122 HECM Mortgages with Tane Cabe

Jason and Tane discuss HECM Mortgages.

More about Tane Cabe:

Hi my name is Tane Cabe.  I specialize in helping leading edge baby boomers and seniors’ right size their home by creating a tailored plan to maximize cash flow and liquidity.

If you want to purchase a home and have no monthly payment without paying all cash – I can help you.  If you want to reduce your monthly payment or eliminate it all together – I can help you.  If you want more liquid cash to enhance your retirement lifestyle – I can help you.  If you want to purchase a second home and become a “snow bird” – I can help you.  Whatever your goals and retirement lifestyle dream is related to real estate – I can help you.  

I have been in the mortgage and finance business since 1993.  Along the way I have developed and sold multiple companies.  I have taught, coached, instructed, and served as a speaker for various financial and mortgage industry panels.

For the last 14 years I’ve invested countless hours into studying the challenges of leading edge baby boomers and seniors, looking specifically at how they plan for retirement.  I’ve worked with many retirees through my own practice.  I have written a book titled Double Your Retirement Dollars, Little Known Strategies to Quickly Increase Income, Assets and Cash for Today’s Retiree.   

I manage a branch for Churchill Mortgage in Gig Harbor Washington.  I reside in Gig Harbor with my wife Angie. We have two daughters, Lauren 21 and Morgan 23.  

If you would like a free copy of my book simply call my office at 253-853-5805 or toll free 800-490-4287,or email me directly: tane.cabe@churchillmortgage.com.

To learn more please click on the HECM Webinar Registration tab on the top right of this page to register for Jason and Tane’s live webinar  on Wednesday, February 15th at 1:15pm PST.

Below is the full transcript:

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Announcer: Welcome back, America, to Sound Retirement Radio, where we bring you concepts, ideas and strategies designed to help you achieve clarity, confidence and freedom as you prepare for and transition through retirement. Now, here is your host, Jason Parker.

Jason: Ladies and gentlemen, boys and girls, welcome to the greatest radio show on the Planet Earth, at least if you’re interested in retirement. Jason Parker here, and yeah, I think highly of the work we do because you know what, you guys are awesome, and so we work really hard at making the show awesome. You are listening to Episode 122. I’ve got a great guest on the program this morning to share with you all about the HECM mortgage, home equity conversion mortgage. I think you’re going to find this really fascinating.

 Before I do, though, as you know, I like to get the morning started right by renewing our mind, and I’ve got a verse here for us from Psalms 55, Verse 22. “Cast your cares on the Lord, and He will sustain you. He will never let the righteous be shaken.” That’s awesome, and then we’ve got a joke, of course, something you can share with the grandkids. Here you go. Can a kangaroo jump higher than the Empire State Building? Of course. The Empire State Building can’t jump. All right.

 It’s my good fortune to be bringing Tane Cabe back onto the program. Tane has been a guest on the program with us in the past. I’m just going to read you a little bit about what he does and who he is. Tane’s been in the mortgage and finance business since 1993. Along the way, he’s developed and sold multiple companies, and he’s taught, coached and instructed and served as a speaker for various financial and mortgage industry panels.

 If you want to purchase a home and have no monthly payment without paying all cash, Tane can help you. If you want to reduce your monthly payment or eliminate it altogether, Tane can help. If you want more liquid cash to enhance your retirement lifestyle, he can help you with that as well. If you want to purchase your second home and become a snowbird, Tane can help there.

 Tane, boy, this is some pretty powerful stuff you’re offering. Whatever your goals, if your retirement lifestyle dream is related to real estate, Tane can help. For the last 14 years he’s spent a lot of time and energy and hours consulting with leading-edge baby boomers, and he’s written a book called “Double Your Retirement Dollars.” Tane Cabe, welcome back to Sound Retirement Radio.

Tane: Well, thank you, Jason. It’s good to be back.

Jason: Boy that was quite the intro I gave you this time, huh?

Tane: I know. I’m like, “Boy, I make all those?” That’s like I make dreams come true, the way you made it sound.

Jason: I know. Well, give me an extra cup of coffee before we do these interviews, and things get …

Tane: I know, right?

