Understanding Reverse Mortgages Today with Harlan Accola

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Unpack how they work and whether one might be right for you. And then we'll take your calls at 800-525-7000. That's 800-525-7000. This is faith and finance, biblical wisdom for your financial decisions. Well, it's always a pleasure to have Harlan Akula with us. Harlan is a good friend. He's an expert on reverse mortgages with Movement Mortgage, an underwriter of this program. And Harlan, it's great to have you back. Oh, it's good to be here today, Rob. You know, Harlan, I said reverse mortgages aren't what they used to be.

So let's start there. How is a HECM different from those that got an unfavorable reputation in the past? Well, during Reagan's term in 1988, there were some major changes with the regulations, the laws, the rules. No one can lose their house. It's not something that changes an ownership as long as they're working with the FHA product and a reputable lender. So dramatically different. It's a fix for the things that went wrong with the original Wild West mortgages that were just out there being unregulated. Yeah, that's good to know. One of the things that we hear about a HECM, Harlan, is that the interest rate is higher than that of a regular mortgage.

Is this an apples and oranges comparison? Well, it isn't. Because of the regulations, it's limited to a certain number of percentage points above this 10-year Treasury. So even the interest rate is very heavily regulated as well. And so it's almost always within a half percent, sometimes lower or higher, of the forward mortgages, the traditional mortgages at the same time. So right now the rates are about six and a half percent on the forward mortgages and about six and a half percent on the reverse. So right now it's about the same thing. Okay. Yeah, that's really helpful. Now, of course, people always want to know about the costs and any ongoing obligations.

Shed some light on that. Yeah, the closing costs are exactly the same as a forward mortgage, except for one thing, and that is the mortgage insurance, which is really the thing that makes it different than any other reverse mortgage out there is that it's protected by the FHA mortgage insurance program, which guarantees three things. It guarantees that you never have to move out of the house until you're 150 unless you want to. It guarantees that you'll never be upside down. You can never leave a bill for your heirs, which no one really wants to do that. And it guarantees that it can't be taken away as long as you're living in the house and paying the taxes and insurance. So it's really worth it. That's two percent of the value of the house, which in one perspective is expensive. But everything is expensive one way or another.

It just depends on what you get for it. And that insurance is well worth it, just like your homeowners insurance is a good thing in case your house burns down. Well, and that's a big idea that this is non recourse debt. So you will never owe anything beyond the value of the home no matter how long they pay out on this in the form of income to you or if your house were to decline in value, and that does happen every now and then. All right, Harlan, what happens to the home then when the borrower dies or moves out? Yeah, that's probably the biggest worry that everyone has is one person said to me, well, this is great for the old people, but what about the kids? What about the heirs?

And it ends well as long as it's planned well. Sometimes there's problems at the end because there is not a trust put in place because there are not proper directions left behind. And that's not the fault of a reverse mortgage. That's just some preparation that needs to be done regardless of whether you have a mortgage or not. But usually the home is sold 95 percent of the time. Plus, the kids don't want the house. They just want the money inside the house.

They have no interest in moving in. Sometimes the grandkids want to move in and that's fine. Then they just buy the other heirs out.

But think about it this way. If I have a $400,000 savings account or IRA and I use $100,000 of it and there's $300,000 left, the remainder goes to my heirs. The same thing happens with a house. If I have a $400,000 house, I've used $100,000 in the reverse mortgage with closing costs and interest and the money I've used, well, the other $300,000 goes to the heirs.

And there's plenty of time given. There's a one month time when we are notified and then there's some more time that's given up to a year as you clean out the house and get things taken care of with the final things. Really helpful, Harlan. I know there's a variety of ways you can receive the money, lump sum, line of credit. You can even have a combination of the two.

And the big idea here is that your home is a tool that at least should be considered as a part of the financial planning process. Harlan, thanks for stopping by. Thank you very much, Rob. To learn more, go to movement.com slash faith. To talk to Harlan, go to movement.com slash faith. We'll be right back with your questions.

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Mutual funds distributed by Timothy partners, LTD and ETFs distributed by four side fund services, LLC. Thanks for joining us today on faith and finance. Well, I'm looking forward to taking your calls and questions today. The number to get in on the conversation 800-525-7000. That's 800-525-7000. We'd love to tackle whatever's going on in your financial life. Help you process that in light of biblical wisdom.

