Jason interviews Tane Cabe about the HECM Purchase Program.
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. f 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 eight 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 not only serve the community I live in but eight other states. 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 or email me directly: email@example.com
253-853-5805 or toll free 800-490-4287
8805 North Harborview Drive., Suite 204 | GIG HARBOR, WA 98332
NMLS 78590 WA MLO-78950
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: Seattle, Tacoma, Olympia, Gig Harbor, all the good people right here in Kitsap county welcome back to another round of Sound Retirement Radio. I’m Jason Parker and you’re listening to episode 82. If you’re driving down the road this morning and you can’t capture the whole thing but you’d like to listen, you can always visit us online at soundretirementradio.com, soundretirementplanning.com, where we archive all of these programs for you. You can listen to them from the enjoyment of your home or your mobile device as a podcast even, or we also make the transcripts available so if you would rather just read through what we talk about, that’s available too.
This is buying your retirement home with no mortgage payment. One of the things we find as people are transitioning through retirement is a lifestyle question. Do you want to have a mortgage? What kind of house do you want to live in? Do you want to live in the same house you’re living in now? Do you want to downsize to get something a little bit simpler, maybe a little bit smaller, maybe everything on one story? It’s going to be a fun one, I’ve got a great expert to bring onto the program. Before we get start though I always like to take a minute and renew our mind.
I’ve got a verse here from first Corinthians chapter 12 verse 4, “There are different kinds of spiritual gifts, but the same Spirit is the source of them all.” I love that. I love it because there are so many people out there that are so gifted and I really appreciate that they bring their gifts to the table. The next thing is a joke. I want to put a little smile on your face. Who’s in charge of the pencil box? The ruler, of course. Anyhow, it’s my good fortune to have Mr. Tane Cabe on the program with us. Tane is the author of Double Your Retirement Dollars. He is a manager at Churchill Mortgage. He also happens to be one of the top [HECM 00:02:06] loan producers in the country for the purchase of a home in retirement. Tane Cabe welcome back to episode 82 here where we continue our discussion about reverse mortgages and HECM loans.
Tane: Great, thank you Jason it’s great to be here.
Jason: In this episode specifically we’re talking about buying your retirement home and not having to pay a mortgage every month, which I’ve learned that retirement’s all about cash flow, not your net worth that will determine your lifestyle in retirement. Tane I want to remind our listeners too, you and I, we’re going to be hosting a webinar at the end of this month. People can sign up for that at soundretirementplanning.com, off to the right hand side you’ll see a upcoming webinar. Tane you’re going to take our listeners through a couple of different case examples, some of the pros and cons, things people need to be looking out for if they’re considering this type of a financial planning decision.
If you’re driving down the street this morning, remember visit us at soundretirementplanning.com and sign up for the upcoming webinar at the end of this month. Tane we’ve done one show so far on reverse mortgages, but one of the questions I forgot to ask you the last time around was, what qualifies a person for a HECM loan?
Tane: It’s pretty straightforward actually. It’s a lot easier to qualify for a HECM loan, a Home Equity Conversion Mortgage, when compared to a conventional loan. A few things, number one they need to be, at least of the borrowers if there’s a married couple, has to be at least 62 years of age. They need to have either, if they’re buying a home, they need to have enough cash to put down on the home. In the case of a HECM loan, a Home Equity Conversion Mortgage, we’re looking at about 50% if they’re in their 60s. The loan [amount is based 00:03:53] on age, the older one is the higher the loan can be and the less amount down. If it’s a refinance then we’re talking about a equity position of 50% or better.
Now there’s some changes that have come up. There used to not have to be any kind of income qualifying, or credit qualifying for that matter, but now there is credit qualifying and income qualifying, but not like a traditional mortgage. The [creditors 00:04:22] can’t be any significant derogatory late payments over the last 12 months. If there is we can still do a loan, it just may mean that we need to collect for enough tax and insurance to cover paying those tax and insurance, like an escrow account with a conventional loan. It can still be then.
Then on the income, it’s a residual income, what’s left over after you pay your basic expenses every month. Do you have enough based on a little government formula to cover your tax and insurance. Most people if it’s a modest home can qualify with just their social security income. Yeah, that’s pretty much the basics of how you qualify.
Jason: There are some restrictions, or there used to be at least, and that’s interesting that they’ve added some of those new criteria. They’re actually cranking down, maybe making these things a little bit harder to get than they used to be, just the fact that you have to qualify from a credit standpoint and have sufficient income, where those didn’t use to be the case. Are there still limitations on what kind of you can purchase? Does it still have to be a traditional stick built house or can you use a HECM for a modular or manufactured home or a condominium or things of that nature?
