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Podcast: Are Reverse Mortgages safe? With Guest Jordan Goodman

Listen to Episode 07


Hi Friend,

In today's advertising world, seniors and their loved ones are constantly being marketed to on different types of mortgages.  Here at The Senior List.com, we strive to give you the BEST information from experts, not the companies who are doing the advertising.

In this episode, Heather interviews Jordan E. Goodman, “America’s Money Answers Man” and a nationally-recognized expert on personal finance.

He is a regular guest on numerous radio and television call-in shows across the country, answering questions on personal financial topics. He appears frequently on The View, Fox News Network, Fox Business Network, CNN, CNBC and CBS evening news.

Jordan E. Goodman, Reverse Mortgages Expert

For 18 years, Jordan was on the editorial staff of Money magazine, where he served as Wall Street correspondent. While at Money, he reported and wrote on virtually every aspect of personal finance. In addition, he served as the weekly financial analyst on NBC News at Sunrise for 9 years and the daily business news commentator on Mutual Broadcasting System’s America in the Morning show for 8 years.

He is the author/co-author of 13 best-selling books on personal finance including Master Your Debt Fast Profits in Hard Times, Everyone’s Money Book, Master Your Money Type, Barron’s Dictionary of Finance and Investment Terms and Barron’s Finance and Investment Handbook.

He has also written 6 special focus editions of Everyone’s Money Book on College, Credit, Financial Planning, Real Estate, Retirement Planning and Stocks, Bonds and Mutual Funds.

Jordan is also a speaker and seminar leader on personal finance topics for business executives, students, associations, investment clubs, employees and others. Visit his website at moneyanswers.com.

Transcript of Episode 07 with Guest Jordan Goodman

Heather: Welcome to Your Best Years Being Here podcast, brought to you by theseniorlist.com. Your Best Years focuses on bringing you interviews with experts and educators to live a fun, free, and fulfilled life as a mature adult. I'm your host, Heather Havenwood. So let's have some fun and get started.

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Heather: Hi, everyone. My name is Heather Havenwood and welcome so much to The Senior List. Welcome to Your Best Years Begin Here, sponsored by The Senior List where we help boomers 50+ and their caregivers with the best resources to create a great life.

Heather: And today I have someone on the line who's going to be really great at teaching you about different types of mortgages. I'm going to let him talk to you about that. We have hand selected him completely to make sure that you get the right information, the right resources. So really listen up and make sure you share this show with your friends, loved ones, and caregivers so they can understand the different choices and they can make the best choice for you and your family.

Heather: So, Jordan, Jordan Goodman, thank you for being here.

Jordan: Great to be with you again, Heather.

Heather: I want to share with you a little bit who Jordan is first. So Jordan Goodman is known as America's money answers man because he has been answering American's personal financial questions for over 40 years. He is the host of moneyanswers.com and the weekly Money Answers radio show. He has written 13 books on financial topics including The Directory of Finance and Investment Terms, Fast Profits and Hard Times, and Master Your Debt. He was the Wall Street correspondent at Money Magazine for 18 years and is a frequent guest on radio and TV shows across America.

Heather: Thank you so much for being here.

Jordan: Great to be with you, Heather, really appreciate it.

Heather: No worries. Now I just want to make sure that everyone knows the url that you can find this show at, at theseniorlist.com/mortgages. There we're going to have a link there to Jordan's site. We're going to have a ton of different resources. But I want to let you know that upfront. And we're going to be sharing what those resources are on this show.

Heather: So, Jordan, we wanted to bring you on specifically to talk about this word called mortgages. Many times, and you know this, you're the expert, many times in our retirement, in our caregiver retirement as well as the retirement, the biggest asset they have is their home.

Jordan: Right.

Heather: And so really the question on the table today is how can they best use that mortgage for the needs that they have in their retirement. So there's two things we're going to be going over today, mortgage equity optimization and reverse mortgages. So let's just start at the beginning.

Jordan: Okay. Let's start with mortgage equity optimization, allowing you … It's a strategy you've probably never heard about before which allows the average person to pay their mortgage off, typically in about five to seven years, instead of 30 years on the same level of income. Now, ideally, Heather, when you get to retirement, when you're 65 or thereabouts, you should have your mortgage paid off. That would be ideal because a lot of people are entering retirement with still hundreds of thousands of dollars left on their mortgage. That is not a good idea, because now your income is less. You don't have your job anymore, and you've still got that big rack of a mortgage to pay off.

Jordan: Say you're 50 or 55 and if you meet the criteria and can do it, you can have your mortgage paid off by 65 instead of having it hanging over you for you're in your 70s, your 80s, it could go on forever. So it's a very powerful strategy. You don't need extra income. You need to understand how your money flows to pay that mortgage off much, much more quickly.

