No Monthly Mortgage Payment? Reverse Mortgages for Retirement Explained

Cheryl Scheidell (00:00)
we talk about it. The next day she calls me up and she’s like, I want that. I said, Okay, what changed? She said, Well, with the reverse mortgage, I don’t have to make a payment, correct? And I said, No. And she goes, Well, the money I would have paid on my thirty year fixed payment, I’m gonna give that to my financial advisor to invest for me. she’s using her house as a wealth building tool.

Dylan Silver (01:54)
Hey folks, welcome back to the show. Today we’re joined by Cheryl Scheidell, NMLS number 886425, a reverse mortgage specialist with Barrett Financial Group, NMLS number 181106. She’s worked in the mortgage industry since 2002. We’ve got a quick disclaimer, folks, before hopping in here. This information is for educational purposes only and is not a commitment to lend.

Qualification requirements apply. A reverse mortgage is a loan and may not be suitable for everyone. Borrowers remain responsible for property taxes, homeowners insurance, and property maintenance. Consumers should complete HUD approved counseling and consult with the trusted financial tax and legal professionals before making a decision. Cheryl, thanks for joining us here today.

Cheryl Scheidell (02:40)
Thanks for doing that disclaimer. That took a lot of off our plate that we have to talk about now.

Dylan Silver (02:44)
Thank you. When we talk about reverse mortgages, I mentioned in the green room, I’ve had several folks, I think more than a handful at this point, come onto the show and talk about what is a reverse mortgage, but everyone seems to have maybe a slightly different definition. What is for our our audience a a reverse mortgage? Okay.

Cheryl Scheidell (03:02)
Okay,

a reverse mortgage helps our seniors, 62 and older, access the equity in their home. That way they can use it for in-home health care, any, you know, different items on the house, new roof, new you know, take the grandkids on memorable vacations. There’s a lot of different ways they can use it. But basically, a person has to be 62. One person in the household has to be 62. And think about this: the way it works is.

When you have a 30-year fixed mortgage, every time you make a payment, your balance is going down, correct? Every slightly, but it’s going down. With the reverse mortgage, your home could be free and clear. Or if we’re paying off a loan, we’re going to have the reverse mortgage pay off that existing loan. Now that monthly mortgage payment goes away, and now you have a reverse mortgage. With the reverse mortgage, you’re not required to make a monthly mortgage payment. Instead of the balance going down every month,

It’s going up in reverse. hence reverse mortgage. Now we try to get rid of the negative connotation. You will hear different terms for reverse mortgage. It’s also known as a HECM. HECM stands for home equity conversion mortgage. that’s that’s where we get the name. But one person has to be in the household 62. And basically, how we come up with how much we’re gonna lend you is based off of the value of the house.

The age of the youngest borrower in the house and the interest rate. You’re not gonna get a loan to value at 80%. We have to keep enough equity in there the house doesn’t go upside down. That’s what a reverse mortgage is in a nutshell, meaning you don’t have to make a monthly mortgage payment. You can if you want to. The bank will always take your money, but you’re not required to make one not at all, every month, every other month, every six months, whatever you want to do. That was a lot of information.

Dylan Silver (05:42)
If someone takes out a l let’s say they’re sixty two, is it sixty two or sixty two and a half? Okay, sixty two. The half

Cheryl Scheidell (05:47)
Sixty-two. The

government programs. This is an FHA government program, but not to confuse you or anybody else, there are proprietary products that go down to fifty-five years of age and up to four million. FHA is the government one that you have to be one person has to be sixty-two. When I first got into this business, I have been in the business since two thousand and two, and I eleven years ago this month, I had

Three reverse mortgages fall into my lap. I had someone come to and they’re like, Hey, do you do reverse mortgages? I’m like, Absolutely. And I walked into my manager’s office. I’m like, hey, do we do a reverse mortgages? And he’s like, go talk to the director. And I’m like, okay. My first presentation was an 80 year old mom, a son, a daughter in law, and a daughter. And I answered their questions. They called me back the next day. He’s like, couple more questions. I’m like, okay. We talked about the questions. Then he said to me, We want to start with mom. And my wife and I want to do it too.

