A Fresh Look At Reverse Mortgages with Harlan Accola

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That's 800-525-7000. This is faith and finance, biblical wisdom for your financial decisions. Well, our guest is Harlan Akala with Movement Mortgage, which is an underwriter of this program. Harlan is also the author of the book Home Equity and Reverse Mortgages, the Cinderella of the Baby Boomer Retirement. Well, that's quite a title. Harlan, great to have you with us. Glad to be here.

Thanks for the opportunity. You know, Harlan, most people think of reverse mortgages as the bank paying you instead of you paying the bank. And I know that's certainly a part of it. But how might you describe the bigger picture around reverse mortgages?

Well, I think it's really way simpler than what people make it. We put money into savings accounts, IRAs, 401ks, so that we can take money out in the future. All that a reverse mortgage does is be the key that unlocks the ability to use some of the money that we put into an investment that 80% of us have by the time we reach 62, which is our home. And it's a safe, guaranteed way, guaranteed by the government, to be able to use some of the money that you've put into the house over the years. Yeah, which could be a real blessing for a lot of folks, especially those who are ill prepared for retirement. But you'll make the case today, perhaps it even goes beyond that.

We'll look at that. But let's start with the different types or forms of reverse mortgages. Well, the biggest thing that is super important to explain right away is that there were old reverse mortgages before Federal Housing Administration got involved during Reagan's term, that were really not reverse mortgages, it was a loss of ownership. They were called shared equity loans. Those are relatively dangerous for most people and you lose ownership of the house. What movement mortgage does and what I've worked on for the last 20 years is a reverse mortgage that is an FHA home equity conversion mortgage that allows you to use somewhere between 30 to 50% of the value of your house, and is guaranteed that you will never be upside down and never be required to make a payment during your entire lifetime.

So there's a dramatic difference between the old and the new, so to speak, that came out in 1988. Yeah, let's build on that a little bit, because this is a big idea. Regardless of how long you live, you will never owe anything in terms of having to pay it back unless you sell. Isn't that right?

That is correct. And you're always protected from the downside that if you die in a bad year, or you simply need to sell in a bad year, like 2009, when home values were down, you are never required to pay the difference. That is a very important safeguard. And quite frankly, I wouldn't be involved with the product. If that was not there, because we cannot guarantee a future value of the house.

Yeah, and that's a really big idea. Harlan, are reverse mortgages ever misused? Well, I wrote a chapter in my book that seems to be turned to a lot called drugs, sex and reverse mortgages. And yes, they can be misused, just like drugs can be good or bad and sex can be good or evil and reverse mortgages can be misused, just like investments can be. I mean, think Bernie Madoff, FTX, where many people lost millions of dollars. If any financial product out there is not understood and properly used, it can be a detriment instead of an advantage.

Yeah, but you're making the case today that perhaps we've had a more narrow or a flawed view of this product in the past that you want to correct, right? Well, yes, we're so concerned about that because everybody thinks this is where you lose your house and you're mortgaging your future and you're hurting your children. You're putting yourself into a situation like a credit card that you might not be able to afford to pay in the future. This is the only mortgage loan in the country that is guaranteed to be safe, that you never have to pay it back until you permanently move out of the house, which is usually death or, of course, moving.

And at that point, you cannot be upside down. But whatever is left belongs to your children. So it's not like you've lost the value of the house. Harlan Akula with us today from Movement Mortgage. We're talking about reverse mortgages, what you need to know so you can make an informed decision about whether this might be right for you. When we come back, we'll talk about how this relates to the kids if you want to leave the house to them. What about your retirement income and what about your giving opportunity that might come from a reverse mortgage? Harlan Akula here when we come back, much more on reverse mortgages.

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You can find a local CKA professional in your area by going to faithfi.com and clicking Find a CKA. Well, it's great to have you with us today on faith and finance. I'm Rob West. With me today, Harlan Akula with Movement Mortgage, an underwriter of this program. We're talking about reverse mortgages. And you know, folks, here on this program, our hearts desire is that you would be a wise and faithful steward of God's resources.

That means you need to be educated. And that's what we're doing here today about reverse mortgages. But we also always want to leave room for you to work out your convictions with the Lord. And for instance, as it relates to this topic, if your conviction is to remain debt free to get out of debt completely and stay there for the rest of your life, great.

