001foreign [Music] and welcome to this uh um Bergeron briefs as uh if you as you may or may not know these are all designed as 15 minute uh question and answer or other site or or other format segments so as to allow you a senior or you who've got a family member who's a senior to understand in more depth a topic that I really can't or don't have the time to discuss in depth in the course of one of my seminars because my seminars on you know various topics you know talking about my friends Frank and Mary uh tend to deal with a whole bunch of stuff so my friend Steve Pepe uh I have known for years and years and he is an attorney uh who works uh at a reverse mortgage company yet
002again yesterday I was talking to somebody about a reverse mortgage and they said oh we'd never do that they're going to take my house and I was like oh so see um I thought that I would do this with Steve I try to point everybody and I'm going to try to point everybody to this Bergeron briefs episode so that they can get a sense of how reverse mortgages work so Steve first of all thank you very much for coming on I really appreciate it Arthur thank you for having me I'm thrilled to be here and and and so so I know that you've been working with language for quite a while can you just give folks you know kind of a 30 second brief background about you sure so I uh live in Milford Massachusetts
003with my beautiful wife Kerry and I as you said I am a licensed attorney but I'm not actively practicing Laura anymore I made a career change about 18 years ago over to the reverse mortgage industry because I just saw what it was as a product what it was doing for people that wanted to take my skill set uh residential real estate and Estate Planning and use it this way so I've been in the reverse mortgage industry for over 18 years I am a former reverse mortgage counselor trained and certified then by the AARP Foundation used to work as a staff Attorney At a non-profit in Stoneham Massachusetts but um that's a little bit about me I help homeowners from all around the Commonwealth and even some other states who want to access that home equity
004better cash flow thank you and so this isn't an ad for Steve Pepe I just want to tell you excuse me that he's dealt with a lot of my clients and they've all been very satisfied that's everything that I know about Stephen that's great so Steve so I'm going to talk to my person who I talked to yesterday right who who so their situation I'm just going to kind of use this as a situation so you can kind of talk about reverse mortgages right so they're older right and they are um uh they've got kids they've got limited savings their income is okay because they've both got retirements they both worked in in for government jobs right um but but and they have they have a house that's worth about six hundred thousand dollars they're
005like 80 in their early 80s um and they've got a mortgage they've got a mortgage right now that's uh like a hundred thousand dollars but they're paying a very high monthly payment because it's an old First Mortgage on which they are still making big payments a lot of which is really you know repayment of principle but you know and they're able to meet the cash flow but it just makes it you know tighter for them right right so one of the things that they were talking about was you know how do we kind of deal deal with all of this we don't have a lot of cash set aside we really want to stay in our house right we don't want anybody to take our house right and and and for typically folks you know
006what they'll know about is what what used to be called a home equity home equity what is now called the home equity line of credit or a HELOC which they would get from their local bank right and then they've seen the occasional ad for a reverse mortgage and heard something from somebody and that's what they know so so can you talk to folks talk to folks about you know in this situation and then we can talk about others if we have time but this is the classic situation and I hit it a lot what what what should people be thinking about in terms of comparing either staying what they're doing right now or getting a HELOC or getting a reverse mortgage sure so uh you hit it on the head are in that that is
007the classic classic scenario that this program was designed for by this program I mean the the reverse mortgage program federally insured insured by the federal housing Administration that was created during the Reagan Administration so if these folks were to just keep doing what they're doing now but you keep plugging away sending in those monthly mortgage payments like I send to my mortgage lender but I'm still gainfully employed and working they are retired and their income is fixed so it sounds like they're doing okay right now let's say this is Frank marriage but throw in one life event into the mix throw in a spouse dying throw in a spouse getting sick and having increased in-home care costs throw in both of those things throw in a major home repair or changes that need to be
008to be safer all of a sudden that plan that they've been treading water in is suddenly unsustainable Something's Gotta Give right they're on a fixed income and they have savings that are slowly being depleted and they're living longer and they want to stay where they are if one of those things I mentioned in in most common lately is the In-Home Care situation right habits they're gonna they could potentially jeopardize their housing because they might not be able to afford their monthly mortgage payment or they might not be able to afford their real estate taxes and that's a big problem as well right so they jeopardize their ability to one remain in that home two live I'm not talking about a lavish lifestyle just a comfortable retirement be able to go out to eat now and
009then just not laying awake at night worrying about money so that's where the reverse mortgage comes in because if they were to knock out that traditional mortgage with a reverse mortgage what it would do is put an end to that principle and interest payment that they're making every month that goes away because that mortgage is paid off and replaced with a reverse mortgage and guess what big shock to a lot of people the lender doesn't become the owner of your home right you're still the owner of your home or your trust is still the owner of your home but you don't have a mandatory mortgage payment that you need to make anymore so I'd be pointing out to Frank Barry your principal and interest payment goes away so think of it like you just gave
010yourself a raise by whatever that dollar amount is say that's nine hundred dollars a month or thirteen hundred dollars a month that's significant over time not only can you have a comfortable retirement but then you might be able to start replenish the savings okay so in addition to knocking out that mortgage payment they also will have access to more funds through the reverse mortgage that they don't have to take right away nor should they unless they really need to but they can have that safety net implementational line of credit there for things like paying off credit card debt paying off car loans new roof on the house the in-home care that might be inevitable right that isn't the medical care um that Mass health or Medicare could pay for but is the other stuff the