Heather: Yeah. The first thing I thought about is okay, you're saying that we can pay off our mortgage faster. My immediate response is well, we're on a tight budget. People are on a tight budget. How can you do that? Can you explain a little more?

Jordan: Sure. Let's just briefly describe the existing system, and then the new system, okay? The existing system is you take out a 30 year mortgage and you keep your money, your income, pretty much sitting in the bank earning zero. And the thirty year mortgage, you make the same payment for 30 years. All the interest is front end loaded. The first 10 to 15 years, you're making very, very little progress on the principal. All right? So that's the current system that works real well for the banks. The banks aren't going to tell you anything different because they're happy. They get interest from you for 30 years and meanwhile your money is sitting in the checking account earning nothing, right? You see how that works well for the banks?

Jordan: We're now going to flip the tables so your money is actually working for you instead of the banks. That's why you're never going to hear about this from a bank actually. So here's how it works. So you use a home equity line of credit, what's called a HELOC, H-E-L-O-C, which is a liquid line. It's a second mortgage against your house. You can put money in. You can take it out whenever you like. You do what's called the blended strategy, where you combine, using the HELOC with your traditional first. Paying down the first with the HELOC, then keeping your money in the home equity line of credit, pushing your balance down on a continual basis.

Jordan: That's how the same money you have is making a huge difference in the amount of principal you owe as opposed to making almost no difference for many, many, many years. Let me just give you a simple example of how this would work. I'll just give you a …

Heather: Yeah, let's do it.

Jordan: Say you had a house worth 300,000 and say you had a $200,000 first mortgage with a good interest rate, say a 4% interest rate, something like that. You would go out and get a $50,000 home equity line of credit, a HELOC. And you just opened it, you haven't used it. You write a $50,000 on that HELOC towards the first, okay? So now you owe 150 on the first and 50 on the HELOC. Now over the next year or so you keep all your money in the HELOC, every day pushing your balance down a little bit. And after, say, a year that $50,000 HELOC is paid off because you've been making progress against it every day. You then do it again. You write another $50,000 check on the HELOC towards the first. Instead of owing 150 you now owe 100. You do it twice more. After four years, your first is paid off. You pay off the HELOC 50. You are now mortgage free.

Jordan: That's a dramatically over-simplified example of how it works. But your money every day is pushing that balance down. HELOCs are based on what's called average daily balance, how much do you owe today. So say you get a paycheck for $1000. You owe 50,000. You put it in there. You now owe 49,000 instead of 50,000 so you're paying interest on a lower balance. So you go down, down, down, down. Now one day a month it's going to go up when you pay your bills. You pay your bills out of the HELOC, preferably on one credit card. So basically you pay one bill a month. All your bills are being consolidated that way. So every day you're making progress on the principal, except for one day when your balance goes up a bit.

Jordan: There are three things you need to make this work, Heather. First thing, got to have equity in your house. If you're underwater in the house, you're not getting a HELOC, no equity to borrow against. Second thing, you've got to have a decent credit score, maybe 680 or higher to qualify for that HELOC. And the third thing you need positive cash flow during the month, more money coming in than going out. Because that positive cash flow is what's pushing that balance down every day.

Jordan: Now I bet the vast majority of your listeners to this program have those three things and therefore they can learn about this and literally save tens of thousands of dollars in needless interest and something like 25 years off their mortgage. Now I'm giving you an oversimplified there but that's how the strategy works.

Heather: Okay, great. So a couple of things I wanted to ask you. One, what are the advantages of really having your house completely paid off in retirement? Other than just not having a payment which is super fine?

Jordan: Well, peace of mind is a good thing, too.

Heather: Peace of mind, too. Yeah.

Jordan: You saw what happened 10 years ago when we had the financial crisis, right? People lost their houses because they had a bigger mortgage than they could really handle. If your house is free and clear, you're feeling much, much better. You don't have that payment to make anymore. And now you can take your money, instead of paying interest on a mortgage, invest it so it's producing income for you. What a financial difference in your life to be mortgage free in retirement.

Heather: So to be able to do this particular structure, just to be able to do this, do they have to have a higher budget per month?

Jordan: Nope.

Heather: Okay, so their budget of $1000 a month of their mortgage, that's their budget, they can't-

Jordan: Whatever the number is. It's the same numbers but you know, you've got to have positive cash flow. You've got to have more money coming in than going out because that's the secret sauce. That's what's pushing that balance down. If you have that, if you're flowing it in a way that's helping you right now, if you have positive cash flow, it's sitting there in the checking account earning nothing for you. Right? Here, money is constantly pushing that HELOC balance down. So that's why your money is working for you instead of the bank.

