Reverse Mortgages 101: What Homeowners Need To Know

Most people don’t understand reverse mortgages… and that lack of knowledge could cost your family BIG. 😳

In this episode, Alex Nahle sits down with reverse mortgage expert Janice Cohen to break down what’s really going on behind the scenes—and what no one tells you.

Here’s what you’ll uncover:
✔️ How reverse mortgages actually work (and who REALLY qualifies)
✔️ Why so many seniors are using them right now
✔️ The hidden pros & cons that impact your taxes, equity, and inheritance
✔️ The critical mistake that could put your home—and your family’s future—at risk
✔️ Why putting your home in a trust might be the smartest move you make

⚠️ This is the kind of information most families only learn when it’s too late.

CONNECT WITH JANICE:
📞 Phone: 888-740-9573

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Transcript

Alex Nahle [00:00:00]:
Welcome back to the BRRRR Investor Podcast, where our mission is to empower aspiring real estate investors in their journey towards building generational wealth. All right. We're here today. We're going to talk about a very, very fun or maybe not so fun topic for everybody. It's reverse mortgages. It's a topic that, you know, many people are completely unfamiliar with. Some have just a little bit of information on. But, you know, from the conversations that I have, it's definitely widely misunderstood. So we have an expert in this space here to help, you know, demystify and bring some clarity on the topic of reverse mortgages. So welcome, Janice Cohen. Thank you so much for being here.

Janice Cohen [00:00:46]:
Thank you so much, Alex. It's lovely to be here, and I appreciate your inviting me here to have a conversation about reverse mortgages.

Alex Nahle [00:00:55]:
Absolutely. I mean, I think it's something that, you know, again, we don't really, we don't really hear too much of. And I've experienced it a few times in my career. Again, it's not something very common. It depends on your clientele base and so forth. But it's something that I feel is important to, you know, shed some light on. This is what this community is all about, is just to be a resource, provide information, educate. Our listeners and viewers in hopes if somebody, you know, needs something specific, they can, you know, reach out to someone like yourself, which, you know, you're obviously— this is your expertise. So this is like a niche, and I feel, you know, working with somebody that knows what they're doing is very, very crucial. So with that said, can you please share a little bit about Janice, about your background, and then we'll dive into the, the conversation.

Janice Cohen [00:01:47]:
Sure. So I am a relative newcomer to California. I've lived here for 15 years. I moved here from New Jersey before I began in reverse mortgages 20 years ago. I had no experience in mortgages. What I like to tell people is that the only thing I knew about mortgages 20 years ago was that I had one. And so you can imagine, you know, when people ask me questions to this day about, hey, if I'm looking to buy a house and I want to get a mortgage, and I'm like, I don't do that kind of mortgage. I know nothing about that kind of mortgage. But what I do know is how to kind of hold a senior's hand through the process of reverse mortgage and kind of relieve a little bit of financial pressure for them. So before I did reverse mortgages. I was a teacher in my children's school, and then they were— they went on to a different school. You know, they graduated to high school, and then I thought, you know, this isn't as fun anymore. I want to do something more challenging. And, you know, I was a little tired of being a teacher there. You know, the burnout is real. So I— my next-door neighbor was working for Wells Fargo at the time, and his son used to babysit for my 2 young children. And he said, you know, Janice, they've opened up a new division in the Wells Fargo office, and it's reverse mortgages, and you're, you know, you're a teacher, so you would probably be really good at explaining this program because it requires explanation, patience, handholding. And I said, I've got all of that. I can do that. I just need to learn how this works. And I did. And it took a little while, of course, you know, with any kind of skill, it takes a while before you really feel like an expert. But now, since I moved to California 15 years ago, and we moved, my husband and I moved because of his career. He was in the entertainment industry. He retired. A couple of years ago, but since we moved here, I have been absolutely blown away by the power of a reverse mortgage because when I was in New Jersey, you know, the average home price was maybe $350,000, $400,000. And while it could be life-changing for someone in certain situations, there's no comparison to how life-changing the reverse mortgage is here in Southern California because the home values are so high. Not only that, the cost of care in California is so high, whereas the employment laws in New Jersey are very different. People can get away with hiring someone privately, paying them a little bit, you know, minimum wage, whatever the case. Here in California, you can't hire somebody privately and be safe from a potential wage and hour lawsuit. You almost have to go through an agency. You have to know what you're doing. So it's been very eye-opening to kind of get to see behind the curtain of senior care. It's been very enriching for me and very satisfying. To be able to really truly get people to a comfortable place in their lives, having their needs met by this program.