She was sixty four, he was fifty-eight. We went off the numbers of the fifty-eight year old, but we were able to he was a veteran as well. we were able to do those numbers off of his age. Because think about this the numbers are based off of actuary charts. It finally pays to be older. The older you are, the more access to the money you get. Someone who’s eighty two is gonna get more money than someone who’s sixty two. Does that make sense?

Dylan Silver (07:09)
Yeah. And and the the thought there, not to be morose, is you don’t want to live so long that the the home equity is being eaten away and then when the home i is sold, then there’s no n nothing for the bank to recoup, right?

Cheryl Scheidell (07:22)
No, no, no. I have good news for you. Well, two things. The loan is good until you’re a hundred and fifty years old. The other thing is, I don’t think we’ll have a problem there, right? The other thing is is that there’s fourteen plus trillion dollars in equities. Why aren’t we using it? But what happens is when I do a proposal based off of somebody’s numbers, we’re going to give them an amortization schedule.

And in that schedule, we will show like in 10 years what your loan balance hypothetically approximately will be, the loan balance, what your home value would be with only a four percent appreciation rate, very conservative, and then how much equity is left over. When it comes to the beneficiaries, they’re like, or the parents or whoever, there’s my money, you know what he means? Money’s still there because we’re not gonna lend all of it. It doesn’t go upside down.

Right? Because the adult kids, they’re like, this sounds too good to be true. What’s the catch? We don’t have to make a mortgage payment. I said, Well, maybe your inheritance is in here, maybe it’s a little lower here because mom and dad have been enjoying themselves. there’s still money left over. But if it does go upside down, then there is guidelines in place. Every person has to put into the mortgage insurance bucket. How this works is when somebody gets a reverse mortgage, there’s a one-time line item for mortgage insurance. Mortgage insurance.

Is not cheap. That’s why we get a bad wrap. It’s two percent of the value of the house. If somebody’s house is 300,000, there’s a one-time line item for six thousand dollars on their closing costs. This is just an example. This is just an example. But the thing is, is that once people understand that, okay, we put that into the mortgage insurance bucket, hopefully our family doesn’t need it, but if we do, we it’s theirs. When somebody, you know, it’s no, it has to be their primary residence. When they no longer live in the home, if they sell.

And go move with family or go into a community, then they have to do something with the loan. But let’s say hypothetically that they pass away in their home. A lot of people are aging in place. When they pass away in their home, the beneficiaries have two options. They can either refinance the house into their own name or they have up to 12 months with three month increments because the bank is going to check to make sure you’re doing something with the house. We don’t want to we wanna make sure there’s no squatters or there’s things we want to make sure something’s happening.

Because the loan has to be taken care of within 12 months. They can either refinance the home into their own name and then move in or rent it out. Or if we’re in a market like we are in some of the places out there, if the value’s here and the loan balance is lower, they pay off the bank, they pay the realtor fees and closing costs, and then whatever is left over the beneficiaries get. If the home loan, the value or I’m sorry, the loan is higher than the value of the house.

Whether it’s one dollar or five hundred thousand dollars, whatever it is, the mortgage insurance pays that. And the beneficiaries are not responsible. It’s a non recourse loan.

Cheryl Scheidell (10:58)
that’s a biggest myth that people think that the bank owns your home. The bank doesn’t own your home. You’re still on title just like you would be on a thirty year fix. Could be in your name or the name of your trust.

Dylan Silver (11:09)
like to talk about when this makes the most sense. You know, is it a situation where someone, you know, i has enough money to get through retirement, but really they would like to have some more cushion for, you know, being able to travel and being able to enjoy their their life more. And and is there any risk associated with that? You mentioned that a lot of the things that people associate as being risky are actually, you know, ameliorated to a degree by insurance and what what have you?

Is there situations where maybe it’s it’s less advisable?

Cheryl Scheidell (11:39)
You know, that’s why it’s a per that’s why I don’t know everybody’s situation and that’s why I want them to call me. Let’s go over your situation because most of the there I mean, I’ve got across the board, I’ve got some people, I’m like, you know what, this doesn’t make sense for you to do. Very few, but I’ve had a couple of people. Cause like I said, well, I didn’t say yet, but I mean this is not a last resort. I’ve helped people check to check, $30 left over at the end of the month, and I’ve helped people in three million dollar homes. And that person

Think about this way. When you retire, we’ve got three buckets. We’ve got income from our Social Security and pension if we have it. We have our 401ks and IRAs if we have it. And then we have our greatest asset of the house, which is our piggy bank. We’ve been paying into our house as a piggy bank. Let’s crack up with the piggy bank, take the money out of the house and supplement our monthly income and keep the money under management. That’s why financial advisors love to work with us.