You do that. You'll always hear encouragement from us to that end. But perhaps there's a place for a reverse mortgage that you hadn't considered in the past.

And Harlan's bringing some great educational information today to bring you up to speed on perhaps what you may have missed. Now, Harlan, one of those things that folks think a lot about in this area is I won't get a reverse mortgage because I want to leave the house to the kids. So does a reverse mortgage always eliminate assets that could be left to children?

Well, it doesn't. In fact, in the research that's been done, it's usually proven that for those that do a reverse mortgage early in retirement in their 60s, you're eligible at 62, of course, that you actually can leave more to your children or your charities. The fact is, just because you're using some of the equity in your house does not mean that you're leaving less to your children because you can put more money into life insurance or into investments. Or one of my favorite things is you can give money away with a warm hand instead of a cold hand. You don't have to wait until you're dead to give something to your children to help them.

And I'm a big believer in giving away wealth with wisdom rather than giving wealth away without wisdom. When I give money to my children now, I can have a lot of conditions attached as to where it goes and what should be done with it. A huge misconception is that my kids want my house. When I'm 90 and the kids are 60, the kids probably are not going to want the house.

They're going to sell it. And the fact is, is that if they just want money, I can leave them life insurance. I can leave them a Roth IRA. I can do a lot of other things. And the same applies to what I want to leave to my church and charities.

Yeah, that's very helpful. Now you have a chapter in the book called The Three Buckets. I'd love for you to explain that idea.

Yeah, the problem is, is that people are always thinking that I want to give my house to my kids. Well, bucket one is people's ability to make money. Bucket two, picture the one in the middle, which is the place where you put your nest egg, money for the future, savings accounts, IRAs, and so on. And then bucket three, which is your house. We actually pour more money into bucket three than any other place. Typically it's 29% of your income. That's a lot of money.

Yeah. And so what we need to take a look back is, okay, now I'm in retirement or looking at retirement, where do I get money from? I can go to bucket one and keep working or go to social security. I can go to bucket two and withdraw money from my IRA. Or I can take tax free money out of bucket three in a safe and careful way so that I will have more money in other buckets.

That's the issue is this is not about loss, but this is looking at the whole picture and how it works together with all three buckets. Yeah. And that brings us to this idea about the mortgage payment because another argument against this is this idea that, well, I have plenty of money making the mortgage payment is easy. I don't need a reverse mortgage. So how would you respond to that? Well, I'm a perfect example of that.

I'm still working. I don't need a reverse mortgage, but I'm 63. So I did my reverse mortgage a year ago because I want to take my cash flow and put it into more giving more investing and more of helping our family while I'm alive.

And while I have the ability to generate that income, it's not wrong for me to make a mortgage payment, but if I don't have to and there are better uses for that money, I would rather lose equity in my right pocket instead of losing cash in my left pocket because cash is more valuable and I can do more with it. You know, it's funny from a giving standpoint, I remember always getting these, the Salvation Army would always ask for money around Thanksgiving time. And this year it came up and I looked at the sheet and I just gave a little bit more. I'm not patting myself on the back, but it was just easier because my $2,500 house payment doesn't exist anymore. So it actually allows me to give more and help more because that big obligation on the first of the month is not required for the rest of my life. That means I'll die, Rob, with less equity, but with more cash that I had to use while I was alive, less in bucket three, more in bucket two. Yeah, that's fascinating and a different perspective than we often hear.

Let's get into some of the mechanics, Harlan. How old do you have to be? Is there an age limit and how much equity do you have to have to be a candidate?

You always have to have more than 50 percent equity and you need to be 62 or married to a spouse who's over 62. And then that allows you to either take money out in a line of credit that you might use once in a while or in a monthly check or a lump sum to pay off an existing mortgage. You don't have to use any of the money, but it's wise to have that set up to have it available because the only thing you don't know for sure is I've always told people the only thing certain about the future is that it's uncertain. It's nice to have that money available if and when you need it for good things as well as bad things.