Heather: Exactly. So, great. This is great. All right, so anything else you want to say about specifically that? And is this a particular kind of, is this a plan? Can I get this at the bank?

Jordan: It's a strategy.

Heather: It's a strategy.

Jordan: At the link that you gave, theseniorlist/mortgages. There's a link to a place that can actually help you model it for free. It's called a personal profile. And you put in your income, your expenses, your house, your mortgage, all the different elements. And it's going to say based on what you're doing right now, you're 50. It's going to take you 25 years to pay off your mortgage, whatever it may be. And based on the numbers you just gave us, if you use this strategy it'll be 5.6 year, whatever the numbers come out to be. And then they show you step by step how to do it. So I'm not leaving you on your own. The resource that you can get through the landing page that you've got there is going to take them right to a place that can help them implement what's pretty much a new idea for a lot of people.

Mortgage Equity Optimization is a strategy that allows you to pay off your mortgage years sooner than you ever imagined possible using a combination of a traditional first mortgage and a home equity line of credit (HELOC). Seniors can use this to pay off their mortgages so they can live debt-free in retirement. To find out how this might work in your circumstances, go to truthinequity.com/theseniorlist and fill in the free Personal Profile  to see how much faster you could pay off your mortgage on your existing level of income.

Heather: Okay, great. So I'm going to say that again. It's theseniorlist.com/mortgages. There we'll have the link that he's talking about, which is going to go to a landing page. In that landing page, there'll be number two, step two. And there'll be a link and you'll go to a form. The form will be filled out and then this gives you the new information. I just want to make sure everyone knows how that goes.

Jordan: It's called the personal profile, that's the form they've got. They are now getting your information and personalizing it for your specific situation.

Heather: Perfect. Okay. Great. And that's all free?

Jordan: All that's free. Correct.

Heather: Great. Fill out the form. It's free. Okay. Good. Good. Please go there, theseniorlist.com/mortgages. Okay. Let's go to the next one.

Heather: Now people get commercials all the time on reverse mortgages. And there's a lot of different information and data out there. Good and bad and whatnot. Let's just dive in, Jordan. What actually is reverse mortgages? And what are the myths? And what are the facts?

Jordan: So the reverse mortgage is where you tap the equity that you've built up in your home over many years to use to pay off your traditional mortgage, and hope you have some money left over that they can use to maybe pay off credit cards or other debts, or invest. So you could actually produce income from it. You're sitting on this big house that's got equity built up over many years. It's not doing you any good. It's making you feel good, but you're not getting any income from it. In fact, you're paying for it.

Jordan: So, reverse mortgage. You have to be at least 62 years or older. You get it. And then what happens is you take the money. The first thing they're going to have you do with it is to pay off any first mortgage that you've got. So you're now going to be mortgage free. And hopefully you've got something left over that's going to make a major difference in your financial life.

Jordan: Now the thing about a reverse mortgage is you don't have to make monthly payments as you do with a traditional forward mortgage.

Heather: Oh, okay.

Jordan: It doesn't mean you're not accruing interest, but you don't have to make any payments. So you do that, and then you can go for 20, 25, 30 years. You pay the reverse mortgage off when either you sell the home, or you die, and then your estate will pay it off. So the original amount you borrowed plus the accrued interest is paid off many, many, many years down the road. So it's a way of getting money that you can use so that you can cut your debts, eliminate your debts, again, gives you capital that you can use.

Jordan: Now you can't get 100% of the value of your home. You get maybe 50, 60%, something like that. The older you are, the more money you get because it's based on actuarial tables. So if you are 62, the first moment you can get it, you're going to get a lot less than if you were 70 or 75 or 80. Later and later, you're going to get more and more because they don't think you're going to hang around as long actually. They're going to get paid back quicker, right?

Jordan: Some other things about it. You have to go through a housing counselor. They want to make sure that you exactly understand this thing and do it right. So there's a whole free housing counseling session. I think typically do it maybe in person, to make sure that you understand all this thing. You also have to be able to show that you can afford your property taxes and your property insurance.

Jordan: Because what was happening in the past, Heather, is people were getting reverse mortgages as a last resort, about to get foreclosed out of their home. They couldn't afford anything. They would get a reverse mortgage, keep them going for a while, and then they'd lose it because they had a tax lien or something. So A, you have to prove you've got enough money to pay your property taxes and insurance and keep that up for quite a while.

Jordan: So it made it a little bit tougher for people to get a reverse mortgage, but it's a good thing because you don't want people to run out of money all together.