Jason: … they get better. They get better by the sip, here. Well, I do appreciate you being on the show. For our listeners, they’re listening to Episode 122. I want to remind you these shows are archived online at Soundretirementradio.com, Soundretirementplanning.com. Tane, let’s take a minute. Share with our listeners the home equity conversion mortgage. What in the heck are we talking about here?

Tane: Right, right. Well, home equity conversion mortgages or HECM or “heck-um,” what the heck-um are we talking about, right? A home equity conversion mortgage is a tool that can be used in multiple ways, a mortgage tool, and really looking at it as integrating that mortgage into your overall retirement plan. Essentially what it allows someone to do is either purchase a home, if they’re looking to purchase a home, and usually depending on their age, they’re coming in with roughly 50 percent down, which obviously is a significant amount, but in return there’s no monthly mortgage payment on that, on that home equity conversion mortgage, as long as they live in the home.

 Then the other option is to use it as a tool to pay off a mortgage on an existing home that they may be living in and eliminating that mortgage payment, creating additional cash flow without having a monthly payment on that, to setting up a line of credit and having funds available in the future that actually grow and compound, and we can talk a little bit more about that. There’s all kinds of ways to utilize the home equity conversion mortgage, where you can borrow money without a mortgage payment, which is kind of a new concept.

Jason: Yeah. One of the things that’s been fascinating for me is we’ve seen … and one of the reasons you and I started talking originally is there’s some higher-net worth people that have been looking at this type of a tool. They’re looking to downsize, maybe as you like to say, right size their home in retirement, so they’re looking for one story. Sometimes they’re looking to have a property in one … two different homes, you know, one in one place and one in another place, but they don’t want to take all the equity out of the sale of their residence to buy the next house, and so that’s how this comes into play.

 It’s like you said. They can put 50 percent down and then not have a mortgage payment, but what’s happening on the back side there if they do something like that, Tane? First of all, let’s talk about the advantages of doing something like this, and then we’ll get into the disadvantages.

Tane: Okay, sure. Well, certainly the advantages are traditionally, if we look at the purchase, retirees are looking to downsize or right size their home. They’ve raised their kids in the larger home, maybe two or three stories on a larger piece of property, and they’re ready to move. They’re ready to move into a single-level home, possibly a home in a community. Oftentimes it’s an active adult community. Those communities, if people aren’t familiar with them, they’ve got usually a lodge and workout facilities, sometimes golf courses, they’re gated, but they’re age-restricted. They’re 55-plus, typically.

 Utilizing a home equity conversion mortgage to purchase a home, the advantages there are that the typical way that someone will purchase a home, will purchase that home in retirement, is they don’t want to have a mortgage payment. I mean, you know, if we could ask everyone to raise their hand, who wants a mortgage in retirement, no one would want a mortgage in retirement typically. The only way to accomplish that traditionally is to pay cash for that house. Well, now, using the home equity conversion mortgage, a real advantage to that is, instead of paying 100 percent cash to accomplish no mortgage payment, someone utilizing the home equity conversion mortgage could purchase that home, putting approximately 50 percent down or less, depending on their age, and never have a mortgage payment.

 I know you’ve said many times that it’s really about cash flow in retirement, Jason, and not the amount of money you have necessarily. If you can eliminate a mortgage payment without having to use all of the equity from the previous sale of a home or pulling money out of retirement accounts to accomplish that, certainly that can be an advantageous way to go, an alternative to paying cash.

Jason: Okay. Yeah, so it’s just a way to free up assets, not have a mortgage payment, and maybe get into the house that you’ve been wanting to in retirement. Not everybody can get one of these, though, right? There are some qualifiers on there?

Tane: Yeah. Qualifying for one of these, you’ve got to be … at least one of the borrowers, if it’s a married couple, has to be at least 62, and then there are some other qualifiers. Previous to really about two and a half years ago, you really only needed to qualify based on age and verify that you had the cash available if you were purchasing, or have the equity available if you were refinancing, but now there are some further restrictions in qualifying on income, and the income restrictions are … these are FHA-insured, and FHA just wants to make sure that the borrower has enough money at the end of paying basic necessities … taxes, homeowners insurance, homeowners association dues … that at the end of the month after that, there’s enough residual income there.