Tane: Yeah. Modular homes, yes, where it comes down on a flatbed in multiple pieces, but a mobile home no. Really the secondary market, the investors on these loans are really shying away from a mobile, one that comes out in two pieces and is on a foundation with tie-downs and all that. Condominiums yes, as long as the condominium is FHA approved, which depending on where the person is looking, in what part of the country, some are more frequently approved than others, it depends. It’s difficult, I’ve got a woman looking for a condo up north Seattle area, and there’s only a handful of condominiums that are approved FHA. It can be difficult. Stick built homes are ideal. Yeah that would be the ultimate scenario [inaudible 00:06:43] regular wood framed home, or even a modular home for that matter.
Jason: I think from a planning perspective too as people are thinking of maybe downsizing, getting into something a little bit smaller, and maybe they’re considering a manufactured home versus a stick built home. Just having that stick built home may open up other opportunities for them in the future if they needed that. That could be really planning if you’re thinking of downsizing, is making sure that the home that you’re going to be purchasing could qualify, or even if they’re considering a condo. What are some of the primary reasons … Actually before I transition to this next question, I know you’ve done a lot of work with builders that are building these 55 plus communities. Do you find a lot of interest in those types of communities for the HECM purchase program?
Tane: Yes, absolutely. These types of communities offer a lifestyle. The lifestyle is all around, activities, recreation. Generally they have clubhouses or golf courses or both, and workout facilities, and swimming pools, all kinds of stuff. It’s a really social, interactive kind of community. There’s been a huge migration in what I’ve noticed, in my business. I love talking about this because people when they move into these kinds of communities absolutely love them. There’s no shortage of things to do. The way that they build these homes, they’re open floor plans for entertaining. We’ve helped a lot of people move into these communities and purchase these homes, but what’s exciting about that is using the HECM to purchase the home versus traditional mortgage or paying all cash has been a real win for our clients because they can buy more home for less money essentially.
They’re buying a $500,000, they can put $200,000/$250,000 down versus maybe buying a $350,000/$400,000 home paying all cash. It also allows them to purchase the upgrades they want. What I’m finding is that clients we’re working with, this is likely their last home they’re going to buy and they want to do it right. They want to have a nice home, they have to have the granite counter tops and they want to have the hardwood floors and the nice bathrooms and master bedrooms, and they want to entertain. Using the HECM allows them to purchase more of a home than they typically would have if they were paying all cash or getting a traditional mortgage.
Jason: You know I find that too with the people that we worked with that have moved into the 55 plus communities. I haven’t heard a bad experience from that yet. Everybody’s been very positive. I think one of the things they really appreciate about that is everybody that’s moving into that environment is looking for the same type of thing. They’re looking for community, they’re looking for activities, they tend to be pretty healthy, they tend to be pretty financially sound. When you are around a group of like-minded people, I love that.
I’m coaching my son’s basketball team so I’m reading a bunch of John Wooden stuff right now. One of the things John Wooden says is you become the average of the 5 people you spend the most time with. When you’re spending your time with people that are like-minded, that are in a similar financial situation, have similar assets, can travel in a similar fashion, enjoy the same type of entertainment, that really spell for a wonderful 15, 20, 25 years of retirement. As we get back into the HECM, what kind of impact do these loans have on things like social security and medicare?
Tane: They really don’t. It’s always worth checking but medicare is not impacted, social security is not impacted. These are … I know if someone were to get a refinance and obtain some monthly cash flow, that income is not taxable because they’re [construed 00:10:57] loan proceeds. They are not going to impact social security. I had one instance with a client that was talking to someone at social security and was misinformed that it was going to impact her social security. Usually that’s because you have someone at social security that is misinforming, which is what happened here. We were able to help her and straighten that out and it’s not the case. Yeah, they’re in no way impacting those, social security or medicare.
Jason: We’ve talked a lot about the purchase, using this as a purchase where maybe you put down 50% down and then take the HECM for the other 50%, you don’t have to have a payment anymore other than your taxes and insurance. The loan’s growing over time. But you wanted to talk a little bit more about that too, the growth of the loan compared to the appreciation of the home. Take a minute and tell our listeners about that.