Heather: Okay. So a couple of things. Again, I'm going to make sure everyone knows the resources and where to find this. Seniorlist.com/mortgages. On there you'll see this show here where you can share this with friends and family. But in there we'll have a link that goes to a landing page and you'll see Jordan's face there so you'll know you're in the right place. It's on his website.

Reverse mortgages allow you to tap into the equity you have built up in your home over many years and still own your home. You can access that equity in a lump sum, in a line of credit or as annuity payments.  You use the money to pay off your first mortgage and any other debts and then invest the rest to boost your retirement income. You can find out how to find the best reverse mortgage at reverseloanchoices.com/theseniorlist.

Heather: And there you'll have those two options. You can click on the one on the left hand side, all right? Where it says “time to leverage the equity in your home”. And that's what we're talking about now, reverse mortgages. Or you can click on “pay off your mortgage in five to seven years” which is the one we were just discussing about paying off your loan faster. Correct?

Jordan: That is correct. So a reverse mortgage is a good thing to do if you're planning on staying in your homes for a long time because you get to keep owning your home. You don't give up ownership of your home or something. You just get a mortgage on it that you don't have payments. So you're planning on staying in your home for a while. And you want to get your debt paid off. You want to have some income from it. And your kids are okay with it, right? Because it will affect your spending, the equity you've built up over many years.

Heather: They might not be happy with that. Do they have to sign off on that? Or is it just the people that own the property?

Jordan: They do. Usually the kids are involved in this decision because … I like to put it from the kids' point of view. It allows the parents to stay in their home as opposed to moving into your home, which is probably better for both.

Heather: Right. That will help the family out. I completely get that. Okay. So what are the downsides of reverse mortgages? What are some pitfalls, or maybe some companies out there that you would say are some red flags that aren't good companies to do business with if they say certain things?

Jordan: Right. So you see a lot of advertising. And usually what they do is they get very big named people. They had the Fonz, remember Henry Winkler for a while? They used to have Fred Thompson who died. And now I think Tom Selleck is the guy.

Heather: Yeah, Tom Selleck, I see, yes.

Jordan: These guys don't come cheap, Heather. Okay? There's a reason these guys are doing it because they're getting huge fees for doing that. You're paying for that ultimately. So the firms that hire these big name actors typically charge much higher fees than other places. Now the one on theseniorlist.com/mortgages I'm referring people to a place that use the lowest fees and the best deals anywhere in the country.

Jordan: So there is a difference is fees. They charge points. They'll charge appraisal fees, closing costs. There's a lot of fees involved. Some of which are mandated by the government, but some of which there's some flexibility there. You want the fees as low as possible.

Heather: Are these done by normal banks? If someone's listening, says, “Hey we've had a banker we've known for years. I really want to go through them.” Is this done usually through a traditional bank?

Jordan: Usually not. Usually not. The banks like traditional forward mortgages. They used to but not as much. So you have to go to these kind of specialized lenders.

Heather: Okay. Okay, good. That's good to know. And what is someone's listening and they say, “We have a HELOC, or we have a second mortgage. Can we still qualify?”

Jordan: Absolutely, because you're going to pay that off. Right? They're going to require that. Let's just do a simple example. Say you own a house, 400,000, whatever. And say you're 70 years old. You might be able to get 200,000, something like that. And say you have a $100,000 mortgage, first or HELOC. You're going to be required to use 100 of that 200 to pay off that mortgage. So your first or HELOC, any mortgages are going to be paid off for sure. And now you've got 100,000 left over.

Jordan: So you have some credit card debt, you can take care of that. Or you don't have any other debt? Invest it in something that's going to give you income, so that you're now in a much better financial position. You don't have a mortgage anymore and now you're getting income. That capital that you're living in is now working for you. It's producing income for you as opposed to just feeling nice. Okay? That's a big difference in your financial life.

Heather: Right. Right. So okay, and then when you have that money, you can use it for anything, right? You can use it potentially for getting into a home or long term care if needed or having people come into the home. There's no barriers on what you can use with the money, right?

Jordan: Just don't blow it, okay?

Heather: Yeah, let's not blow it, right. But if they need that for in-home care or something.

Jordan: If you want you can go on vacation and drink till you're numb, but not a good idea. This is equity you've built up over many years and you should be careful with it. Paying off your mortgage or other debts is a great thing because you don't have those debts anymore. And investing it in a way that will give you some income is a great thing too. So, yes, you can use it on whatever you want, but use it right.

Heather: Okay. So they could use it on things like in-home care if needed or any health issues?

Jordan: Right.

Heather: Or thing like that.