Sure. Now for somebody who's saying this sounds too good to be true. Tell me who actually owes the money to the lender when somebody takes out a reverse mortgage. How would you help them understand that? I'm glad you brought that up because that's from a legal perspective. This is called a non-recourse loan. And when I did my reverse mortgage as everybody, I sign a form that says release of personal liability.

There are no other loans that you release from personal liability. It doesn't matter if you have a car loan, a credit card, you're personally liable for it. This shifts the responsibility to two entities. The first entity is your house. So your house is responsible for paying back the money and the future value of the house.

The second entity is the Federal Housing Administration mortgage insurance program. If your house doesn't have enough money because you've lived too long or the value of the house went down, you are not responsible for it. Your heirs are not responsible for it, nor is your estate or your trust. That is a very significant difference and why this is a completely different debt than something that you are personally responsible for.

Yeah, that's helpful. What about taxes, Heartland? How are they affected by a reverse mortgage?

Almost always positively. First of all, any money that comes out of a reverse mortgage is tax free. That's not income. It's technically borrowed money, even though you don't have to pay it back until a year after you're dead. It's still borrowed money and it's not taxable.

It also helps out a tremendous amount. We just did a reverse mortgage for a Christian leader who was quite wealthy. He took money out of his home and put it into some donations to some of the Christian causes. So he got a big tax deduction and had zero tax income because he took it out of his reverse mortgage. So it can actually save you money from a tax deduction standpoint because of the interest and because of the giving.

And it doesn't cost you money to get it out because it's tax free as compared to an IRA or 401k or some other taxable source. Yeah, very good. And we're almost out of time here. How can folks get in touch with you, Heartland, or learn more about this?

Best place to go is simply movement.com slash faith, and we'll be happy to field your questions, give you any other information of how this might be of help to you or your family. That's incredible. Harlan, thanks for being with us today. Thanks, Rob. Really appreciate the opportunity to get the news out.

Absolutely. That's Harlan Akula with Movement Mortgage, a national underwriter for this program. Harlan is the author of Home Equity and Reverse Mortgages, the Cinderella of the Baby Boomer Retirement. Again, folks, this is a decision you need to make with much prayer between you and the Lord, but hopefully this has provided some further education today about an often misunderstood product. All right, your calls are next. 800-525-7000.

800-525-7000. This is Faith and Finance, and we'll be right back. You can find out more at movement.com slash faith. Movement Mortgage LLC supports equal housing opportunity. NMLS number 39179.

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I'm Rob West. I'm so thankful you're along with us today as we help you think about your role in managing God's money in light of a biblical worldview. But we want to also tackle, as we do that, the specific questions and decisions you're looking to make in your financial life right now as you live, give, owe, and grow.

And by the way, God's word speaks to all of those. You know, once we understand the role of money, that it's morally neutral and that it can be used for good or bad and that it's a blessing, it was created by God for good, that we should enjoy it and use it to support and provide for our families and make memories and, yes, meet the needs of others and be generous along the way. But as long as we do that in the context of understanding that we should be focused on the world that is to come, the eternal perspective and not the here and now, well, then money is now freed up to become a tool to accomplish God's purposes. It's not that money is bad at all. I mean, the Bible says that the love of money is the root of all evil. And so we've just got to check our hearts and then we can apply those very specific practical principles we see in God's word around spending less than we earn and avoiding debt and having some liquidity or some margin, setting long-term goals, giving generously.

And when we do that, well, we put ourselves in a position to experience, I believe, God's best in this area. Well, let's do that together today with your financial questions. We've got some lines open, the number to call, 800-525-7000. That's right, 800-525-7000. Let's dive in today.

We're going to go to Columbia, Ohio. Matt, thanks for being on the program. I understand you've actually studied in this area, right?

Yes, I have a degree in finance, but I don't feel like I use it very well. Okay. Well, I'm delighted to hear you're at least interested in it, it sounds like. Well, I mean, I really enjoy your show and I think it's a great way to learn and it's a shame that financial literacy isn't taught in schools. But your show is a great way to learn, though, and I listen every day and I really appreciate it. I'm delighted to hear you say that.

I couldn't agree more. I think that the idea that we need more financial literacy in schools, and I keep hearing about more and more Christian universities and some of our team have actually been a part of this. Making personal finance required, which is so key. But not only just the financial literacy side, but this idea of a biblical worldview, really seeing it through the lens of Scripture is often another missing piece, even if we're teaching the blocking and tackling of compounding interest and debt and balancing a checkbook and all of those things. But I know you didn't call to talk about that, so let's dive in.