That's right. More than 2300 verses on money and possessions in God's Word. Now, most of those are because money is just a great teaching tool.

It's very understandable and relatable. We all spend money and that's true. Now that was true in Jesus time as well. But the core teachings around money in Scripture, those passages largely in the New Testament that we see from the apostles and Jesus, they largely focus on our heart and how money has the potential to rival the Lord for first position in our lives. We want to help you push through that not see the things of this world as your treasure, but God is your ultimate treasure and then see money as a good gift from God, a tool to use to accomplish God's purposes. That's our goal each day on this program and we do that in light of the very specific questions and issues you have in your financial life. So if you're wrestling with something right now, you can call 800-525-7000. That's 800-525-7000. Let's begin in Texas today. Hi Cindy, go ahead.

Hi Rob, thank you for taking my call today. I had a question about my husband has taken a new job and we have been contributing to an HSA and my question is, he is wanting to do $1,000 a month in the SHA. We still owe on a home. We are nearing retirement age and my question is, should we work on paying off the home or continue to put dollars into the HSA?

Yeah, well I like both options and I think you're asking the right question here which is the priority just given where you're at in terms of the taxes you're paying, how you want to position yourself for retirement and given your desire to be debt-free and obviously once we can pay that mortgage off in full, we take probably your biggest expense off the table which is going to be helpful in terms of you all kind of keeping your expenses as modest as possible in that retirement season. Keep in mind the family coverage max contribution for 2025 in an HSA is $8,550. Now if you're over 55, which you are, you get the ability to do a bit more and so that gives you an additional $1,000. So just keep that in mind.

Don't go over that because there are penalties for that. In terms of your mortgage, how much do you have left before that's paid off in full? $180,000. Okay, yeah. So you're still a good ways off and what were your income options look like in retirement?

What are you counting on? Well, we both have 401k money and of course, Social Security. Yes, ma'am. Okay. And do you believe with the mortgage payment, you'll have enough there where you can draw a reasonable amount from the 401ks, 4% or less a year along with Social Security, you'll have enough to cover your bills? Well, that's the question. I would prefer not to do that.

I lean towards paying off the house, he leans towards the HSA. But my other question on Medicare is if we're close to Medicare age, most of our healthcare expenses will be covered, correct? That's true. Yep. Not everything.

Yeah. So there is a benefit to having that HSA that you can pull from for a variety of medical related costs and you get that triple benefit. You get the tax deduction going in and then you'd be able to grow it tax free and then pull it out without any tax including the growth so long as you use it for qualified medical expenses. So your part A is going to be your hospital stays and skilled nursing and then your B is going to cover a doctor visits and outpatient care and then you're going to have the D, the prescription drug and then either the Medicare Advantage or some sort of Medigap policy, you know, that covers the difference.

But there's still going to be plenty kind of in the middle there that you can use this for that would not be covered. What is the interest rate on that mortgage? It is 4.2, 4.2 or 4.5.

Sorry. Yeah, so relatively low, although a little higher than some people who got it kind of in the trough, you know that they were sub 3%. So you know, I like the HSA here. I mean, if you were really close to having the mortgage paid off, and you could get that knocked out before you hit retirement, and bring that, you know, expense out of the off the table, that would be one thing. But since you're still a good ways off, I think because you're probably still at the peak of your earning years, reducing that taxable income now, and then being able to put that money aside tax free for medical expenses, which you'll have. And because of the benefits of the HSA, you know, I think that could be more beneficial than that 4% you're paying a year. Remember, though, there's also more liquidity with the HSA, those funds are available and earmarked for healthcare and near certain expense in retirement, whereas the mortgage money is locked up in home equity. And again, if you're not going to be able to get rid of that mortgage payment, I think overall, especially if you're going to invest the money, and we're looking long term, you know, 1020 years down the road, I kind of like the idea of you, you know, continuing while you can to max that out, you know, even at the the risk of hanging on to that mortgage a little longer. So that's maybe something to consider as you guys talk about it.

Al's waiting patiently here in Arkansas. Go ahead, sir. Rob, thank you so much for taking my call. A week or two ago, I caught part of your program and you were talking about freezing your credit score.