Because we’re helping them keep money under management. I have somebody in Carpinteria, California. Her husband needs to go into memory care. And we are doing a reverse mortgage. They’re refinancing. You can refinance a reverse mortgage. She’s refinancing. She’s going to take the money out of the house to pay for his memory care and to keep the money under management for her. To answer your question, this is the best kept secret. My mom even has a reverse mortgage. She would hear me talking to someone like you.

or a referral partner or potential client. And I got off the phone one day. I was at her house visiting. She’s like, I think I need to do this. I’m like, awesome. She came to me. I’ve been doing these for almost eleven years, like I said. And she’s had it since 2019. She’s like, this is the best thing I’ve ever done. And I’m like, awesome. And now she doesn’t have she’s got peace of mind. That’s the thing that you’re talking about. What can people do with this? They can take grandkids on memorable vacations. I have people remodeling casitas. They are taking

master bathtubs out of the master bathroom to age in place. it I’ve had across the board to go back to your question, people will use this even if they don’t need it right yet. It could be a savings account. I have somebody in a $5.5 million house. They only owe $300,000, but they want to access that money to do some other things with it. It’s not a last resort for people.

But I will go over your numbers. Don’t be embarrassed. I had somebody call me yesterday and she’s like, Well, my husband was a collector of things. We all know what that means, right? A collector of things, maybe a hoarding situation. Don’t be embarrassed. I’m happy to answer your questions. And I’ll be honest with you, and I’ll say, you know what? This doesn’t make sense for you to do right now. Or, yeah, let’s get this done. And this is gonna give you peace of mind. I had a senior that had a hundred thousand dollars worth of credit cards.

Hard debt.

Cheryl Scheidell (15:12)
She was pawning her jewelry to make that monthly payment on the credit card. We got her money out of her house. She paid those off. Now she’s got peace of mind and she’s sleeping better. this money can be used however you want. The line of credit cannot be frozen like they were done in two thousand and eight. We had the banks were freezing lines of credit. They can’t freeze this. This is your money. That was a lot of information. I hope I answered your question.

Dylan Silver (15:40)
Yeah, and you know, one of the things that came to mind is when you’re you’re talking about the use cases for this, i i it it there’s several, but one of the things you mentioned is, you know, financial advisors love this because you’re able to keep your money invested, right? And are are there situations that you’ll see where someone might take out a reverse mortgage and then potentially pay it off, or is that very, very rare?

Cheryl Scheidell (16:03)
It is very rare, but I have it going on right now and I’ll tell you what’s going on. I had an eighty-one-year-old couple, silver divorce. It was their second marriage, but they both they were getting divorced. She did a reverse mortgage to pay off him off, right? She wanted to stay in the home. She did a reverse mortgage to take the money out to pay him off. And then she now has a reverse mortgage. It’s been a year. She called me up this past week and she’s like,

I want to pay this loan off. And I’m like, okay. And we talked about, talked about it. And I help people. I’m here until, you know, we’re friends for life, right? But what I did do is I guided her and I said, okay, I want, I know you want to pay this off. It was just, you know, it’s just a mindset with some people, they just don’t want to have that mortgage, even though they’re not making a payment. So she’s gonna pay it down to maybe a thousand dollars because if she pays it all the way off.

It’s gonna close out the loan. But by keeping a small balance on there, I said, you know, you’re eighty two, God forbid you need it for an emergency. I don’t want you to close this out. I want you to keep it open and then if you need it, you have it to use it for in home health care, whatever you may need. Yeah, there’s that. If that answers your question.

Dylan Silver (17:19)
I was thinking also about the tax implications for investors. You know, if you have money set aside in market accounts and mutual funds, and now you’re going to have to pay the the tax man because you’re now you’re taking you’re you’re selling your shares effectively, that’s different than when you have a reverse mortgage, this is a a a form of debt, right? And instead of you paying taxes on the money that you’re getting, this is not you’re you know, you’re not being taxed for this effectively, right?