How can I help you today? So I have an equity line that is at 6.75. It was at 3.25. And I have about $7500 that's on it. And I've been making payments on it and trying to chip away at it. But I also have some stocks, and I thought, should I just sell some stock that generates dividend income and pay that off and get rid of it? And I was wondering what to do. I have an asset that grows, and that asset grows at a higher rate than the 6.75, so should I just keep doing what I'm doing or get rid of it?

Yeah, it's a great question. Just give me a rundown of the rest of what you've got going on. So what do you have in the way of investable assets, and what types of accounts are they in?

It's basically blue chip stocks. And then I also have a 401k, which I can't touch. Yeah, okay. Alright, great. And what do you have in the taxable account with the blue chip stocks? How much?

Probably about $350,000. Okay. And then how much do you have in that 401k, although you said I think it was a self-directed IRA, is that right? Yes, I've rolled it into, there's about $800,000 in there.

Okay, yeah. And why did you go with the self-directed? Are you buying real estate with it or something else?

No, my company was sold and I kept it at my fidelity where it was. And for me to contribute to it, I had to make it a self-directed IRA. Okay, gotcha. Yeah.

Well, you know, here's the reality. I mean, you know, with a taxable account, obviously as you're liquidating positions, and by the way, let me ask, who's making the buy and sell decisions on all of this? Are you doing that yourself? Yes, we, my wife and I are basically doing it ourselves.

Yeah, yeah, okay. Hey, as long as it's working for you. I mean, at some point, if you thought, you know what, it's just, it's causing me to lay awake at night, I think, you know, considering hiring an advisor to manage this for you with the time and the expertise to do it makes a lot of sense, especially with an estate as big as the one that you have. And yet, if you enjoy it, or you're, you know, you're good at it, and it's been working for you, again, I don't think there's anything necessarily wrong with that, as long as it doesn't occupy too much of your time and, you know, mental energy. In terms of paying this off, you know, I mean, obviously, that 7500 is pretty minimal, given the assets that you have, I would say definitely don't pull that out of a retirement account and pay taxes or a penalty.

Let's keep that growing. But I would certainly consider it because of the fact that you've got so much in this taxable account. So as you're liquidating positions, especially if you've got any portion sitting in a cash account, like a money market sweep, because you've sold something and haven't redeployed it, why not put it to good use at a guaranteed six and three quarters and just wipe that out? You know, I think that makes a lot of sense, just given that this is, you know, money that as you liquidate certain positions will be available. You know, that probably makes some sense, especially with rates as high as they are now. And the fact that we don't see them really coming down in any meaningful way, at least through next year. So I probably wouldn't go in and sell something that you like and you plan to hold on to, but if you did, because, you know, whatever process you're following to buy and sell had you sell something and it's sitting there in money market, well, why not, you know, wipe out that loan?

Does that make sense? Yeah, I just haven't pulled the trigger on selling anything because I was wanting it to grow and then I was using the dividend to pay down the debt. Yeah, and I think that's a good strategy. So unless you're, you know, you get a buy signal kind of however you do that and make decisions that you want to sell something and move into something else, you know, and you've got the money available. Apart from that, I would say let's just let that money keep growing and, you know, just chip away at this over time, either out of current cash flow or dividends or both. So I wouldn't be making buy and sell decisions just to liquidate the $7,500 unless you just had a conviction around being debt-free as soon as possible and then go for it.

But apart from that, I would say only pay it off if you're going to sell something anyway. Okay, okay. I understand.

Yeah, very good. Well, listen, Matt, all the best to you guys and we appreciate your kind remarks about the program from being a faithful listener. That means a lot. And tell your wife we said hello.

We're grateful that she listens as well. Have a great day. God bless you, my friend. Hey, we're almost out of time, but I wanted to let you know that you don't ever have to miss a program. Just download our Faithfi app for your mobile device and take us with you anywhere. Thanks for joining us today. I look forward to talking with you again next time on Faith and Finance. Faith and Finance is provided by Faithfi and listeners like you.