Jordan: Long term care, if they needed something like that.

Heather: Long term care.

Jordan: Getting income from it is the best way to use it.

Heather: Okay. Great. You and I talked about a couple of the different things. We've talked now about reverse mortgages. We've also talked about being able to pay down your mortgage equity optimization, which is basically paying down your mortgage faster. And you do a ton. This is not the only thing that you do. You do have a lot of expertise in many, many areas.

Heather: I kind of want to go down a few more if you're okay with that. So let's go down a little bit on long-term care.

Jordan: Sure. So long-term care is insurance that covers the cost of somebody taking care of you. Now you think you're going to last forever, which is nice, but at certain point you just can't take care of yourself on your own. It's what's called the basic rules of living you've got there. You've got to be able to eat and go to the bathroom and wash yourself and dress. And at a certain point, you're just not able to do these things on your own. In order to be able to quality to receive long term care benefits you have to not be able to do two out of the six kind of basic necessities of life, as certified by a doctor. And if you can't do that, you get long term care. Now they're going to pay you a certain amount per day or per month.

Jordan: There's different ways of doing it. It's better to get long-term care when you're younger because it's cheaper. It's kind of like life insurance. You lock in the premium at the age that you get it. So if you buy it at age 40 it's a lot cheaper than if you buy it at age 60 just by the nature of it. Probably the insurance company is assuming you're going to pay for it for many years before you end up using it. That's the idea. It can be a great system to cover those costs which are not covered by Medicare, life insurance, Social Security. Your health insurance is not going to cover aides helping you around, that kind of thing. The only way you can get that is Medicaid, which you have to be impoverished basically to get Medicaid. You don't want to get Medicaid if you can possibly avoid it because it means you're broke.

Jordan: So this is allowing you to keep your lifestyle and actually keep your assets. A lot of people when they're old in years, spend through all their assets on aides. And we're talking about home healthcare aides, assisted living, nursing homes. They've built up all these assets over many years and it all goes to the nursing home. By having long-term care you get to hold onto your assets for yourself and to pass on to your kids.

Heather: So, we're talking about different finances when you're older. And somebody is doing that right now. So what's the best strategy? Now we have mortgage equity optimization, first mortgages, and long-term care, which is kind of different? What is like what I call A-plus best strategy here?

Jordan: Well, it depends on your situation. That would be reverse mortgages if you're 62+ and you've got a lot of equity you want to get your money from. The mortgage optimization route, it's better to start younger. You're not going to start mortgage optimization when you're 65. You're trying to get your mortgage paid off so say you're 50 or something like that and you pay it off by 55. That's going to be it.

Jordan: Long-term care, again, the younger you get it the better it's going to be because it's going to be cheaper. The older you get, the more expensive it gets. It's the kind of thing that you can't buy it once you need it. Too late. Okay? If you're 85 and you need home health care aids you are not going to be able to afford long-term care. They want to get it younger. So that's kind of, depending on the situation, what's best for you.

Heather: Okay. Got it. Okay. Great. This has been really helpful. I'm going to make sure everyone has the url, theseniorlist.com/mortgages. And there, again, we're going to have the link to Jordan's page. And, again, when you click on the link you'll see Jordan there. Jordan Goodman. Go check it out. There they'll be having information about reverse mortgages as well as mortgage equity optimization.

Heather: Jordan, this has been pretty helpful. Is there anything else that you'd want to say to the listeners of The Senior List?

Jordan: They can always check me out on my website moneyanswers.com. I'd love to help. And I take email from people. I just love to help. As I said, these are just of few of the many, many areas I love to help people with.

Heather: Yeah. So we would like to have you back. At The Senior List, we really wanted to focus on mortgages because we get a lot of questions. But we'd like to have you back because there's a ton of different things that we could discuss for helping seniors and their caregivers make the best decisions.

Heather: And, yes, go check out Jordan Goodman at moneyanswers.com. He also has a Money Answers radio show, as well as 13 books on financial topics. So please go check him out. Jordan, thank you so much for being here. And I want to make sure everyone has the url, theseniorlist.com/mortgages.

Heather: Okay, everyone, this is Heather Havenwood for The Senior List. Wish you all the best.

Heather: Thank you for listening to Your Best Year Begin Here podcast brought to you by theseniorlist.com. I'm your host Heather Havenwood. Please visit our website at theseniorlist.com and join many of our community groups on Facebook. Here at The Senior List we want to hear from you. Do you have a recommendation or a person or a company you want us to interview? Tell us. Email us at podcast@theseniorlist.com. Again, that's podcast@theseniorlist.com.

Heather: Until next time, one goal, one passion: Helping you live your best life.

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