Jason talks to Tane Cabe about lifestyle decisions on where to retire, and how to us a HECM Mortgage for financing your retirement home.
To learn more visit: www.retiringright.us
Below is the full transcript:
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: America, welcome back to another round of Sound Retirement Radio. So glad to have you tuning in this morning. It is my good fortune to have a friend of mine, Tane Cabe, on the program.
Tane: Well, thank you, Jason. It’s good to be back.
Jason: Yeah. I know it’s been a while since we’ve had you. We’re going to have a fun interview. We’re going to talk about housing and all these projects you’ve got going on. You’re doing all kinds of stuff, and I think our listeners are really going to enjoy hearing some of the ideas that you have.
But before we do, we like to start the morning two ways. The first one is by renewing our mind, and I’ve got a verse here for us. This comes to us from 1 John 4:8. Whoever does not love does not know God, because God is love. Wow. Then I’ve got a joke here for us. Amelia brought this one to me, and you’ll like this one, Tane. What do you call a parade of rabbits hopping backwards?
Tane: Am I supposed to … Hopping backwards. Back hop.
Jason: A receding hare line.
Tane: Oh. Good thing we’re on radio, because it would be a lot funnier joke if people see my hairline.
Jason: I thought that was pretty good, a receding hare line.
Tane: Yeah. See, that’s a good one.
Jason: I know. How does she come up with this stuff?
Tane: I don’t know.
Jason: Tane, let me give a proper introduction here, and there’s two things that I really want to talk to you about. Number one, you are a home equity retirement specialist. The company that you’re working with today is Retirement Funding Solutions, which is a Mutual of Omaha Bank company, pretty big bank in the lending space.
Tane: Yeah. Yeah. Certainly.
Jason: Then the second one is this really interesting project that you came up with, which is RetiringRight.us, which is kind of like a website magazine about lifestyle and making some choices. We’ve got two different places we can go, so let’s start with your website that you built, the RetiringRight.us, this magazine. What are some of the things you’re finding that people are interested in as they’re making this transition from a lifestyle standpoint? What are they interested in on your website, on this online magazine?
Tane: Well, I think the misnomer is when you’re retired, you’re old and you want to sit around and just do nothing.
Jason: Watch Wheel of Fortune.
Tane: Right. Yeah. As I get up in age, I’m planning myself wanting to do more than less, more activities physically, that sort of thing. What people are doing now is they’re relocating. They’ve raised the kids in the big home, and they’re swimming around in this house, and they have a lot of equity, and they’re like, “Gosh, let’s do what we finally wanted to do and move to Florida,” or, “Let’s do what we want to do and move to Arizona,” or Colorado, or wherever that place may be that in their mind brings that ideal retirement.
What we do at RetiringRight.us … it’s not dot com, I know it seems kind of weird, but dot U-S … is we help people with those decisions. We highlight certain areas. We have location-specific online magazines, and those magazines highlight restaurants, activities. For example, Palm Desert; Georgetown, Texas; Fort Meyers, Florida, these types of places that people think they’d like to check out. We could be at any part of that process where they’re just beginning their investigation, or they’re in the middle of it, or they’re towards the end, and we help them with just information and content all around that.
Jason: Cool. One of the things that I know … Man, we see this all the time, because I have the good fortune to talk to people all over the country, and so I’ve talked to people in some of these states like Michigan, Minnesota, and it is cold there, man. It’s like a cold that I don’t even know, and I lived in Alaska for a while. I mean, it’s cold. I’ve heard that some of those folks really love that idea of having a place either in the winter that they go down to Florida and spend time down there, or even maybe moving full time to Florida.
What’s been amazing to me, though, is I look at real estate prices in Florida, how inexpensive it can be to live there, and I just don’t get it. You would think with the … And same thing with Arizona, actually, I mean, compared to at least Washington State where we live. I’m sure there’s a range of prices, but it sure seems like you can get some pretty good values down there in Florida, Arizona.
Tane: Right, absolutely, yeah. It is surprising, although those prices … I was talking to a gentleman actually last night, and his condo … Oh, I’m trying to remember where he’s … Bonita Springs, Florida, and he bought this place 2011 for $40,000, a condo in Florida. He’s like, “I wish I would have bought 20 of them. Now it’s worth 150.”
