Housing Matters: The Housing Trust Podcast
This is Housing Matters: The Housing Trust Podcast , where we share stories and insights about affordable housing and making homeownership a reality!
Housing Matters: The Housing Trust Podcast
Ep. 15 Reverse Mortgages Explained with Ron Chavez
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What exactly is a reverse mortgage, and who is it really for? In this episode of Housing Matters, we sit down with Ron Chavez, HUD-certified Housing Counselor at the Housing Trust, to break down the realities of reverse mortgages, how they work, common misconceptions, and what families should consider before making a decision. From repayment questions to inheritance concerns and counseling requirements, this conversation offers a practical and honest look at a topic many people hear about but don’t fully understand.
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This is Housing Matters, the Housing Trust podcast, where we share stories and insights about affordable housing and making homeownership a reality. I am your host, Roman Tiger Abeta. Welcome to another episode of Housing Matters. Today we're getting into a topic we haven't fully explored yet: reverse mortgage counseling. It's something many people have heard of but might not fully understand. And to help us break it down, we're joined again by Ron Chavez from the Housing Trust. Ron, welcome back. Appreciate you having me. Thank you. No, it's great to have you on again. Um, but real quick, before we get started, for anyone who maybe didn't catch our first episode together, Ron, can you give us a quick refresher on your role at the housing trust?
SPEAKER_01Sure. Uh I have 22 years at the housing trust as a housing counselor and about 20 years as a reverse mortgage counselor, certified by HUD. Um I work with moderate and low-income clients to help prepare them for the track toward home ownership and also provide HUD certified counseling for seniors that are 62 and older who are considering a reverse mortgage.
SPEAKER_00Okay, great. So let's uh yeah, let's talk about reverse mortgage counseling specifically. But what drew you to this area?
SPEAKER_01Well, I guess initially it was a necessity, um, was the initial draw of reverse mortgage counseling. You know, the housing trust was one of a handful of organizations that offered counseling of this kind when I started at the housing trust. The counselor who provided this service had retired. And the board and director at the time wished to continue providing that service. I had watched Ben, who was the outgoing reverse mortgage counselor, enough that the product itself, you know, and the clients were interesting and a new area of expertise that I could pursue for our organization.
SPEAKER_00So, Ron, what is a reverse mortgage? And who is it typically for? I think you said 62 and older, but yeah, let's talk about what's a reverse mortgage.
SPEAKER_01Yeah, you know, I always say, you know, a reverse mortgage really should be called a mortgage reverse instead. You know, the fundamental reality of any mortgage is that it really amounts to a new debt that uses your home and or the equity in it as collateral for it. Reverse mortgages can often be presented as you know winning the lottery or, you know, getting paid from your house or taking out a loan, you know, that you don't have to pay back. But at its most basic, a reverse mortgage is a debt. You know, once you understand that basic idea, then you can explore the reverse element of it, which makes this type of mortgage pretty unique. You know, you must be, like we talked about, at least 62 years old and have substantial equity in your home to be eligible for a reverse mortgage. The way to explain sort of the reverse component, I guess, of this loan, I guess would be to explain it in light of a traditional mortgage. Okay. You know, 90% of homeowners with a mortgage have a traditional mortgage in which you know the balance of this debt decreases as they make timely monthly payments. Right. That payment usually covers things like the principal amount borrowed, the interest that the mortgage lender is charging, and the property taxes and homeowners insurance that a typical owner has to pay. Um, a reverse mortgage has no monthly payment required of the borrower, which initially sounds pretty good, right? Right. Here's the reality: with no payment being made by the borrower, a reverse mortgage balance has no way to go down over time. Okay. So every month, the amount you owe on a reverse mortgage goes up, while the equity in your home is used at some future point to pay the balance. It really becomes more like a bar tab. You know, the with a bar tab, you set it up, you eat, you drink, you dance. When you leave the bar, that's when you settle up the tab. Right. Uh a reverse mortgage, you know, I kind of compare it to that in a lot of different ways. The bar tab on the home doesn't get paid until the borrower or borrowers no longer live in the home. So typically a reverse mortgage borrower would use a reverse mortgage to get rid of a mortgage payment, let's say that's currently existing. Okay. Uh, or for home improvements as an income supplement, pay off debt, or just to live a little more comfortably as they transition to something like retirement.
SPEAKER_00Okay. And so it gets paid back, you said, once they leave the home. And that could be they they buy another home, or in some cases, they die, right? They pass on, or what happens, like like, for example, let's use my mom. She's got a house, she's got a lot of equity. She's in her 70s. If she wanted to get a reverse mortgage now, she'd get a reverse mortgage, which would be maybe maybe she just wanted to spend the rest of her life on Easy Street. Uh-huh. So nothing to do, but when she passes away and the house is left to me and my siblings, there'll be a balance on the home that we have to pay off, right?