Cheryl Scheidell (17:48)
This

is considered borrowed money. You cannot be taxed on. It’s not income tax. It’s borrowed money. So you it’s yeah, it’s you’re not paying taxes. You’re not paying income tax on this ’cause it’s borrowed huge. Yeah, that’s huge. And then also just in FYI, there’s different products. We have different products, but we have an ARM which is the line of credit.

Dylan Silver (18:08)
Yeah.

Cheryl Scheidell (18:08)
And if somebody has X number of dollars available to them, this is one of the guidelines that came into place because people, when they would close the reverse mortgage, they would go out and spend all the money and then they would want, you know, there are people out there that like to spend money and they would spend it all. They put a guideline into place that we would allow you up to 60% of whatever we’re borrowing you. And that other 40% stays in for another year. Now you get access to that money after a year, but in that year,

There is a growth rate. I can’t talk about rates right now, but whatever the market rate is, it’s a half a point above that. And your money is actually growing for you. Your line of credit grows for you. Twelve months later, your savings account has gone up. And sometimes that’s better than what’s going on with the banks. I can’t talk numbers. I gotta stay in my lane, you know, all the good stuff, but I can talk to you individually about that.

Dylan Silver (19:04)
Is there a if someone’s sixty two years old, they purchase a home, you know, is there a minimum amount of time that they have to be in the home? E let’s say they’re in an equity position already. Is there a minimum amount of time they have to be in the home before they can take out a reverse mortgage?

Cheryl Scheidell (19:18)
No, I have people purchase a home and then they do the reverse mortgage. Sometimes people, they’re like, they want to buy this house and really quick. And we can do these in 30 days, or I’ve done one in 21 days of purchase, but but they everybody did what they were supposed to do because there’s counseling involved. I talk to you and then you have to do a counseling session over the phone about 45 minutes or But we’ll we’ll talk about it. We’re like, okay, should we do the reverse for purchase or

Do you want to pay cash and then, you know, take the net proceeds, pay cash for the new home, and then do the reverse? No time frame there, but we will go off the purchase price, not the appraised value, right? And then but then there are times where you can do I’m gonna tell a story, you can do a reverse for purchase. I had a financial advisor sent me a lady, she was sixty-six years old and she wanted a 30 year fix. She was buying a new home in Scottsdale, Arizona.

And by the way, Barrett Financial is licensed nationwide. I can help you anywhere in this in the States except for New York. She was purchasing a home in Scottsdale. She was 66 years old. She wanted a 30-year fixed. And I said, okay. I went to her house and I went over her numbers, what her payment would be at a 30-year fix, what her payment would be at a 5-1 ARM. And then I said, let’s talk about the reverse purchase. She goes, I don’t want that. I said, that’s fine, but let me educate you because next year I don’t want you to say to me,

Why didn’t you tell me about that? She’s like, okay. We talk about it. The next day she calls me up and she’s like, I want that. I said, okay, what changed? She said, Well, with the reverse mortgage, I don’t have to make a payment, correct? And I said, No. And she goes, Well, the money I would have paid on my 30-year fixed payment, I’m going to give that to my financial advisor to invest for me. She’s using her house as a wealth building tool. It’s just there’s many different ways to think about it and do this loan. And the thing is,

People are like, I didn’t know I could buy a house with the reverse. This is how I help realtors. Champagne taste, beer budget, right? If you’re looking at a neighborhood that this is all they can afford, we can supplement the reverse mortgage to get into the neighborhood they really want to be in, right? And what happens is it’s not going to be a twenty percent down down payment. It’s gonna be larger. It’s gonna be based off of your age. The older you are, the less money you have to come in with. But it’s gonna be more than fifty percent.

Just keep that in mind.

Dylan Silver (21:38)
Okay, okay. I’m I’m hearing all this and I’m thinking, wow, it’s amazing. You could purchase a home and have all of the the payments effectively deferred, if you will, and and then, you know, it’s taken when the home is sold.

Cheryl Scheidell (21:49)
Then the equity ’cause you’re funding the equity into the home. You’re making your payment that way.