 There are specific residual income guidelines depending on what part of the country you live in, et cetera. They’re really designed for people who may be qualifying that are on a fixed income, like just receiving Social Security, so the qualifying is very liberal. Still, even though people may not have a mortgage payment, that doesn’t necessarily mean that they can afford to live in that home, based on the property taxes, based on the insurance. You know, there’s fairly new qualifiers, but certainly it’s eliminated risk.

Jason: That’s interesting to me, though, because that’s something new. Didn’t it used to be that if you could fog a mirror, you could basically get one of these things, and now we’re starting to see qualifications tighten up a little bit? These are actually getting harder to come by? Is that a true statement?

Tane: That is a true statement, yeah. Certainly it has eliminated, excluded some people from qualifying for these, because you might have a single person earning $600 a month in Social Security, but after paying property taxes and homeowners insurance and basic living expenses, that … you know, maybe that’s $700 … they might have a negative residual income. They wouldn’t qualify for this loan. They could. Depending on how close they are to that residual income, they could qualify, but then there’s a set-aside for tax and insurance, so part of that loan would have to fund the property taxes and homeowners insurance in the future, based on that borrower’s life expectancy. You might have someone that could qualify, but maybe doesn’t have the equity or the cash to come up with.

 To give you a quick example, we had a purchase last month and the people were tight on qualifying. Because of that, because of their life expectancy, they would have to have set aside an additional $90,000. We were able to convince, if you will, the underwriters to not do that, but that was a close one. I mean, that was a lot of money that they would have had, an additional $90,000 to come up to qualify for the loan. Yeah, it’s becoming more and more restrictive, and certainly with the new administration and Ben Carson being HUD Secretary, I mean, who knows what’s going to happen next? We’re all waiting around for the latest changes to come out, so we’ll see what happens here this year.

Jason: You know, I was thinking on my way into the office this morning. If you gave a retiree, somebody just getting ready to retire, two different options, option one is they’ve saved all this money, they retire and they’re so afraid of running out of money, Tane, that they really limit their lifestyle, they really limit what they do, and by the time they’ve passed away they actually have a lot of money that ends up being transferred to their heirs. That would be option one. Option two is they’ve saved a lot of money, they don’t care if they run out of money, they end up spending all their money and they run out of money before retirement, before they die.

 If those were the two options people had … you spend everything and die broke, or you kind of have this state of fear that you’re living in, you don’t spend anything, you just hold onto every penny you got and you die rich … I’d be kind of curious to know from our listeners. Which one of those two options? Not that either one of them is a great option, but if you had to select one, which one would you lean towards? What about you, Tane, as you think about that for your own situation? Which of those two options? If you had to pick one, which one would you pick?

Tane: I would say, if there’s a way to combine the two, certainly spend money that you’ve worked so hard to earn over your lifetime, and in retirement enjoy those retirement years. Then also, leave a legacy. For me personally, leaving a legacy doesn’t necessarily mean leaving millions of dollars to my children. It’s more than that. It’s deeper than that. It’s a spiritual legacy, it’s an intellectual legacy. It’s, you know, intellectual capital. What have I learned that I can pass on to my children, you know? It’s kind of a combination.

 It’s unfortunate because I do see people. I see people that will literally not want to turn the heat on or take their medication because they really want to leave their children … they decide not to do this loan to kind of help them with an additional X amount per month to live, just because they want to leave something to their children, and that’s their choice. For me, that wouldn’t be my choice.

Jason: It’s interesting how it changes over time, because I get a chance to meet with a lot of retirees, and usually right at the point of retirement, that’s not the number one priority. Usually as they get closer to their mid-80s, all of a sudden leaving something to the kids and grandkids becomes much more important than it was say in the early 60s, just kind of as an observation.

 I want to make sure our listeners know, because you’ve agreed. On this topic of home equity conversion mortgage, you’ve agreed to do a webinar for us to really do a deep dive and help people understand how these tools work, and so that’s scheduled for February 15th, 2017 at 1:15 p.m. We’ll put a link on Sound Retirement Planning. Anybody that wants to join us for a webinar, this is going to be a chance not only for you to learn from Tane but also to get your questions answered. If you have specific questions, we’re going to have a Q&A session available for you. Thank you for doing that for us, by the way, Tane.