SPEAKER_01Yeah, there will be a mortgage that has gone up for as long as she's had the reverse mortgage, and that then would be an encumbrance on the home when it passes on to you.
SPEAKER_00So then we would then have to just refinance it or pay it off, or even sell it and pay it off in whatever's left, we would then keep. Exactly.
SPEAKER_01So when the house passes on to a potential heir, they have to cure that reverse mortgage debt, okay, just like a normal mortgage. Um, and so yes, selling the property becomes a reality um or refinancing it into a normal mortgage, all those types of things are possible.
SPEAKER_00Okay, and so as an option, again, sticking with with my mom, she could let's say she doesn't owe anything on the house. She could do a reverse mortgage in which she and can she say, I would like to get a monthly payment of let's say $2,000 a month for the rest of my life or for the next 10 years. She could do that.
SPEAKER_01She could. And depending on the amount of equity in the home, that really determines a lot about the amount of loan that she can obtain.
SPEAKER_00Okay.
SPEAKER_01Um, as well as things like the interest rates in the market and her age. All those things play into that loan amount. Um, but when there is funds available, they give the borrower the option of various ways of taking their money from the loan.
SPEAKER_00Okay.
SPEAKER_01One could be a monthly payment that will go in perpetuity until she no longer lives there. Or it could be a situation where she says, Well, the amount you were going to give me in perpetuity really isn't enough for me. I need more than that to make ends meet or, you know, live in the lifestyle that I prefer to. Let's say I need more than that. The lender probably would come back and say, we'll give you that amount, but it's only going to last you 12 years or 13 years instead of 20 or 30 years. Based on the available funds, right. There's also lump sum options. There's a line of credit that she could stick it all in and just draw it down as she needs it, when she needs it, in whatever amount she needs it. So there are options there.
SPEAKER_00Okay. So let's say her home is worth $300,000 and she still has a balance on her original mortgage of $100,000. So she has $200,000 in equity. Correct. And then would and if she wanted to then do a reverse mortgage, would they pay off the hundred and then give her another $150, say, or a line of credit up to $150 and then Well, not it doesn't quite work that way in terms of a linear fashion.
SPEAKER_01The way that it would work is they they would try and determine uh as much equity as she has based on the value of the house, right? Because the value of the home minus what's owed on the home is what her equity is. Okay. Um, once they determine that amount, then they factor in things like her age. Life expectancy plays into this. And so someone who is 62 years old is gonna get a lot less of the equity in their home than somebody that is, say, 92. Okay. And the reason for that is that the assumption is that the 92-year-old is gonna spend significantly less time in that home and cost the lender less money than a 62-year-old would. So those types of factors play in. So they wouldn't give her a loan on the full remaining equity after they pay off her first mortgage. They would give her a percentage of that based on factors like that.
SPEAKER_00Okay. And then, and then my brothers and sisters and I wouldn't have to pay anything or nothing gets paid until, say, in this example again, she passes on, we're left with the home, then they tell us what the balance is, and then we decide what to do with it. We either sell it, pay it off, and then whatever's left over, if anything, use that. Or one of us could pay it off and get the home. So, but the point is, my mom doesn't pay anything.
SPEAKER_01Yeah, typically the only thing that would get paid by a homeowner while they have a reverse mortgage and are living in the home is the property taxes and the homeowner's insurance. There's a couple of different ways that they can do that. Typically, homeowners will say something like, if they don't have a mortgage already, they've been paying those taxes and insurance on their own for a while already. They'll just continue to do that. So nothing would change. There's a second option now that's become available from reverse mortgage companies that's a lot more like traditional mortgages where they make the payments for the borrower out of the proceeds of the loan. Okay. It's uh in on a traditional mortgage, it's called an escrow. They don't call that, they don't call it that on a reverse mortgage. They call it a life expectancy set aside. Same concept where they'll take monies from the proceeds of the loan, set them aside, and make those payments on the taxes and insurance for the borrower when they come to.
SPEAKER_00Okay. So in order to get a reverse mortgage, they have to go through reverse mortgage counseling. Correct. And what what's involved in the counseling?
SPEAKER_01Well, you know, it's a federal requirement. In other words, you know, nobody can submit an application for a reverse mortgage without first obtaining a formal counseling session with a HUD-approved professional counselor like myself or the other two we have on staff here. Reverse mortgage counseling can be done in person, over the phone, or now with any virtual platform like Zoom. You can zoom here. Um it's important to say that as a HUD certified reverse mortgage counselor, our job is not to advocate for the reverse mortgage or sell it in any way. We're Switzerland. We are supposed to be neutral on this whole thing. And so a reverse mortgage counselor's position has to be neutral. You know, we don't make any assumptions about things like the client's financial situation, but we will always advocate on behalf of the clients. HUD, who certifies every reverse mortgage counselor, has provided what's called a counseling protocol, uh, which explicitly mandates the reverse mortgage-related topics that we have to cover.