Alex Nahle [00:05:39]:
Wow, it's awesome how you mentioned, you know, like, you know, being a teacher really contributed to your success in this, in this field, because yeah, it does require a lot of handholding, patience, knowing how to get the point across and explaining it, break it, breaking it down to, you know, to, to the person's level of understanding, right? Because it's foreign to many people. It's like, you know, you're speaking a different, a different language. And then also, you know, caring.

Janice Cohen [00:06:07]:
Yes.

Alex Nahle [00:06:08]:
And those are all characteristics I, I can, you know, tell from you just by, you know, talking to you. So that is very, very cool. You're a perfect fit for the job. It seems like it

Janice Cohen [00:06:19]:
If I had only known. In fact, when I went for my interview with Wells Fargo, Jim Gallagher, may he rest in peace, was the manager who interviewed me. He wanted to make me an offer on the spot. And I thought, he's crazy. He has no idea what I don't know. But he saw something in me and he said, this is for you. And I said, I don't know. I remember going home. I like burst into tears. My husband's like, why are you crying? You got a great job offer. And I'm like, I don't know. I don't know if I can do it. You could do it. And here I am 20 years later. I've been doing it.

Alex Nahle [00:07:00]:
Well, he truly saw something in you. I wanted to transition back. You mentioned, you know, again, hand-holding elderly, but also I'm sure, you know, that involves the family members too. They don't know and they want to know and how it works afterwards and so forth. So with that said, let's go to, you know, the basics. What is— let's define what is a reverse mortgage for those that have never heard of it.

Janice Cohen [00:07:26]:
Okay, so a reverse mortgage is a program that is available to people 55 and over. Used to be 62 and over, but nowadays we have a special program for younger people with high-value homes. So now it's 55 and over, and it allows them to borrow a portion of the equity. That they have in their homes, a portion of their home value, they can borrow and they can use that. Uh, it's, by the way, it's tax-free money for them because they've already paid taxes on it, because we don't call this income, we talk— we call it return of principal or return of equity. So it allows them to take this money and to use it for whatever purpose they need or want to have this reverse mortgage income for. They can take it in the form of monthly income. They can take it in the form of a lump sum, or they can take it just in a line of credit. And when people come to me, I kind of help them decide what would be the best application for them. It's very, very rarely a lump sum. First of all, this is a loan where there are traditionally— traditionally, people are not making payments on this loan. The loan is a negatively amortizing loan, which used to be a, you know, a bad thing. And it is a negatively amortizing loan. So what you're dealing with is a growing loan balance. I always tell my clients, take out the very minimum that you absolutely need. We want to treat this money like it's the last money you'll ever have, because sometimes it is. So let's say, for instance, a couple owns a house valued at $1 million, and let's say we're able to lend them $500,000, and let's say they have no mortgage at all. If we lend them that $500,000, That line of credit is not going to be charged interest. They can take what they need when they need it. Let's say, for instance, they really just want an emergency fund. And let's say their car dies and now they're without a car. They want to take out $35,000 from the reverse mortgage line of credit. They can use that money to buy a car and they have no payments that are required. Now you may say, well, why wouldn't a person just do a home equity line of credit from Chase or Wells Fargo or Bank of America like you or I would? Well, I'm, I'm 62, so I'm in a different situation. You are younger. Keep in mind, the people who come to me, they are not in their highest earning years of their careers if they're still working. Some are working, some are only working part-time. Some were told by their company that they have to retire, or they're being retired. You know, not everyone who retires does it because that is their dream, and they're ready, and they want to finish working. You know, some people, yes, some people, no. Some people think, I want to work until my dying breath. You know, everyone is different. But what is unique and helpful about the reverse mortgage program is that we do not place the same emphasis on income to qualify that someone in the traditional mortgage industry would. Now, someone who's going to qualify for a traditional mortgage has more options if they are willing to make monthly payments.

Alex Nahle [00:11:29]:
Got it.