011cooking the cleaning the shopping the housekeeping and all of that that you're paying on pocket for now if they were to go the direction of a home equity line of credit or a HELOC I would argue and it's my opinion that's the most dangerous move that they can make and unfortunately that's the move that their Banker or mortgage professional is more than eager to fit them into and it's a very perilous move and I would not have a very careless move because then you're taking someone on a fixed income and you're saddling them with a new mortgage payment that they have to make that they always sell it as hey it starts out as interest-only payments for the first five years the first 10 years but then guess what then it graduates into what they
012call a fully amortized payments of principle and interest and you're expected to make that payment at a time where you're on a fixed income and your savings of twindled even more not to mention those are adjustable rate loans and so your monthly payments even if you're in an interest only payments could go up and up and up very hazardous move for someone like that to get a HELOC but there are too many bankers and mortgage companies eager to set you up into one and I'd argue it's it's dangerous the reverse mortgage eliminates your mortgage payment gives you liquidity for other funds for other needs as you age you own your home fully insured by the federal government say what you will about the federal government they do very well with this program they've got it
013right there's a boatload of Consumer Protections designed to protect Frank and Mary so they're not going to be swindled or taken advantage of and it's it's just the best way to set them up for a more secure so so just just get into one piece of the Nitty Gritty because then inevitably when you're talking about reverse mortgages the the immediate suspicion is this is too good to be true what do you mean I don't have to make any payments because that's why people think that you know that somehow the reverse mortgage company is just getting their house because mentally they're like how else is this going to work yeah so so just kind of talk talk me through that so this these people they get a six six hundred thousand dollar house say they got
014a hundred thousand dollar mortgage right so they're gonna need to borrow enough to pay off that mortgage so they're gonna need to borrow enough to pay for any of the you know the closing costs and all that jazz on the reverse mortgage so now you know from the day that that starts there's interest accruing on that money because they just borrowed some money say they borrowed 100 they just borrowed like 120 000 right so now now comes the end of the month and and and there's no bill so what happens to the interest that just accrued on that money yeah sure so it's Consumer Credit it's a loan so your radar and that interest is charged on the money that they've borrowed so let's say they borrowed 120 000 a month ago is by they
015get a statement in the mail it's not a bill but a statement and they're gonna see one month of Interest has been charged on that hundred and twenty thousand dollars that interest they would charge gets added into the balance of what gets paid back in the future when Frank and Mary don't live there anymore when they die and when they both move out for more than a year for a health reason or they sell that's when the 120 000 and that interest gets paid back the analogy I use Arthur is a tab at a restaurant second month comes by they get the monthly statement there's interest charged on the first hundred and twenty thousand and also that interest that accrued on the first month so more interest added into the balance the tab is growing
016and growing and growing over the months and years that they lived here and so they're going to see a rising loan balance over time long-term history of real estate appreciation is that Homeless gradually keep going up in value too but when they die sell or move out for more than a year that's when that tab is is settled that's when they're paying back however much added up over the years it's all paid back at that time in almost all the cases that is lower than what the house is worth so they or their ears again whatever's left over in a little more than four percent of the time the reverse mortgage uses up everything so worst case scenario you'll be in is that um the reverse mortgage gets everything from the sale of the house
017and that's it nobody's digging into their pocket to come up with an extra cash you're not paying anything your kids aren't paying anything there isn't this kind of like hidden oh my God this is going to be like a bomb that's going to kind of blow up and it's going to just it's gonna like screw up everything that's right so there's interest that has to be repaid it's not too good to be true there's a cost it's all deferred to the end but it helps your cash flow while you're living there so I'm just going to mention one other thing and that is you know I'm often talking to folks like the folks I talked to yesterday who's one of whose big concerns was how do we protect the house if we eventually need to
018qualify for Mass Health the message is named for the Medicaid Program either because we need nursing home care I need a lot of Care at home in order to avoid going to a nursing home and what I'll constantly tell people is the way you do that is you transfer an interest in your home called the remainder interest the interest that starts when you die to a third party it could be an irrevocable trust it could be your kids to somebody that interest is going to kick in after you die you keep a life estate in the property so you keep control of the property while you're alive right right in the and and and that way if you later need to qualify for Mass Health then MassHealth will put a lien on that life estate
019um but as long as you hold the property until you die when you die the life estate evaporates and therefore so does the lien but the catch is if you have an existing mortgage right uh if other than a reverse mortgage if you have an existing mortgage to transfer that remainder interest to any third party is a violation of the mortgage right if you have a HELOC to transfer that interest as a violation of the HELOC right only in the case of a reverse mortgage can you then can you have the reverse mortgage keep this light the state and transfer this other interest away without violating the mortgage now many people don't kind of care about this because they're like oh well they're never going to pick this up anyway the bank's not going to
020pick it up but if you're one of those many seniors who worries about this this gets rid of that worry yes so so I I know Steve yeah I thought that was a great summary of kind of the way the way all of this works right um and and and if if folks need to reach you or they want to talk to you more about this I know we're going to have a you know like a slide on that at the end but what's the best phone number that they could read you that's the phone number for me in Milford is area code 508-282-632 nine that's my business tell that's the best way to reach me great and once again so this isn't an advocacy Pepe I just know that he's done a lot of
021good stuff for my clients that's all you know many reverse mortgages companies work the same way so if you're interested in this talk to anybody you want about a reverse mortgage talk to Steve talk to other people figure out what your you know what the best deal is but the point is don't throw away this option this is a crucial option for a lot of seniors Steve thank you so much I really appreciate you taking the time folks thanks for watching and I hope you enjoyed this and I hope you get you tuned in to other Bergeron briefs if you think that they can help you deal with a particular problem thank you very much thank you