Tane: But still, 150, you think, “That’s cheap.”
Jason: $150,000 for a condo, I know, yeah.
Tane: I mean, where we’re from, yeah, no way.
Jason: Yeah. Yeah. Well, that’s pretty cool. The other thing I hear people saying is they’re thinking from a tax standpoint, trying to figure out what’s going to be the most tax-friendly state for them to retire in, because, as I’m always teaching people, retirement’s all about cash flow, and the more of the dollars that you get to keep instead of having to give to a state or the federal government’s money in your pocket.
Jason: People are really thinking about that, because some of the states they’re in, they have income taxes, they have sales taxes, they have property taxes, and then they can go to some of these other states where they can just eliminate one of those tax. In fact, I was talking to somebody in California recently, and that’s what they were telling me. They were like, “You know, I can move to Arizona and pay a lot less money in taxes, so I’ve got more dollars to work with.” Do you have any resources on your website?
Jason: Do you guys talk about that at all?
Tane: Yeah, we do talk about that, actually, quite a bit. There are a number of states that look at retirement income, pension income, Social Security income, and that’s not taxed or taxed at a lot lower rate. There’s obviously states that are heavily, heavily taxed, and people are exiting them very quickly. We look at the migration patterns of where people are moving from and to.
Well, we talk about California. There’s a lot of people still moving … 60 years of age and up. This is all census data. 60 years of age and up, there’s a net … I don’t remember the numbers off the top of my head, but there’s a net loss, but there’s still a huge amount of people moving into California, but a huge amount moving out, and they’re moving out primarily for tax reasons. They’re moving to Nevada. They’re moving to Arizona and Texas. Yeah, it’s pretty interesting to … Then there’s this reverse migration concept that I just learned about where people are going back.
It’s interesting, because they’ll move from, say, their home state where their kids are at, and they’ll migrate to, for example, Nevada, and then five or 10 years later they migrate back because all of a sudden their children are having kids, and we all know that grandchildren is the-
Jason: They’re like a magnet.
Tane: … biggest magnet known to mankind.
Jason: Oh, yeah.
Tane: Yeah. It’s interesting. But yeah, we look at all that. It’s fun. Yeah.
Jason: Man, I’ve seen that happen a lot, people moving to where their grandkids are, and they’re like, “You know, we only get one chance to be grandparents. We don’t want to miss it.”
Jason: The other thing, and I don’t know if you’ve seen this trend at all, and this one is one … It’s not any census data. It’s just observation from people that I meet and work with, but a lot of people moving from Washington to Idaho. Have you-
Tane: Shh, don’t tell anybody.
Jason: Have you seen or heard any of this? I mean, it’s crazy. I probably talked to-
Tane: It is crazy.
Jason: … like five or six people just in the last two months that have bought real estate in Idaho. They’re moving to Idaho. Have you seen that?
Tane: Yeah. As we speak, our friends … He’s an airline pilot, and he and his wife … He can kind of work anywhere. He can commute. But he’s on the tail end of his career, and they’re looking at property this weekend in Coeur d’Alene. Yeah. Yeah.
Jason: Coeur d’Alene is … It’s beautiful over there. That was actually my number one spot when we were trying to relocate from Alaska. That’s where I wanted to move. We ended up in Washington to be close to my wife’s parents, but I tell you, I love this area, too. I’m really glad, because it’s nice to have this big body of water, the Puget Sound.
Tane: That’s for sure. That’s for sure. Yeah. Idaho is a … And I don’t know if it’s because it’s on my radar because I really enjoy … I like Idaho. I like Coeur d’Alene. I like Sandpoint.
Jason: That northern part.
Tane: Yeah, beautiful.
Jason: I have a friend that lives up in Rathdrum, Idaho.
Tane: Oh, yeah. Yeah.
Jason: He’s on the golf course there. That’s a great community. They get a lot of snow, though.
Tane: Yeah. You have to enjoy skiing and outdoor activities in the winter, if that’s your thing, which it’s kind of my thing, and also in the summer and spring. I mean, Sandpoint, you’ve got Lake Pend Oreille, and you’ve got Schweitzer Mountain for skiing, and it’s literally like a 15-minute drive, and so there’s boating, there’s … Yeah, anyway.