Tane: Yeah. I think it’s important to understand, because we’ve been taught to pay off our mortgage. When we’re seeing, gosh we’re getting a mortgage now, the balance is going to go up. That just is such a weird concept to try to think about and wrap our minds around that. What I tell people is, there’s 2 things at play here. The interest is accumulating on the loan, your balance … For example if someone buys a $500,000 home they put 250 down, they have another $250,000 mortgage amount. That mortgage is going to grow over time. At the same time if that home appreciates, and here in our area we’ve seen on average about a 4% appreciation rate over the last 20 years.
If we look at that appreciation, if that were to repeat itself for the next 20 years, that person with that $250,000 loan and a $500,000 home value, if we just go 10 years from now, they’re going to have about the same amount of equity they had the first year. I say about within a few thousand dollars. If you think about this, they buy a home, they put 250 down, 10 years from now they decide, “You know let’s move south. I want to go to Tucson and get some more sun,” and they sell their home. They’re going to capture the same amount of equity that they had from the first year and have no mortgage payments for those 10 years, just paying taxes and insurance and home owners association dues if there are any.
If you look at it that way it’s pretty appealing. If the home doesn’t appreciate, if it’s [half that 00:13:36] then they’ll probably have roughly half the equity that they started with. It’s still not a bad proposition and can work for a lot of people. For example if we have someone that’s in their mid-50s and they did one of these loans and they kept it for 25 to 27 years, at that point in time they would have exhausted all their equity, that loan balance would have accumulated to the point where now it is equal to the market value of their home. That’s where people go, “Wow, that’s a long time from now. I’m 92 years old what do I care if I have equity in my home or not.”
If they continue to live in the home, now they’re going into what is known as the non-recourse scenario where now the market value is less than the mortgage balance and if they sold their home, that’s where that FHA insurance is going to cover that shortfall if need be, and also cover their [ears 00:14:37].
Jason: Boy that’s really good Tane. I want to emphasize to folks, there’s a lot of different financial vehicles available to people retiring today, and I think the important thing isn’t to come out and say, “Hey, this is right for everybody,” but for people to explore their options, to have good information from somebody that they can trust to say, “Okay, is this the right thing for me or is there another option?” Sometimes what do with any financial vehicle, whether it’s a mortgage or … Tane I have to tell you, my personal preference is to be completely debt free and buy your house outright, pay cash for it. Yes you have an asset that’s not working for you but you can always sell if you need to. I think that’s a really smart way to go.
However I understand the importance of a planning process and there’s different financial tools out there to help people accomplish their goals. If this is the best tool for somebody, I don’t want to close my mind to that just because maybe I have preconceived idea or I have old understanding of how things used to work. I think we always have to be learning, we always have to be educating ourselves. We also have to be applying this to the test of what’s the purpose of the money? What am I trying to accomplish? Is this going to help me accomplish my goals? We’re always teaching people that retirement is all about cash flow, it’s your income that will determine your lifestyle in retirement.
There was a time, years ago, when you and I were talking, where you had shared where people could use a HECM to purchase something like a duplex, and then they have income coming in from the other side of the house. Is that under the new rules that have rolled out? Is that still a possibility for people?
Tane: Yes absolutely. Up to 4 unit properties. What’s interesting about that if you do the math you’d have to be okay with living in one of the units while renting out the other one or 3 units if it’s a 4 unit property. You’ve got to occupy as your primary residence but then you receive rents on, what it feels like from a cash flow perspective, free and clear property because you don’t have a mortgage payment. All you’re responsible for is to pay your taxes and insurance and maintain the property and then receive rents from the other tenants. It’s pretty significant.
Jason: Yeah, that is cool. The other thing I think about, just from aging in place, multi generational living. I don’t know that our society and our culture has done a great job with this, but we see it a lot in other cultures where grandparents live together. If you have 2 families, 3 families and they’re responsible people and like the idea of taking care of one another and they say, “Hey, we like being around one another.” I know there’s a lot of dysfunctional families that want to live on the other side of the country from one another and never see of talk to each other, but you get along well with folks and you say, “Look, this is great. You live here, you buy the house, we’re going to pay you your rent so you’re going to have cash flow.”
Then maybe if they need assistance one day, there’s that opportunity. But that does bring up this topic of long term care. I know that in the financial planning community a reverse mortgage is looked up very favorably from a planning perspective to help people either buy long term care insurance or stay in their home longer. What’s your experience with that?