Dylan Silver (21:53)
Right. The the down payment of course is where a bulk of that is coming from. Can we get a little bit granular there? You know, for this to work, if you’re looking at a home and and you’re you’re trying to figure out, well, i is this going to be eligible for a reverse mortgage, you’re gonna be needing fifty percent or more down. Is that pretty much accurate? I mean

Cheryl Scheidell (22:11)
More than that for the older you are, someone who’s 62 is gonna come in with a big chunk of money. Yeah. Yeah. But think about this. If you’re selling a house, and I do slideshows on this, you’re selling a house, you pay off your loan if you have one, you pay your realtor fees and closing costs, and you have a chunk of money. You come to me, you say, Cheryl, I have X number of dollars to spend. How much house can I buy? I can run the numbers both ways. You tell me how much money you have, I base it off your age.

And then I said, you can buy this much house. Or you say to me, I want to buy this house. How much do I need? That’s how we can work it. And maybe you have to go to your financial advisor for twenty thousand dollars to make it work, to get that house. But that’s fine, right? Or maybe you don’t because you’re not you’re not using all your cash. You’re just using part of your cash and supplementing.

Dylan Silver (23:04)
There’s something about not having to make a payment that is a huge, huge deal. And this is the first time that I’ve heard this, Cheryl. And again, it’s amazing to hear these creative ways where folks are active in the real estate space and learning from folks like yourself. Because of that this conversation, I never would have known that you could purchase a home without making payments on it. Are you seeing other people in the reverse mortgage space start

To look at the reverse purchase more or is this even a niche within reverse mortgages? Yeah.

Cheryl Scheidell (23:35)
That’s all the above. I think it’s you know, I’m out there educating. I do have a YouTube channel. I do have a radio show for the last year. I am just getting out there educating. Here’s the thing. When I started doing these eleven years ago, I jokingly said, I’m getting in front of the wave. I’m like, this is the best kept secret. I’m gonna get in front of the wave while people are learning about this. Yes, it’s negative, but we’re gonna turn this around. We are in the start of what’s called the silver tsunami. Have you heard that term?

Yeah. Okay. All the baby boomers are turning 81, 82, they’re we’re starting right. There’s gonna be more people over the age of sixty-five than under the age of eighteen. Insane. There’s ten thousand people a day turning sixty-two. There’s fourteen plus trillion dollars in equity.

It’s gonna be handed down, but let’s use it to age in place and take care of ourselves and do the things that we have to do while the communities are being built. I don’t know who’s gonna be taking care of me. It might be robots. Who knows? You know what I mean?

Dylan Silver (24:41)
Yeah, that that’s a real concern that people have. Well, what’s this gonna look like?

Cheryl Scheidell (24:45)
Yeah, but but but to answer your question, yes, people I’m out there educating, doing lunch and learns. I’m educating, you know, reverse mortgage and beyond is my YouTube, is my website, and the reverse purchase is becoming I’m starting to put flyers in the houses and co branding with realtors because think about it this way. If I put a flyer in a house and shows, Okay, if you’re this age, you’re gonna come in with this down payment and then you can get this house, you’re not there as the realtor.

Somebody else brings somebody else into the house, they’re like, Can I do this? Right? And then that’s educating other people and now you’ve got a buyer for the house and you weren’t even there for getting an open house, right?

Dylan Silver (25:26)
Huge.

Huge. Huge. I think by the way, speaking of open houses, how much business comes from open houses, especially for folks that are scaling, it’s an amazing tool to be able to meet new potential clients. We are coming up on time here though, Cheryl. Any new projects or activities that you’re working on? Also anything you’d like to mention directly to our audience.

Cheryl Scheidell (25:45)
No, I just I want, you know, if you can go, feel free to go to my radio show. It’s on 960.com, AM960.com. You can find my name there. I do have a YouTube channel. I just started out. Feel free to come in there and check out some of those episodes on YouTube @ReverseMortgageandBeyond. And I just I’m really here just to educate you. You can reach me with your scenario. I’m happy to pick up the phone. I do answer my phone. I had some lady call me yesterday for the radio show. She goes, I’ve been listening to you.

And I need this. Her husband just passed away and I’m gonna go see her on Monday. My number is (480) 817-4324. It’s (480) 817-4324. And or you can email me, but however you wanna reach out to me. but yeah, I’m just out there doing lunch and learns and just trying to educate and we just wanna take care of our our our golden ages.

Dylan Silver (26:37)
Cheryl, thank you so much for joining us today. Thanks for your time.