Janice Cohen [00:11:30]:
For my clients, the vast majority say to me, look, I'm trying to get out of making payments on things at this point. I just want to be able to keep all of my Social Security income and be able to use it to go out to dinner with my friends or go to the movies or drive to the Central Coast to see my family. Everyone has a different objective, but one thing is for sure. Many of them are retired either through their choice or their company's choice, and they want to have an emergency fund that they may not have. Somebody comes to me and they live in LA and they're in their 60s. And they say, I've got a couple of $100,000 put away for retirement. Is that really going to get them to where they need to be for the next 20, 30 years? You know, $200,000 in a retirement account? Not likely. Opening up a reverse mortgage line of credit is magic because what, you know, they made a great decision. 40 years ago, 30 years ago, when they bought their home, wherever they bought it. LA real estate is something you can bank on, and if you own a home, you have a bank account in that home, um, as long as you're able to access the equity. So it's very interesting how powerful it is and how many people just They just want to sleep well at night. It's not even like, I'm going to take the money and I'm going to start a company. No, no, no. People say, I just want to sleep at night and not worry about money. And the beautiful thing about a reverse mortgage line of credit is that whatever money is left in the line grows each year at the same rate that borrowed money is charged interest. So let's say that couple with the $1 million house is going to take out a line of credit for $500,000. In 10 years, that line of credit, because of the growth of the line of credit, is going to be a $1 million line of credit. Not for any reason other than they're getting older. Because with a reverse mortgage, the older you are, the more money you can borrow from your home.

Alex Nahle [00:14:22]:
And the more money you need. I mean, you mentioned it. That's a great point. I didn't think about it. It's like two, two main things is one, you're either your income decreases typically, right? Or you become unemployed. So you have no means of getting traditional financing. You can't get a HELOC, refinance, cash out, any of that. And then the other point, which is a great point, again, it's all relative to where you are in life and how you look at it, right? Everybody can, can make their own comment about something, whether it's good or bad. But unless you're in a specific situation, you may not realize. But not having to make payments is a big deal at an older age because you have a lot of expenses to account for.

Janice Cohen [00:15:04]:
So, and especially a lot of my clients, you know, I have two most commonly found scenarios for my clients.

Alex Nahle [00:15:14]:
Okay.

Janice Cohen [00:15:15]:
Most common. Number one, they have a house that they paid $100,000 for in the 1970s. It's now worth $2 million. Now, in other parts of the country, people watching this will say, What? A house that was once worth $100,000 is now worth $2 million? Come on.

Alex Nahle [00:15:36]:
I've seen it.

Janice Cohen [00:15:37]:
You and I know that happens all the time.

Alex Nahle [00:15:40]:
Yeah.

Janice Cohen [00:15:41]:
Alex, you and I know that if a married couple who owns that home sells that home, they're going to have an enormous long-term capital gains tax bill that they're not going to want to have the burden of, of having to pay Uncle Sam all this money because they sold their home to move to Belmont Village. It makes a lot more sense for them if one of them needs care or both of them need care, get care in the home, use the reverse mortgage to pay for that care. And then when one of them passes away, which ultimately happens in all marriages, they will— the survivor will get a step-up in basis upon death. So they will not have any long-term capital gains tax burden if they want to sell the home after their spouse passes away. And that is what a lot of my clients do. That is a very common Scenario: they need care in the home. If they sell, they have a long-term capital gains tax bill. They do the reverse— they pay for care until spouse passes away, and then they can sell the house with no long-term capital gains taxes because they're getting the step-up in basis upon death. The second most common borrower of mine is a younger person who says to me, I made some really bad investment choices. I gave away too much money and I can't find a job. And I, as, as mentioned before, I have $200,000 in my retirement account at this point. I have a home in Venice and my taxes are low, but my lifestyle is expensive. You know, I don't want to live like a hermit and live only on Social Security. That is the person for whom we open a line of credit. And then peace of mind. And I say, look, continue to be frugal, continue to try to survive on Social Security. But when the car dies, when you need to put a new roof on the house, all of these things, you can use the reverse mortgage line of credit to do it.

Alex Nahle [00:18:12]:
Yeah, it's there. So is it always a line of credit, or is it typically like, you know, also dispersed completely to the— like in the case of the client, the million dollars, they got $500,000. Do they get $500,000 into their bank account, or is it just use it as you use it, you get you pay for it

Janice Cohen [00:18:31]:
As you use it, you pay for it? And the reason I like to tell people to do that is because any money that's in the line of credit is not going to be charged interest. There's no interest accruing on money that has not yet been taken out. That's why if someone doesn't need a lump sum of cash for some reason, don't take out that lump sum of cash. Simply use what you need when you need it. Keep that reverse mortgage balance as low as you can so that the interest that you're going to be charged will be minimal. And you will get a monthly statement in the mail. You'll always see where you stand. What is your loan balance? What is your line of credit balance? And take out only what you need when you need it. But for— by the same token, I had several calls yesterday with a private professional fiduciary. Who's trying to calculate how long she'll be able to keep her client at home. He needs care in the home. He does not want to leave the home. Care is about $10,000 a month, and that's only because he has several family members who are pitching in. So otherwise it would be $30,000 a month. So he has one child who's sleeping in the house at night. He has another child who's coming during the day. And then they have respite care during a period of time when the children are not available. So for someone like him, we went through a scenario where we looked at how long would $10,000 a month last him, and we had our conversation based on the monthly draw and the longevity of that monthly draw. So it's kind of like a financial planning tool Yeah, in addition to being a real estate tool.

