so has a reverse mortgage, and they told me I should look into it. So that tells you that people are out there talking about it and they really are. Um, they really are embracing the, [00:30:00] the many benefits of using their home equity as they move into retirement.

[00:30:06] Janet: Yes. And with so many people. Turning 65, it's 10,000 people every single day that turn 65. And also with the increasing equity that people have in their homes. And when you consider that 70% of older adults own their home, so obviously there was a huge market.

[00:30:34] Sue Haviland: There is, and yes, the, um, 10,000 people turning 65 every day. Think about that Think about that. And older adults right now are sitting on over 11 trillion in equity. That is significant. When we think about those kinds of numbers, we see the real opportunity to help our borrowers, um, age in place comfortably in their own homes, where over and over and over again [00:31:00] they've said that that's where they want to be. And I also wanted to mention Janet, that I am a board member with the National Aging in Place Council. And we have actually, um, a group of us have put together a book. I'm a contr, a contributing author to a book that we put together called Aging in Place Conversations, what the Experts Have to Say, and for anyone who might be interested, this book can be found on Amazon and my contributions to the book focused on reverse mortgages and fall prevention two, two topics that I am. Very, very passionate about.

[00:31:44] Track 1: Yes, and I will include a link to the book in the show notes for anyone interested in. researching that. Now, my last question is I want to ask you, [00:32:00] now that people have access to the internet and it's so easy to get information before you have to make an appointment with someone, what is the best resource for someone sitting at home who wants to look more into the reverse mortgage?

[00:32:18] Track 1: Where should they go to get 

[00:32:20] Sue Haviland: Uh, and you're right Janet. There is a lot of information on the internet and someone can certainly do their reading and do their research. There is also some information on the HUD website. There are some resources. F H A does offer some resources for someone looking into reverse mortgages. They should also ask other. Uh, individuals ask around, ask other individuals that they know, ask their, um, their financial advisor or other people that they know. If they can recommend a reverse mortgage specialist. Ask their attorney. Ask other people that they maybe do business with if they [00:33:00] know a reputable reverse mortgage professional. The National Reverse Mortgage Lenders Association is our trade organization. They are based out of Washington and they also have some resources for consumers, um, that I would be happy to to share with anyone who wants additional information.

[00:33:20] Janet: Okay, great. So I will include the HUD website. I will also include the Federal Trade Commission Consumer Advice website, and your phone 

[00:33:32] Sue Haviland: Wonderful. And there is a booklet that's called Use Your Home To Stay At Home. Um, that is a, that is a publication that we. Provide to anyone who's interested in a reverse mortgage, it's, they, they need to read this as part of their education. So I would encourage, and you can find that document online, you, it's called Use Your Home to Stay at Home. So that's a, that's a good resource as well.

[00:33:59] Janet: Okay. [00:34:00] I'll link that as well. Well, Sue, I really appre appreciate you spending time with us and explaining this so eloquently, so well, and you really touched on many different aspects of how the reverse mortgage can help people age in place. You mentioned things that had never occurred to me or that I really had no idea could be used in a loan.

[00:34:30] Janet: for example, to buy furniture. I love that . Um, well thank you so much and I hope to have you on again in the 

[00:34:40] Sue Haviland: Oh, it would be my pleasure. Janet, thank you once again for having me. It's, it's so important to get the word out about the use of home equity in retirement and, and tell the real story.

[00:34:52] Janet: Mm-hmm. . Yes, I agree with you. Thank you, Sue.

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