Tane: Oh, my pleasure, yeah.

Jason: Another question, this is again off the topic of these HECM mortgages, just another thing I was thinking about on my way into the office this morning, and it’s about the amount of money that we’re willing to pay in order to feel confident and safe in the future. What I mean by that is the insurance premiums that we’re willing to pay, whether it’s to protect our house from burning down or protect our … you know, if we get into a car accident, or pay for long-term care insurance or disability insurance or life insurance. I mean, there’s definitely a cost to feeling safe in the future, and as I think about that, it’s just amazing to me how much we’re willing to sacrifice today in order to have a sense of safety in the future. Do you find that to be the case, Tane?

Tane: Well, definitely, yeah. Yeah, definitely. I think there’s a misconception that we’ve been taught and it really stems from the Great Depression, and that is that home equity is safe, it’s secure, and it’s not at risk. The reality is that we don’t have to look too far back in our past to realize that that isn’t the case. Obviously we’ve seen a nice run-up in property values where equity has improved dramatically for most homeowners, but boy, there was a time there obviously in ’06, ’07 where people were banking on their equity being a safe and secure place to score cash, right? Because really what it is, equity is real money sitting in the walls and foundation of your home. If we see a downturn in the real estate market dramatically like we did, that can be evaporated almost literally overnight, you know.

 I don’t know if that answers your question, but it’s just a point that I want to make as well, in that it’s better to have that money outside of the walls and foundation of your home and not need it than all of a sudden need it and not be able to get it, you know, either through lack of liquidity in getting financing to get the money out, or because your home value dropped dramatically. Yes, being diversified and not having all your eggs, because right now … I just updated my webinar and I looked at the latest statistic … $6.1 trillion in home equity is held currently by those 62 and over in the country. That’s … what’s the national debt right now?

Jason: We’re almost at $20 trillion. We’re right on the verge. The Dow hit 20,000 before the national debt hit $20 trillion, so that’s good news.

Tane: Oh, my gosh. Yeah, I guess that’s good news. I thought for a minute the equity that retirees held could cover half of it, but I was way mistaken. There’s a lot of money stored up there.

Jason: What about when does a HECM not make sense? What are some of the scenarios where people would not want to consider this type of tool?

Tane: Well, yeah. What’s happening is, obviously if there’s no mortgage payment, what’s the catch here? The catch is, let’s say we had someone that had a home worth $400,000 and they had a $200,000 home equity conversion mortgage on it. Well, every month that goes by, there’s no payment being made on that, but the interest on the loan that is being charged … there is interest … that interest is added to the balance, so that mortgage balance is going to go up over time.

 One of the major pitfalls, if you will, is that in the future, whether that be 10 or 20 years from now, depending on how long and how old that borrower is, that home equity is going to continue to decrease. Ultimately if they’re in the home long enough, they could end up with zero equity. When we talk about the legacy, leaving a legacy, leaving the home as a legacy or as an inheritance, there may or may not be anything there.

 A pitfall would be if someone had a home that they were really set on leaving that home in perpetuity in their family. That could be compromised if someone were to use a home equity conversion mortgage, so I always ask that question. You know, “Is this a home … do you really want to leave this equity to your children? What does that look like for you and your estate plan and your plans for this home?” You know, most of the time, a majority of the people, they see how the equity changes over time and they’re okay with that. If it’s someone that really wants to leave the home to their estate, then that’s not a good idea to do this type of financing.

Jason: Just to clarify, have the rules changed? Are these still non-recourse loans, where let’s say you get to a place where the equity of the house does not match up with the loan amount, the loan has grown to a point that’s beyond what the equity in the house is? Does the estate or do the heirs have to make up the difference, or are these still non-recourse loans?

Tane: Yeah, they’re still non-recourse. These are FHA, government-insured loans, so what that means is there is an insurance expense on these loans, and that insurance, if it weren’t there, honestly I wouldn’t do these loans. It’s important to let the listeners know that the FHA program is the only program to consider, and really the only program that’s available.