Alex Nahle [00:20:29]:
It requires a lot of strategy and thoughtfulness, right? You have to know that person's situation, and a lot of people are going to rely on you to guide them because they're in either a health or a situation that they may not be able to, you know, break it down. Or so someone like you is really, really crucial and helpful in this situation.

Janice Cohen [00:20:48]:
Yeah.

Alex Nahle [00:20:49]:
Have you noticed any, like, any time where someone came to you and you've noticed, like, you know, the reverse mortgage may not be best option?

Janice Cohen [00:20:56]:
You know, very often if someone comes to me and they have a multi-generational home and they say the most important thing for me is being able to leave this house to my children, both of whom live in the home with their children, then I say you don't want to do a reverse mortgage on your home because then when something happens to you, your family will have to figure out alternatives. If, if they're okay all living together indefinitely, and that's great, then maybe a reverse mortgage is not the right solution for you. If your children are living in the home, and if they're working and they can make payments, maybe you can figure out a way that their income could help you qualify for a mortgage upon which you would make monthly payments. That's usually the situation. A home— I received a call a couple of days ago from someone who said, I bought this house, I began a gut renovation, and I've run out of money. There is no kitchen, there is no bathroom. And then I have to say, you need a construction loan. I can't help with that. We need, you know, we follow FHA guidelines. So when we lend money, we do a full appraisal on the house, everything from turning on the sink to make sure the water is flowing, everything from checking smoke detectors, carbon monoxide detectors, hot water heater has to be double strapped unless it's a tankless. So we need everything to have the health and safety standards that any FHA loan would require. So that's another one. I wish I could do a construction reverse mortgage, but no can do.

Alex Nahle [00:22:56]:
Wow, that's pretty cool. Yeah, I was thinking about that too, and I'm glad you brought it up. So in a case where, you know, somebody does pass away, so what happens there? And then, you know, if there are heirs, they're inheriting the property, what do they do?

Janice Cohen [00:23:10]:
Like, So if someone passes away, um, and they're getting ready to list the house for sale, number one— and this all happens way before a reverse mortgage, way before anything— we hope and pray that the house is in a trust. Of course, we want the house— we want to see that the house is in a trust. Somebody comes to me and says We want to do a reverse mortgage. The first question I ask is, let me see the trust, please. If they say, oh, we don't have a trust, I say, well, you know, why don't you contact an attorney and begin crystallizing your wishes? And let's close the loan in the trust. So as soon as they, you know, during the 4 weeks or so that it takes to process their loan, They're talking with a trust and estate attorney who will then submit the trust. And when we close on our loan, we can make sure that the house is put into the trust. When someone dies, if the house is not in a trust, it's going to go through probate. And that's an awful thing for a reverse mortgage, because when someone passes away, that is considered a due and payable event. It's a default event. When you have a default event, there is the expectation that the loan will be paid within 6 months, either through the sale of the house or refinance of the, you know, or finance out of the reverse mortgage. It is up to the survivors to kind of deal with that. If they are, you know, if the house is going through probate, probate can take longer than 6 months. And then what do they do? They're going to get letters from the reverse mortgage company saying, you know, hey, we're coming up on 6 months. So the good news is that they can apply for 2 90-day extensions after that 6-month period is up. So really, If they are going through probate, they will have up to a year to get the house sold and to get the estate wrapped up. But it is so much easier for us to do our jobs at the other end of this loan when the house is in a trust. I would say what needs to happen is within about 6 months, the house needs to be sold or the loan has to be paid off in a different way. And that's, that's what needs to happen.

Alex Nahle [00:25:57]:
Have you had like resistance, someone not wanting to put it in a trust, for example, for any reason?

Janice Cohen [00:26:02]:
Not really. So, you know, I mean, I've heard some lame excuses just like you've heard, you know, oh, a trust is so expensive. You know, if you even want to get like, you know, if you don't care about the quality of the trust that you're getting, then you could always call one of these 800 numbers and just talk to a doc preparer and They'll create, like, a dirt-cheap trust for you, and it may not be a really useful trust, but maybe you take the money from the reverse mortgage and you upgrade into a decent trust from there. So it is a little tricky. I don't usually get too much pushback, but people procrastinate, Alex. They're like, I'll do it, I'll get to it, and then You know, it's like, hey, did you do your trust yet? Oh, I'm still interviewing lawyers. Hmm. You know, it's like, make a decision. You know, decision paralysis is a real thing.