Now that the cat’s out of the bag, I’m going to hurry up and buy some real estate there because I’m sure your million listeners are going to be on the line right now looking at real estate.
Jason: Everybody’s looking up real estate in Idaho. Oh, man. There’s a great documentary, actually, I think on Netflix, about Idaho. I watched that. I was just kind of fascinated by it. But okay. That’s your online magazine. If somebody’s interested, where would they start? If they go to this website, RetiringRight.us, what would be the first thing they’re going to do when they get there? Is it just looking at activities? Is it looking at CCRCs, continuing care retirement communities? Is it looking at-
Tane: Not so much that, no.
Tane: We leave that to other people to inform on. But just download some of our magazines. Look through them.
Jason: Is there a cost to download them?
Tane: No, it’s all free.
Tane: Yeah, it’s all free. Get on our list and we’re going to be launching a show, so we’ll be traveling around and physically at these locations, and so you’ll want to be able to see firsthand what these places look like without actually visiting there. You’ll be able to do that through us.
Tane: Yeah, so that’s all exciting.
Jason: Cool. That is fun. Yeah.
Jason: All right, Tane. Let’s talk about this other area, and this is how I’ve known you, and this is what you’ve been a guest on the show in years past for, the HECM, home equity conversion mortgage. What are you seeing? Still a lot of interest in this world, or is it dying down? Is it changing? What are you finding there?
Tane: Yeah. Still a lot of interest when people learn about it and understand it, and it doesn’t take a lot to learn and understand it, but once they get it, it’s an ah-ha moment for most people. There have been a number of changes that have occurred over the last 24 months.
Because this program is an FHA-insured program, we’re at the mercy of what FHA sees in their infinite wisdom, what’s good and what’s not good, and so they’re constantly changing the program, sometimes good for the consumer and sometimes not so good, but overall, good for the health of the taxpayer and what they call the insurance fund, so we can talk more about that, but I don’t want to bore people.
Jason: Okay. Well, people don’t maybe know who you are. Maybe they haven’t listened to the past shows. Maybe they don’t know what a home equity conversion mortgage is. Maybe let me just set the stage for how I met you several years ago, and then you can get into more of the details about what this thing is, and how it works, and how people are using it.
But I had a gentleman that is a good friend of mine, high net worth, retired at 49, and just a really financially savvy guy, and he came to me and he said, “Jason, I just listened to this guy give a presentation on purchasing a home using a home equity conversion mortgage,” and he said, “You know,” and this particular gentleman, he and his wife, they never had kids. He said, “This is really intriguing to me.” He said, “You know, I’m not trying to leave a house to anybody. I really like the sound of this. Would you help me vet it? Would you help me just kind of understand the numbers?” He and I dug into it, and I met you, and here we are.
Help our listeners understand the home equity conversion mortgage for purchase and why retirees … Who’s eligible for it, how it works, and why people are even considering this.
Tane: Right. Well, most people that are 65 and over, on average, that own a home, 65% of them own their homes free and clear, okay.
Tane: 65%. There’s a tremendous amount of wealth tied up in home equity held by retirees or those that are close to retirement. Right now, I think the last count was $6.8 trillion in equity. It’s a fair amount of money. I don’t know if I have enough-
Jason: The hard thing about home equity is you don’t spend that money.
Tane: Well, the only way to access it is to sell your home, or to get a mortgage, or refinance if you have a mortgage to get cash out and access that equity. In retirement, it’s difficult to do because you’re on a fixed income. You might have a million dollars in cash, but if you’re not a W-2 employee at XYZ Company, it’s hard to qualify for a traditional mortgage.
In comes the home equity conversion mortgage, and the purchase was actually something that came up through the market crash and the financial crisis as part of the strategy to help retirees, is the FHA-insured home equity conversion mortgage can be used to purchase a home. Conceptually, all you do is you have a one-time down payment that is typically 50 to 60% down, which obviously is a huge amount, but it’s not 100%.
Jason: A $500,000 house, I’ve got to put $250,000 down, approximately 50%.
Tane: Right. Right. Then you’ll never have a mortgage payment as long as you live in the home, with the exception of having to pay property taxes, and homeowners’ insurance, and HOA dues if you have them. That’s important that you keep those up, but no mortgage payment. What happens is there’s … My mom always said there’s no free lunch, and you can’t squeeze blood out of a turnip, whenever I asked her for money, but-
Jason: Oh, no.