Tane: Yeah, that topic comes up quite a bit. Especially when we’re looking at the option of staying in the home and using the HECM to pay off an existing mortgage and maybe get some additional cash or if they own their home free and clear [inaudible 00:18:11] an option to eliminate a mortgage payment. I can think of an example right now that’s happening, a couple in Florida, we’re helping them. They have about a $250,000 mortgage right now, a little bit less. We’re going to pay that off and free up a couple thousand dollars in monthly payment. They’ll have a little bit of cash left over. The cash that’s going to be left over will be sitting in a line of credit, which is about 60,000, and that line of credit, what’s unique about that and this program is it will grow every year on the unused portion.
When they’re looking at this available line of credit 10, 15 years from now, they’re going to have $150,000/$180,000/$200,000 in there that could be used for long term care needs. But they’ve also freed up some cash flow and can use that cash flow to purchase a long term care policy. They really are covered, for them they were thinking of buying a home and they decided no they wanted to stay there and live the rest of their life there. Now they will, when we get this thing wrapped up for them, eliminate their mortgage payment, have extra money for the future if need be and have this cash flow payment that is gone, now they can use it for possibly leveraging that into a long term care policy.
Jason: Awesome. I want to remind our listeners, you’re listening to episode 82, if you’re driving down the street this morning you can replay all these programs at soundretirementplanning.com. We even transcribe them for you so if you’re rather read them and not have to listen to my voice again, I certainly understand. My wife tells me when I do this program she thinks I sound like Kermit the frog, I don’t know. I also want to remind you too, Tane has a couple of different place where you can reach out to him if you want some more information. He’s written a book called Double Your Retirement Dollars, which he’s making available to folks. We’ll get his phone number here in a minute. Then also he has a website. Tane, how can they get the book and what’s the website where they can learn more about you?
Tane: I think the easiest way to get the book would just be to call my office and that phone number is 800-490-4287, again 800-490-4287. You can also reach out to me at my website which is churchillmortgage.com/tanecabe. That’s Churchill Mortgage, C-H-U-R-C-H-I-L-L M-O-R-T-G-A-G-E dot com slash Tane Cabe, which is spelled T-A-N-E C-A-B-E.
Jason: Okay, we’ll put that in the show notes too so people if you want to just visit our website we’ll have that available. Tane what is, on these reverse, on these HECM mortgages, can you get these as fixed rate mortgages or are they only adjustable rate?
Tane: Both actually. Traditionally … Not traditionally, typically when we do a purchase loan it’s always going to be a fixed rate. The only reason someone would want to get a variable rate would be to opt for a line of credit option. In the example I provided with the Florida couple, they’re going to get the line of credit option so it will be a variable rate. Those [rate 00:21:44] they’re capped, they have lifetime caps that are fairly reasonable. They’re not 12% or 13%.
Jason: You say they’re not 12% or 13%.
Tane: Yeah, they’re not. They’re not. Right now the caps are going to be in the 8% to 8.5% range. Fixed would be significantly higher at that point if that were to cap out. Yeah, the programs, when we start talking about the variable and the line of credit, it does require some explaining because of that growth rate, it’s pretty substantial in terms of how that grows if they don’t use the money now or don’t need it now. They can let it sit there [crosstalk 00:22:25]
Jason: The cap rate- I’m sorry. I just wanted to clarify. The cap rate means that’s the highest the interest rate could ever be. That’s not what they’re getting today as an interest rate but that’s the highest rate could ever go on a variable basis. Is that right?
Tane: That’s right.
Tane: That’s correct yes.
Jason: One other quick question for you because we’re almost out of time here. In terms of how you can access the money, can people still take a lump sum from a reverse or a HECM mortgage or reverse mortgage, or is it only a line of credit option now?
Tane: No, they can get a lump sum. If they own their home free and clear they’re going to be limited on that lump sum if they want a fixed rate, if they have a lot of equity. That’s where the suggestion is take a look at the variable line of credit program because they can access a lot more money that way. That’s really due to the situation we had with the housing market crash, FHA had a lot of problems where a lot of folks had mortgage balances beyond, exceeding the market value of their home so FHA was paying out a lot of insurance premiums to cover those. They made some changes, if someone wants to get a fixed rate and the fixed rate requires them to take all the money out at once. But if they own their home free and clear they’re going to limit them on how much they can actually get.
Jason: All right. Tane we’re at that point again unfortunately, we’re out time. Thank you for being a guest on Sound Retirement Radio.
Tane: Yeah. Thank you.
Jason: Folks if you’re tuning in remember, listen to this program online it’s episode 082. We’re going to have a webinar coming up for you, hope you’ll join us. This is Jason Parker signing out.
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 957 Washington Avenue Northwest Silverdale Washington. For additional information call 1-800-514-5046 or visit us online at soundretirementplanning.com