 What happens is eventually that balance on the mortgage, the interest could have accumulated beyond, over and above the actual market value of the home. If the home is sold at that point, any additional interest that has accumulated beyond that sales price is going to be covered by the FHA insurance. There’s no personal liability for the borrower, no personal liability for the estate. Yeah, that’s a point.

Jason: The flip side is if there is still equity in the house when the person dies, and the estate sells the house, the family gets to keep the equity. Is that correct?

Tane: That’s correct, yes. That’s honestly one of the biggest misconceptions about these loans, is that, well, if you get one of these, you won’t own any equity, and the truth is it’s just like a regular mortgage. It’s just a … the borrowers or buyers are on title. There’s just a deed of trust and a mortgage on it. If there’s equity, that equity is theirs if they go to sell it.

 In fact, if there’s a situation where there’s a balance greater than the market value, the sales expenses for closing costs and commissions to real estate agents are also going to be covered by that insurance, so literally the estate does not have to come up with money, write a check for anything to get that done, sell that home.

Jason: Give us a quick example, maybe a unique scenario you’ve run into, where somebody’s used this type of a tool in a retirement planning scenario and you thought it was a creative, unique way to think about it.

Tane: Yeah. Yeah. Well, there’s a couple of examples I can think of. If we have someone that owns their home free and clear but is concerned about long-term care needs, aging in place, they want to stay in their home. Most people I talk to are not excited about moving into an assisted living scenario, so aging in place is a big thing. If they go ahead and get a home equity conversion mortgage and they own their home free and clear, they can set that up and set up a line of credit under that.

 The line of credit is very unique, where if they don’t use all of it, or whatever they don’t use, every year it will have a growth rate. For example, if someone opened up a $100,000 line of credit and they’re in their early 60s, then if they don’t need that $100,000, they’re just wanting to have it there for emergencies, have it there for possibly future needs for in-home care, whatever that might look like, that $100,000 next year will have a growth rate associated with it, and that’s approximately 5.5 percent.

 Next year, instead of having $100,000 available to them, they have now $105,000 available to them, and then it continues every year and compounds. You know, that person who might be in their early 60s now, in their early 80s 20 years from now, that $100,000 would have grown dramatically. They could have $300,000 or $400,000 there available to them to possibly bring in help for in-home care or whatever they may need. From a planning perspective, that can be a good option. The earlier someone gets that, the better, the younger they are.

Jason: Tane, as you’re talking there, I’m thinking you can go right when you retire, maybe pay all the costs up front to get the line of credit open, let this thing compound and grow. You’re 80 years old and now you need access to some tax-free money, because this money, because it’s a loan, it’s not taxable income to you, so it’s not going to impact …

Tane: That’s correct, yeah.

Jason: … Social Security taxation, it’s not going to impact how much your Medicare premiums are, so it really just creates a pretty neat opportunity, I think, for people. We want them to be educated, we want them to be smart. Tane, I know you do a lot of work. You’ve got the book that you put out. Is there a website people can go to get more information? You’ve got 20 seconds.

Tane: I’ve got 20 seconds. Well, the best thing to do is just email me directly, and then I’d be happy to send them a copy of my book complementary. My staff will get that out to them right away. Email me at tcabe@churchillmortage.com, just like Winston Churchill.

Jason: All right, Tane. Thanks again, and until next time, appreciate you being a guest.

Tane: Yeah. Thank you.

Announcer: Information and opinions expressed here are believed to be accurate and complete. For general information only, and should not be construed as specific tax, legal or financial advice for any individual, and does not constitute a solicitation for any securities or insurance products. Please consult with your financial professional before taking action on anything discussed in this program.

 Parker Financial, its representatives or its affiliates have no liability for investment decisions or other actions taken or made by you based on the information provided in this program. All insurance-related discussions are subject to the claims-paying ability of the company. Investing involves risk.

 Jason Parker is the President of Parker Financial, an independent fee-based wealth management firm located at 9057 Washington Avenue Northwest, Silverdale, Washington. For additional information, call 1-800-514-5046, or visit us online at Soundretirementplanning.com.

 

 

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