SPEAKER_00Okay.
SPEAKER_01Um, so we can't go rogue. We can't make up things we have to stick within the protocol and the outline of the counseling. Again, our job is to determine if the homeowner understands the basic concepts and financial implications that come with getting a reverse mortgage. If we can't certify that the homeowner understands the bare minimum, then we must not provide them with a certificate of counseling to move forward. And then we can schedule a second follow-up appointment or have family members come in that will help them understand the situation a little bit better.
SPEAKER_00Well, and sometimes it's good too for the family members to come in so they understand it because it sounds like they may be the ones landing up having to deal with it in the long run.
SPEAKER_01Absolutely. And I think hearing it from a HUD certified counselor as far as what the financial implications not are of obtaining the loan for the borrower, but also what the potential requirements may be of the heirs is really valuable.
SPEAKER_00And what situations do you find a reverse mortgage makes the most sense, or when might someone want to at least explore it as an option?
SPEAKER_01Well, I guess there's there are many situations that a client may find themselves in that makes a reverse mortgage at least something to consider. It may not be the best solution, but it may be something at least for them to consider in their minds. You know, to simplify it, I would say an ideal candidate for a reverse mortgage is someone who is 62 or older, obviously, has a lot of equity in their home, desires to remain in the home long term, and doesn't see the preservation of the equity in the home, you know, to leave to potential heirs as a priority. Okay. Those are probably ideal situations for most people.
SPEAKER_00Okay. So what you just said was if obviously if they have a lot of equity in the home and they want eventually their heirs to inherit that equity, then they might not want to get a reverse mortgage because then they're using that equity or kind of diluting it.
SPEAKER_01Exactly. In almost every case, a reverse mortgage, when it's paid back, there's diminished equity in that home, right? And for some people who come into these counseling situations and they say something like, you know, I really want my grandson to live in this home one day, a reverse mortgage may not be a great vehicle to guarantee that that happens.
SPEAKER_00Okay. Because then the grandson or somebody's gonna have to pay back that reverse mortgage, basically, and if they can't afford it.
SPEAKER_01Exactly. And the real possibility exists with reverse mortgages, if you think about it, as a balance goes up through time, it's not inconceivable that the balance of the reverse mortgage could eventually pass what the value of the house is, which means it's upside down. Right. And so if you have a grandkid that's three years old, um, by the time they inherit that home, it may be upside down, and there's really no reason for them to even try and save it.
SPEAKER_00Okay. That that makes sense. What are the some of the most common questions or concerns you hear from people when they come in to talk to you about reverse mortgages?
SPEAKER_01You know, I I guess the most common question I I still hear, and it's been going on for 20 years, is if we were your parents, what would you tell us about this idea?
SPEAKER_00Right.
SPEAKER_01They kind of try and personalize it. Um, and it's a good question, you know, because I did spend some time with my mother and father and my uncle and aunt talking about this product because they were considering it as well. People are looking for trustworthy and dependable guidance. Another one is probably like when does this have to be paid back? And essentially, like we talk about, it's all dependent on whether the borrowers are still living in the home. Okay. That's the main thing. A reverse mortgage gets paid in in full when the last surviving borrower, so if you have a couple, let's say, okay, and one passes away, the loan doesn't end at that point if the second borrower is still living in the home. Uh so it's when the last surviving borrower ceases to live in the home. Okay. Death is a good example of not living in the home anymore, I guess, but there's things like selling and moving, you know, if they want to downsize into some a different property, then they would have to pay back the reverse mortgage, right? Just like a normal mortgage. Or permanently moving out of the home into something like assisted living, right? Okay. Or a second home. Those types of things can trigger the repayment on a reverse mortgage.
SPEAKER_00So you have to live in the home if you're going to get a reverse mortgage. In other words, you can't get one and then go live with your son or daughter in in their home and then you you rent it and kind of double dip.
SPEAKER_01Exactly. And the way they word it is you it has to be your primary residence, okay, which means the home you spend the most time in out of the course of a calendar year. So if you do live in a second home for part of the year, they will allow that as long as the primary home is the one you're still living in and the one that they've granted you a mortgage on.
SPEAKER_00Okay. And walk us through like a typical client scenario. What what do they come in with? And then what do you help them figure out?