Tane: Yeah, right.
Jason: I’m going to leave that one alone. I’m not going there.
Tane: Yeah. The interest on this loan that’s charged, because it’s a loan, is added to the balance on the mortgage. If you start in your example of 250, well, next month the 250,000 will be slightly higher.
Jason: The balance is growing.
Tane: The balance is growing.
Jason: Because you’re not making a payment.
Tane: Correct. Yeah.
Jason: But you could make a payment if you wanted to.
Tane: You could make a payment if you want to, and we have had clients that have done that.
Jason: If you didn’t want the balance to grow, you could still make a payment on it every month.
Tane: Yeah. Yeah. But a perfect example is let’s say someone that bought a $500,000 home. Let’s assume they sold a home and netted 500,000.
Jason: Before they bought the 500 … Your scenario is like this gentleman I’m talking about. His house, let’s say it’s worth $500,000. He says, “You know, I want to retire. I want to buy my dream retirement home. I’m going to sell my primary residence.” He’s got it paid off. Let’s say it’s worth 500,000. He walks away after fees and taxes with maybe 400,000, or whatever, 450. Whatever. I don’t know. About 10% for costs, right?
Jason: Maybe 450.
Tane: 400, because it’s easy math in my head.
Jason: Okay, 400.
Tane: Yeah. I need a calculator. If they purchased a home for 250, they’re not using all that. If they bought a house for 500, they’re going to put 250 down, so they’re left with … 400 minus 250 is-
Tane: … 150, right. They have $150,000 now that they can use for whatever they choose, versus using all that money, maybe even adding to it, to pay cash for the house. Most people want to pay cash for the house, because they don’t want a mortgage. What they really don’t want is they don’t want a mortgage payment. We can achieve the same thing by not having a mortgage payment, by putting half or a little more than half down and keeping some of that extra cash to do what they want to do, make memories and not make mortgage payments.
Jason: But the thing that I hear people say, if I could play devil’s advocate with you for a little bit here, is number one, they say, “Yeah, but, Tane, what happens if I die? My kids are going to get stuck with this mortgage on a house, and I don’t want my kids to be stuck with it.”
Tane: Yeah. Yeah. Well, since we’re on the radio, it’s hard to write a chart out, but if you were to think about this, you bought a home for 500, you put 250 down, you had no mortgage payment. If the house you purchased increases on average 4% a year, which is historically kind of what we’ve seen around the country, if history repeats itself, at 4% your equity will actually increase over time. There’ll never be a negative situation.
Now, if the house doesn’t appreciate, if it stays the same-
Jason: Or falls in value.
Tane: … or falls in value, if it does stay the same, the example would be around 15 to 16 years, you would have zero equity. The interest accumulation on the loan would catch up to the value. That $500,000 home they bought, there’d be a $500,000 balance on the mortgage. 250 would grow to 500 in about 15 to 16 years. After that, beyond that 15 or 16 years, now the balance is going to grow beyond the value, assuming again the home stays the same, the value.
If that were the case, and they sold the home, only if they sold the home, then they are not responsible … It’s called non-recourse. There’s no recourse on this loan, so they don’t have to pay for anything over and above what they can sell the home for, and same is true for the heirs. The estate would not have to be left holding the bag. That’s the biggest concern people have, and you bring up a good point. It’s just, “Boy, I don’t want to leave my kids with this burden,” and the fact is they won’t. It’s FHA-insured.
With that said, that insurance is part of the cost of the mortgage, and that would be covering that scenario if it were to occur.
Jason: Okay. What are some of the ah-has that people have when you sit down with them and they hear about this for the first time? What I just shared with you is a big concern that I hear from people. What are the other big concerns people share with you as they start to understand or be educated about how these things work?
Tane: I think the biggest thing is just what you brought up, is I don’t want to leave my children or estate with a problem on their hands, a debt. Once they understand the non-recourse feature, then they’re fine with that. It’s the individuals that have a real desire to leave their children equity in the home and-
Jason: Or if it’s an estate that’s been in the family for years.
Tane: Right, yes.
Jason: They’re like, “Man, our kids grew up here,” and they really want to make sure the house is going to the kids. They don’t want to have to sell it.