I didn't catch the whole works I got on the pages that you explained to look and saw how I can freeze it. But we have never, other than like 45 years ago, when we bought our first house, we've never taken out a loan or had a credit score required for anything. So is there any downside to freezing them?

You know, there really isn't. I mean, the only downside and it's really not one in my opinion is if you're out seeking new credit, you'd have the perhaps I guess you could call it hassle of thawing, if you will, your credit file temporarily, and then refreezing it just so you'd be able to allow that lender or lenders that you're shopping to access your credit file, because that would be required. But given your situation, you're not out looking for more credit, you're not looking to take out a loan.

I think it's absolutely in your best interest. It's just a really straightforward and free way for you to protect yourself from identity theft by simply restricting access to your credit file because it prevents lenders and others from pulling your report without your permission, which here's the key, it's going to stop fraudsters from opening new accounts in your name, because the lender that they're trying to open the account with is not going to be able to access your credit report, which would always be a requirement. So basically, here's what you do, you just go to each credit bureau, Equifax, Experian, and TransUnion, you could do it online or over the phone, you can even do it by mail, you're going to get a PIN number for unfreezing your credit. If you ever need to, you're also going to want to ask about the timing. Usually it takes place almost instantly, you will need to check and see if that's automatically going to unfreeze at some point, I can't remember, you know, each of them, whether it's public or not.

Each of them, whether it's permanent, or, you know, after a period of time, you know, you'll have to redo it. But essentially, it's going to stop 90 plus percent of fraudulent accounts being opened per the FTC. That's the data they tell us. And it's just really simple and easy to do.

And it provides a lot of protection. Okay, that helps because their site kind of set up red flags that kind of scared me from doing it. And I thought, well, no, I trust you more than I trust them. Thank you.

Absolutely. I appreciate it, my friend. Call anytime. God bless you. Back with faith and finance just around the corner.

We've got the lines filling up some great questions coming up. 800-525-7000. I'm Rob West and this is biblical wisdom for your financial decisions.

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SMI provides step-by-step guidance for do-it-yourself investors from those just getting started to those getting ready for retirement. More information, including the short video webinar on profit and peace of mind no matter what's happening in the market is available at soundmindinvesting.org. Great to have you with us today on Faith and Finance. I'm Rob West, helping you live out of a biblical worldview and as it relates to this program in the area of money management. If you have a question today, you can call right now 800-525-7000. Let's go back to the phones. Cleveland Heights, Ohio is where we're going next.

Santina, how can I help? Hi, I was calling because recently I received a pretty large amount of money from a dear loved one who passed away in January. And I do have an appointment with my bank to set up a CD account. And I know that I'm going to tithe and I know I'm going to have to pay taxes on the amount.

I just wanted to know like what other type of investments I can make with the money. I just really just want to make sure that I'm doing the right thing. Yeah, very good. I can certainly appreciate that.

And I love the fact that, you know, with this unexpected amount, that's a significant sum of money. You're really taking a step back just to say, how do I be wise with this? How do I hang on to it, but also put it to work?

And that's that's the right approach. Let me just ask you a couple of questions. Do you have any consumer debt, high interest debt? I do. I have one credit card that was on my mind. I've been paying on it.

So it would be nice to get rid of that. Yes. And what's the amount that you owe in that? Oh, the amount on that?

I'm just going to tell you, it's over 3000. All right. Yeah. Yeah. So we've been made up and making some significant progress on that. And I know that my husband, he takes care of a lot of the other things that we have debt on. We don't have a cardinal anymore. He pays our mortgage for our home.

He has no no credit card debt or anything like that. So that's pretty much. And then we have a child, two children in college. One's graduating next month. One is this is just her first year.

And we have two in high school. OK, so that's kind of where we are right now with that. Got it. And are you adding to that credit card debt or is this just kind of lingering and hanging around a little bit longer than you wanted? You know, every now and then, to be honest, I will contribute to it every now and then. And I try my best to pay it off, even with a little bit more, because I really just want that deal anymore. But it's nice to have for like travel or for unexpected expenses or whatever.

