318: [Kevin Pitts] Ai Review

In this insightful deep dive episode, we unravel what some financial planners are dubbing the "retirement cheat code"—the reverse mortgage. Drawing from a compelling discussion with mortgage expert Ken Pitts, we demystify this financial tool that allows homeowners to access their equity without the burden of monthly payments. Discover how reverse mortgages can transform retirement planning, especially for those supporting aging parents or planning their own futures.

We break down the eligibility requirements, including age and property type, and explore three powerful strategies for utilizing reverse mortgages:

• Eliminating existing mortgage payments to boost cash flow.
• The delay bridge strategy to enhance Social Security benefits by borrowing against home equity.
• A reverse mortgage line of credit that grows over time, providing a safety net without the risk of being called in by the bank.

We also address common concerns, such as property value fluctuations and the protections in place for heirs. This episode emphasizes that reverse mortgages are not just for desperate situations; they are a flexible financial tool that can be a valuable addition to your retirement strategy.

Key Takeaway: Use the insights from this episode to ask informed questions to your financial planner about how a reverse mortgage could fit into your financial plan.

Chapters:

• 00:00 - Introduction to Reverse Mortgages
• 02:15 - Understanding Eligibility and Requirements
• 05:45 - Strategy 1: Eliminating Payments
• 09:30 - Strategy 2: The Delay Bridge
• 15:20 - Strategy 3: Supercharged Emergency Fund
• 20:00 - Addressing Concerns and Protections for Heirs

More about Kevin Pitts:

https://kineticwealthbook.com

For more insights and to listen to the full conversation with Ken Pitts, visit https://aboutthatwallet.com

Disclaimer:

The information provided in this podcast is for educational purposes only and should not be considered financial advice. Please consult with a qualified financial advisor before making any decisions regarding reverse mortgages or other financial products.

Episode 318

Episode Transcript

(00:00):
Welcome to the deep dive.
Today we're going to get intowhat some financial planners are
calling a retirement cheat code.
It's basically the opposite ofhow we all think about a mortgage.
Exactly.
We're pulling our insightsfrom the about that Wallet podcast.
Specifically, a reallyinteresting talk with mortgage expert
Ken Pitts.
And our mission here is simple.

(00:20):
We're trying to pull out themost valuable financial strategies,
especially for, you know,anyone trying to help their parents
or even plan for their own retirement.
Right.
And we have to say this upfront, just like they did in the
source material.
Yes.
This is all for educational purposes.
This is just information tohelp you form better questions.
So when we think mortgage,most of us think of a forward mortgage.

(00:43):
That's the loan you get to buya house, right?
Right.
You have to make those monthlyprincipal and interest payments for,
well, 30 years usually.
But the tool we're reallylooking at today is the reverse mortgage.
It's still a mortgage securedby the house, but instead of sending
money in, you're taking thatequity you've built and bringing
it back out.

(01:03):
And the biggest difference isno required monthly payments.
None.
The interest just getsdeferred and it's added to the loan
balance over time.
So how does someone evenqualify for that?
It sounds a little too good tobe true.
Well, the qualification issurprisingly straightforward.
It's not really about your income.
You just have to show you cancover the house expenses, you know,
taxes, insurance.

(01:23):
It's a residual income calculation.
Okay, so who's eligible forthe FHA.
Version, which is the most common?
You have to be at least 62.
Years old, and it has to be.
Your main home, your primary residence.
Yes, but that can be a condo,a duplex, even a multifamily home
as long as you live in one ofthe units.
Now, here's the part thatreally gets me.
The borrowing limit.

(01:44):
It's kind of backwards, isn't it?
It is a little counterintuitive.
It's based on your age, thehome's value, and any debt you have.
And the paradox is, theyounger you are, say, 62, the less
you can actually borrow.
Why is that?
Because the bank has toproject that deferred interest potentially
piling up for decades.
So for a 62 year old, theymight only let you access, say, 40%

(02:06):
of the home's value.
They're more cautious.
Okay, so historically, thesethings had a really bad reputation,
a last resort, a huge stigma.
But financial planners are nowlooking at it as a really flexible
tool.
So let's talk about thestrategies what's the first one?
The simplest one is justeliminating payments.
You use the reverse mortgageto completely pay off your old existing

(02:27):
mortgage.
And just like that, a hugemonthly payment is gone.
If you're wiping out, say a $1,200.
Mortgage payment, that's amassive boost to your monthly cash
flow.
It makes your Social Securityor other savings stretch so much
further.
I love that.
Yeah.
Okay, what's strategy number two?
This is the delay bridge, andthis one is really powerful.

(02:48):
The delay bridge you use draws from.
The reverse mortgage to createan income stre, bridging the gap
from when you retire, maybe at62, until you turn 70.
So you're not touching yourSocial Security yet.
Exactly.
You let your Social Securitybenefit grow, and by waiting until
70, you can nearly double whatthat monthly check will be.
You're borrowing a bit now tobuy a much bigger guaranteed income

(03:08):
for the rest of your life.
Wow.
And the third strategy yousaid, this one is like a supercharged
emergency fund.
It really is.
It functions like a line ofcredit, but it's much better than
a typical H E L O C. How so?
Because a heloc, the bank cancall that in.
Right?
Or just freeze it.
Precisely.
The reverse mortgage line ofcredit cannot be called in and you

(03:28):
never have to re qualify.
And here's the amazing part.
If you don't use it, theavailable credit line actually grows
every year.
It grows.
So you have access to moreequity down the line.
Yes.
Tax free.
It's an incredible hedgeagainst, you know, living longer
than you expected.
That's amazing.
But we do have to talk aboutthe elephant in the room.
What happens if the propertyvalue drops?

(03:50):
Are the kids on the hook for ahuge bill?
That's the most important protection.
The FHA version is a nonrecourse loan.
Your heirs will never, everowe more than the home is worth when
it's sold.
The loan gets paid off fromthe sale of the home and that's it.
And when does it have to bepaid off?
What are the triggers?
There are three main.

(04:10):
The borrower passes away, thehouse is sold, or the borrower moves
out for more than 12 months,like into a long term care facility.
Oh, and of course you have tokeep paying your property taxes and
insurance.
So the big takeaway here foryou is that the reverse mortgage
isn't just this thing fordesperate situations.
It's a really flexiblefinancial tool that should probably

(04:32):
be in the toolbox.
It really should.
Which brings us back to thatgreat quote from Ken Pitts.
He said the Internet is agreat place to form questions.
It's not always the best placeto get answers.
Use what you heard here to goask your financial planner some really
smart targeted questions.
Absolutely.
And if you found this deepdive useful, please take a second
to leave us a five star review.

(04:52):
Then go listen to the fullconversation on the about that Wallet
podcast.
It's episode three and 18.