Tane: Right. Yeah, yeah, yeah, exactly.
Jason: They’re probably not a good candidate for something like this.
Tane: They’re not a good candidate for this, no, unless they have other assets that they’ve used from the sale of a home or whatever, or saved in retirement accounts that they’re fine with. Some people we’ve had get life insurance policies to cover the mortgage, so they could buy the house back, and that kind of thing. Those are some unique strategies. But that’s not part of my world, necessarily.
Jason: Some of this can, I think, get confusing for people. Can you maybe think of a story, maybe simplify it in a story, help somebody understand? Maybe somebody actually went through this process, and what it looked like, and how it helped them.
Tane: Sure, yeah. There’s a number of stories. I can think of Jean. She lost her husband early. I mean, it was an unexpected situation. They built their dream home on the water here locally, their dream retirement home. She had to figure out another plan after he passed away. She captured about 250,000, coincidentally, in equity from the sale of that house.
She ended up buying a home for about 550,000 in an active adult community, gated, safe, lots of people around, lots of social activities, and for a widow in her situation, she was really, really comfortable and happy with the outcome. She didn’t have a lot of extra cash from the equity, but what she did have was a nice home in a safe place with no mortgage payment. Yeah, she’s pretty well known now out there.
Another situation, I just spoke with some people yesterday, and they’re selling a home, and they’ll net about 200,000 in equity. Their house is listed on the market right now, and they’re moving from an expensive area here in Washington to a less expensive area, Tucson, Arizona. They’re going to buy a house for 250,000. They’ll put 130,000 down on that 250,000 purchase, and they’ll keep about 80,000 to 90,000 cash from the equity on the sale of their home. They’re very excited about that possibility. Yeah.
Jason: Does it lock people in? I mean, does it have to be like, “Okay, this is the last house I’m ever going to buy,” then, with that kind of scenario, or do they still have the flexibility, freedom, if they, say, five years from now, they’re like, “Man, I can’t stand scorpions, I want out of Arizona,” can they get out? Can they sell the house and just move?
Tane: Yeah. Yeah. Yes, absolutely. At any time, they can pay off the mortgage. At any time, they can sell the home and pay off the mortgage. There’s no prepayment penalty or anything like that. Generally speaking, and depending on the scenario, the value of the property, there’s likely going to be equity into the future in that home, so they can take that equity with them. We had a client here in Everett, Washington do this loan about five years ago. Due the housing market increase, even modest increase, they had a lot of equity, and they moved to Colorado because their son was having their first grandchild.
Jason: Ah, yeah. See? Life, man. You don’t know what’s going to happen. You want to keep that flexibility open, I guess.
Tane: Yeah. Yeah.
Tane: They did the loan again. They did the [crosstalk 00:22:31]
Jason: Oh, they did? They sold?
Jason: They took the equity they had. Okay.
Jason: All right. You have mentioned that at one time it was if you could fog a mirror you could get one of these things, right? That was the qualifier. I mean, there was almost no qualifiers. As I understand, that’s one of the things that has changed recently. There’s more underwriting. It’s not just anybody can qualify anymore. Is that true?
Tane: Yeah. Yeah. What FHA realized over time is that people, even though they don’t have a mortgage payment, can’t sometimes necessarily afford to live in that home due to maintenance expenses, due to taxes, insurance. What they’ve done is they’ve come up with what they call a financial assessment, and they qualify people based on residual income. After they’ve paid for some basic monthly expenses, they need to have enough of a formula called residual income guideline, and if they make that, to cover their taxes and insurance.
Jason: Are there any other mortgages as strictly regulated as these from a government standpoint? I mean, these are pretty highly … Because it’s coming through FHA, right?
Jason: Are all mortgages equally regulated? I mean, it just seems like there’s a lot of people involved from a regulatory standpoint.
Tane: Yeah, there’s a lot of built-in protection measures really due to senior abuse. They don’t want people out there being untruthful with people, with seniors, and so they have counseling requirements and some other things on these loans.
Jason: All right. Tane, thanks so much for being here. We’ll put a link to your website so that if people want to contact you with more information they know how to do it. Do you have something you want to say there real quick before we finish?
Tane: No, it’s been a pleasure. Thanks for having me. Yeah.
Jason: All right, thanks. Until next time.
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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.