SPEAKER_01Yeah, I mean, they're they they're quite different from client to client, but I mean, we always start from the fundamental premise of what do they wish to accomplish by taking on this new debt? That's always my first question to them is so you're thinking about a reverse mortgage. What do you want this loan to accomplish for you? And then they can explain to you what the motivation behind looking at this product is. You know, we need more money every month to meet our bills. We want to upgrade the home, we want to go to Europe, you know, and spend some time there doing touristing, all those different things, and they're all viable reasons. Whatever the client comes in with as far as the goal or the purpose of the debt, that's up to them. So then we kind of move on from that after we understand that is, you know, have they considered alternatives to a reverse mortgage? You know, the reverse mortgage product isn't the only equity option if you want to extract equity from your home. There are things like home equity lines of credit, there are equity loans that are fixed rate, fixed term. You know, there's different options as well as depending on their goal, there might be benefit programs through the agency on aging or through HUD or through, you know, government agencies that can provide them help to get to the goal that they stated when we first met with them. And so we talk about the alternatives as well to a reverse mortgage just so that they're aware of them. Then we look at loan estimates. Usually clients will come in with loan estimates from a lender already. In most cases, they've already spoken with a lender who's given them the best case possible scenario. They come to us so that we can tell them hold on a minute, let's take a look at what these loan estimates really are offering you and what they're not offering you. So we spend a lot of time going through the quantitative analysis of a reverse mortgage with them. And then finally, you know, we have to, it's our responsibility as HUD counselors on a reverse mortgage to assess the understanding of the borrowers. You know, in other words, we we're sort of a gatekeeper from that standpoint in that if we don't think that they have understood what we've talked about sufficiently, we don't grant them a certificate of reverse mortgage counseling, which means they cannot file an application.
SPEAKER_00Because I mean you're dealing with aging clients and some may like there may be an onset of early of Alzheimer's or so you will look for things like that to Yeah.
SPEAKER_01And I mean, obviously we're not doctors, so we can't determine someone's mental state or stability. All we can do is go through the HUD protocol for the counseling and they give us 10 specific questions that in the context of that counseling session, we have to ask them, and then we have to judge what their answers are like, you know. And so if we ask them, okay, can you explain to me, you know, when does a reverse mortgage get paid back? And depending on what that answer is, we can make notes on it and say, well, they don't totally they don't understand this at all, or they have some meaningful understanding, or they've got it, they totally understand it. But that's kind of what we do in anticipation of giving them a certificate of of reverse mortgage counseling. But we can't do that if we if we can't assess their their understanding as being good.
SPEAKER_00So for someone listening who this might apply to or even for their parents or family, what would you want them to understand before making any decisions?
SPEAKER_01I would say reverse mortgages are a debt and they aren't for everyone. They are not for everyone. Um based on your financial goals, you know, like we talked about, I want my grandson to live in this home one day, may be a financial goal for some people. Um based on your financial goals, will a reverse mortgage move you closer to them or further away from them? Uh a lender will always tell you yes, it'll always move you closer because they're trying to sell the loan. A HUD certified counselor won't tell you yes or no, but we're gonna try and make the picture clear enough that you can make the most informed decision to that question. So all we ask is that you let us help you work through it. Uh we're not here to sell the loan, we're not here to tell you it's a incredibly dumb idea either. We're here to understand what your goals are, hold up the mirror and say, okay, do you think this product is the best option? That's it.
SPEAKER_00Great. And so who do people call or where should they call or to set up an appointment with you for reverse mortgage counseling?
SPEAKER_01I guess it depends on the route that this whole process takes because many times borrowers have already spoken to lenders. Okay. Lenders are federally required to provide a list of 10 reverse mortgage counselors in their area. Oh, okay. Um, and so we're on that list. The housing trust is on that list. And really, we're one of the only reverse mortgage counselors, I guess, that are in New Mexico. So people that are applying for reverse mortgages in our state typically will call us first because we're local. They don't have to. They can call people in Florida or Texas or whoever's on that list. Okay. So I would say if you're interested in either setting up a formal counseling session or maybe just doing a preliminary assessment and having some basic conversations about reverse mortgages, call the Housing Trust 505-989-3960. You can email me at rchavez at housingtrustonline.org. We'll get you started and we'll determine what the best way of getting you the information you desire is.
SPEAKER_00Great. Well, Ron, thank you for being on the show. This was very informative, and we look forward to having you again soon to talk about another uh housing uh counseling topic. But uh reverse mortgaging is something that uh we hear a lot of in our industry, and it is something, like you said, that the housing trust does provide. Um, and again, I just want to uh take the time to thank you. This was very informative. I appreciate you having me on. Thanks. Thank you for listening to Housing Matters, the Housing Trust podcast. If you enjoyed today's episode, please subscribe, share it with a friend, and leave a review. To learn more about our work and the latest at the Housing Trust, visit housingtrustonline.org. If you are interested in partnering with us or supporting our mission, we'd love to hear from you. You can find our contact information on our website.