Alex Nahle [00:27:02]:
Yeah. And, you know, having a trust, I mean, we can talk about this for days, the, the, the, the, and share like all these sad stories. Having a trust is crucial. We, we have a great estate attorney. In our, in our community. She was on, Angela Barbarian. She also shared a lot.

Janice Cohen [00:27:19]:
Oh, I know her very well.

Alex Nahle [00:27:21]:
Oh yeah, she's, she's awesome.

Janice Cohen [00:27:23]:
Yeah.

Alex Nahle [00:27:24]:
And, and yeah, it's just very, very important how it ties, you know, with what you do. It ties with what I do, right? It just, it's, it's an extra layer of protection. And then, you know, touching on calling that 800 number and stuff, it's just like getting, you know, cheap insurance or the, you know, something you're paying for something that really ends up not doing its job when you need it, like, why pay for it, right? So I'm a big believer in getting it done correctly. So with that said, you know, for someone listening who, you know, who may have parents or relatives that, you know, could benefit from this, what advice would you give them before they explore a reverse mortgage?

Janice Cohen [00:28:01]:
You know, sometimes it's an interesting question that you're asking. Sometimes here's a funny scenario having to do with the kids. I had a call last year from the wealthiest child in the family. He was a physician and he said, my mother, I've been giving my mother $5,000 a month for 5 years. He said, my younger brother lives in his teenage bedroom in my mother's house. And you and I know people like this. My sister, God bless her, she is a homemaker. She's raising 3 kids. Her husband works hard, but they don't have a ton of money. So the responsibility has fallen to me to send my mother this money every month to pay for her care. So he said, I really need things to be equitable between the 3 kids now. He said, I'm not asking for any of the money to be reimbursed to me. He said, but going forward, he said, I, he said, I'm getting ready to retire and I want to have that $5,000 a month to do whatever I want. He said, I will make sure my mother's needs are met, but I'm tired of funding my siblings' inheritance. He said, when my mom passes away, The three of us are going to inherit the house equally. But I have been giving my mother all of this money for 5 years. I'll never see that money again. And that's okay. But going forward, I'm funding their inheritance and I don't want to do it anymore. So that's something, you know, kids can collaborate with one another and say, okay, We're each going to chip in $2,500 a month, $5,000 a month. We're going to make sure mom's covered for anything she might need. And that's lovely. That's great. But not every kid in the family might be in a position to actually execute, especially the son who's living in his teenage bedroom, who's in his bathroom— bathrobe at 2:00 in the afternoon when I go over to the house to meet with mom. And there's a man standing in her kitchen in a bathrobe, and I say, oh, who's that? She said, oh, that's David. Oh, who's David? Well, David is my son. Oh, hi David. Like, wow, okay, you know, family dynamics are very interesting, as you well know.

Alex Nahle [00:30:47]:
Probably have some very, very cool stories. Oh my God. Yes. So, you know, I would highly recommend those of you that are watching or listening, if you're curious, if you think this is something that, you know, you might want to learn more about, it might be helpful for you or for someone you know, please don't hesitate, reach out to Janice. She's an amazing resource. She's, you know, a great part of the community. And she will be at our event in Pasadena in person. In April. So if you're in the area, please check her out. So definitely reach out to Janice. Janice, what's the best way for someone to reach you? Phone, email, website? What do you prefer?

Janice Cohen [00:31:29]:
Call me, 888-740-9573. I also— I am a reverse mortgage specialist with Mutual of Omaha, so you can find me on the Mutual of Omaha website. But you can email me, you can call me. Call me, that's usually the best way. Happy to have a conversation.

Alex Nahle [00:31:56]:
That is awesome. Thank you so very much. We'll definitely put that information, the contact information down below as well for you guys. Janice, thank you so much for taking the time to be here. Thank you for everything you do for everyone out there and for being of service. So Appreciate you very much.

Janice Cohen [00:32:13]:
Thank you, Alex, and I will see you in a couple of weeks, and I'm so grateful for this invitation.

Alex Nahle [00:32:19]:
Thank you all for joining us on the BRRRR Investor Podcast. If you found today's episode helpful, please hit like and subscribe to our channel for more real estate insights. We love hearing from you, so please leave your thoughts, questions, or topics you'd like us to cover in the comment section below. Be sure to check out our website, thebrrrrinvestor.com, and follow us on social media @TheBRRRRInvestor. Keep learning and investing, and we'll see you in the next episode. I'm your host, Alex Nahle. Stay invested.