But other than that, yet every now and then I'll put something on it. Got it. Yep. OK, so I think that's kind of opportunity number one. Now, here's the only risk there is it makes all the sense in the world just to go and wipe that out because, you know, you're going to get a guaranteed rate of return equal to the interest rate on that card. And that's probably 20 to 22, maybe more percent.

And so that's a no brainer. The only risk is that as soon as you do that, you're like, oh, you take a deep breath and then you get a little bit more lax in your budgeting and then all of a sudden the debt comes back. So I want to make sure you kind of put the pieces in place to live within your means. So, you know, this debt doesn't creep back up when the pressure comes off. But there's no doubt that that's going to be a great use of that money because you're spending a lot of money in interest.

And I'd I'd rather you eliminate that 22 percent if that's what it is versus, you know, trying to get five or six or eight percent in a CD or the stock market or something like that. Secondly would be an emergency fund. Do you have one between you and your husband? We do. We do. We have to actually one has over a thousand and the other has over 400. OK. All right.

Good. So the key there would be if you've listened to the program, you've heard me say, you know, this rule of thumb of having three to six months worth of expenses in your emergency fund for the unexpected. So you just take your not your income, but your total spending for the month. Let's say it's I'm just going to make up a number. Let's say it's 4000 a month. So then you'd you know, you'd take 4000 times three. That's 12000 all the way up as much as 24000. So you'd want between 12 and 24000 if your expenses were 4000 a month in emergency savings and you'd have to plug in your real number.

So, you know, that could take up a good portion of this. And for that, I would put it into a high yield savings account. You could do that with our friends at Christian Community Credit Union. Just go to join Christian community dot com or you could go to one of the online banks that you find at bankrate.com. But in either case, you know, I would keep that liquid and safe, earning some interest, not in your checking account, in a savings account that's linked to your checking.

But it's there for the unexpected. If you have a job loss or a major medical expense or something unforeseen in your financial life that would allow you to tap into that without having to put that on a credit card. Now, if you pay off the credit cards and you shore up your emergency fund with a full three to six months expenses and you have anything left. Well, that's great. We could talk about investing it.

The first option is to get it if you're investing it into a tax deferred environment. Are you or your husband or both of you contributing to a retirement plan at work? So my husband is. OK. Do you know what percent of his income is going into that? I'm not for certain. I don't know.

Yeah. So the goal there would be 10 to 15 percent going into retirement. But another option would be with this money, you know, maybe you open an IRA, an individual retirement account, make a contribution to that. You could get it invested to grow it for the future. And if you did it into a traditional IRA and you could put in up to seven thousand if you're under 50 or eight thousand if you're over 50, you know, that would be excluded from your taxable income. Let's say you made the contribution for twenty twenty five because you've already filed your twenty four tax return. Then when you go to file your twenty five return next year, you'd pay taxes on, you know, whatever the amount of the contribution was. Let's say it was seven thousand.

You'd pay tax on seven thousand less and you could invest that. So I think that that would be a great option. Santina and my kind of recommended approach there would be pay off the credit card debt, but at the same time, really lean into your spending plan and make sure you're living within your means. Shore up your emergency fund in a high yield savings account separate from your checking equal to three to six months expenses. And then with the rest, make a contribution to one or even to one in your name for sure. But maybe your husband as well into two IRAs with the balance.

Get the tax deduction next year and get it invested, especially while the market's down. OK, OK. That sounds good. That sounds good. Thank you so much for all your help. You're welcome. Listen, if you or he have questions along the way, don't hesitate to reach out. We appreciate your call today. Thank you.

We sure will. Thank you. All right. God bless you. Well, folks, thanks for being along with us today. Here's my heart and goal each day is to be an encouragement to you to help you understand how to manage God's money in alignment with biblical wisdom and truth. Hey, if you'd like to support our work, perhaps you want to help us reach more people with this message, or maybe you've found something helpful in your own financial life. The way to do that is to become a faith five partner. These are men and women who support us at thirty five dollars a month. And as a thank you, we send you four issues of our magazine, Fateful Steward, the next one due out in May and pre-release copies of our studies and devotionals, including our next study due out next month, Wisdom Over Wealth on the Book of Ecclesiastes. The big thanks to my team today, Devin, Sandy and Jim. If you want to become a partner, just go to faithfi.com and click give and we'll see you tomorrow. Faith and finance is provided by faith by and listeners like you.