The fastest growing segment of divorces by age are senior citizens. And splitting up the finances at a date when it could affect the ability to retire is a big concern. Since reverse mortgages are open to 62 year old and older homeowners with equity, it's possible to factor a reverse mortgage as part of the plan for a divorcing senior who wants to stay in the home while allowing the equity to be paid out to the other party.
In this episode, specially requested by Modern Divorce listeners, Billie Tarascio talks with Sun Mortgage's Rex Duffin, whose 30 years in the business help shed some light on what can be done to tap that much-needed equity.
The fastest growing segment of divorces by age are senior citizens. And splitting up the finances at a date when it could affect the ability to retire is a big concern. Since reverse mortgages are open to 62 year old and older homeowners with equity, it's possible to factor a reverse mortgage as part of the plan for a divorcing senior who wants to stay in the home while allowing the equity to be paid out to the other party.
In this episode, specially requested by Modern Divorce listeners, Billie Tarascio talks with Sun Mortgage's Rex Duffin, whose 30 years in the business help shed some light on what can be done to tap that much-needed equity.
Can a reverse mortgage help me during a divorce?
Billie Tarascio: [00:00:00] Hi, there it's Billie Tarascio with the Modern Divorce podcast and excited today to bring you a topic that you all have been asking for. Especially my older clients have been wondering about reverse mortgages as I've been talking about older clients more often than not, or are actually the only generation where the divorce rate is rising and reverse mortgages is an issue that we see coming up more and more.
And there are very few experts in the area, but we are so. Happy and excited to talk to Rex defin today, [00:01:00] who is a reverse mortgage expert, Rex, how are you doing?
Rex Duffin: Excellent. Glad to be here.
Billie Tarascio: Thank you for being here. Will you first give us a little bit of background about you?
Rex Duffin: Well, I'm, I'm kind of, uh, almost a fossil in the mortgage business.
I've been doing this since 1978. Uh, primarily the normal type mortgages, uh, A lot of that time in 89, we pioneered the reverse mortgage and the Southwestern us. We were one of six lenders in the nation to actually do reverses. And, uh, so we have a long history of, of dealing with reverses besides dealing with reverses.
We, uh, we have a presence in, uh, four other states. And, uh, we do the majority of our business is actually normal mortgages. There's a few of us that specialize in just reverses and I would be one of those. So
Billie Tarascio: Wow, that's [00:02:00] fantastic. You truly are. An absolute expert in your field. Um, and you look fantastic by the way, for those of you watching on YouTube, like I cannot believe you've been doing this since 1978.
Rex Duffin: I've certainly been doing it that long.
Billie Tarascio: That's fantastic. And so tell, tell me the name of your.
Rex Duffin: The name of the company, his Sun American mortgage. And we're headquartered here in Mesa, Arizona.
Billie Tarascio: Fantastic. And you can help people with all types of mortgages, but especially, um, and kind of exclusively, uh, reverse mortgages as well.
Right. All right. So let's get into just the nitty-gritty. Most of us have heard this term. Can you break it down for me very simply. Like what is a reverse mortgage
Rex Duffin: now it's interesting when people hear the word naturally, uh, you know, if you talk to 10 seniors and you had, and you brought up the word reverse mortgage, you'd have two or three of them, maybe bristle and say, you know, don't ever do [00:03:00] that.
I've, I've, I've heard you shouldn't ever touch reverse mortgage. And, and then you have most of them that don't really know and understand how it works. And then you have maybe one or two that have done a reverse mortgage and the people that have done it, a rave reviews, I think ARP did a study here several years ago and they found that 94% of of people that had done the reverse mortgage in the past, uh, we're extremely satisfied and happy that they had done it. And I find at least that percentage with my clients, it's just a life changer for them. And so it, the reverse mortgage to explain. It is a, um, a mortgage or a deed of trust that's put on the property and it can be set up in most cases as a line of credit.
When you take money, as you need, in some cases you can take all of it upfront. It depends on the situation. And, uh, and then the borrowers would [00:04:00] not have to make a monthly payment. They would have to however, make, uh Their taxes, property taxes and insurance and HOA, if they have an HOA, but they would never have to make a mortgage payment on the reverse mortgage unless the whole thing came due.
And, uh, there's really, uh, there's three keys that could cause the reverse mortgage to become due and payable. And that is if you ever have left the house either through death or move down now. Uh, for over a year, uh, it can become payable. And if you didn't pay your taxes or your insurance, Then they might come knocking.
Um, and you know, there's a couple other small ways. Like if there, if you allow the liens to be put on the property or, or, um, you transfer title without telling anybody. You know, but the key is really are, [00:05:00] are living in the home as your primary residence and paying tax insurance and your HOA. If you have one, as long as you do that, you can stay in the house for your there's no time limit.
Uh, it doesn't matter if the value drops like it did back in oh 8 0 9, uh, 2010. Uh, we're in some parts of Phoenix, particularly they dropped in half, right? The values did. And you don't, you just, you stay in there and, and you carry on your life as if you did, before we had the reverse mortgage. There's really no other special things you need to do.
Billie Tarascio: Okay. So I'm going to ask, like, for some examples, just to break it down for myself. So if I'm living in a house and it's got $250,000 of equity and it's worth, let's see. 350,000. So I owe a hundred thousand dollars left on my mortgage. I got $250,000 of equity. Can I reverse mortgage? [00:06:00] Okay. So you don't have to own
it
Rex Duffin: out, right?
That's one of the, you do not have to own it outright. And that's one of the fallacies. Uh there's I mean, as many. Uh, you know, things that people believe about the reverse mortgage that are not even close. And one of them is that you just, like you mentioned Billie, that your property has to be free and clear.
Most of the reverse mortgage that we do by far and away, uh, have a mortgage on. Property. And then one of the main reasons that they get the reverse is to get rid of the mortgage payment.
Billie Tarascio: Okay. So I've got my two 15 equity. I decided I wanted to take a reverse mortgage. Uh, I can either get it all up front or I can get a little bit everywhere.
Rex Duffin: Well, uh, there's, there's several stipulations on if you get it all up front or not. Um, let's back up a little bit. When we talk about equity, let's say the average reverse is somewhere in the neighborhood. 50 to 60% in some cases, uh, [00:07:00] that you would be able to borrow on that home. Okay. So if you owed more than, than those percentages and it's based on age, and also based on the interest rate with low rates today, uh, you, you can borrow a little bit more than if rates went up.
So it's interest rate sensitive. It's also based on age and the value of the house. Um, we'll determine how much you can borrow. So if you owed the full amount, let's say that you had a $500,000 house and you owe two 50 on it. We could do the reverse, pay off your mortgage, pay it all up front, and you would go on your way.
Never having to make a monthly mortgage payment again. Um, if you owed a hundred thousand on a $500,000 house, Then we would pay off your 150,000 or a hundred thousand dollars mortgage. Excuse me. And you would have another, 150 in a line of credit. You could access
Billie Tarascio: the reverse mortgage, pays the [00:08:00] mortgage and cashes you out of any additional equity you have up to 50 to 60%.
Rex Duffin: Right. In a way you could say it pays your mortgage. Really what happens is the interest is accruing that you, since you're not paying the interest on the loan, it's accruing every month. So the balance does go up and that's why they call it reverse because instead of making payments, the payments that you would have made, or the interest portion is put on the loan and it's not doing payable until after you're gone.
Billie Tarascio: And so after you pass away or move.
Rex Duffin: That's right. So, and if those, if that happens, either one of those happen, um, the, uh, You arranged to have the home listed for sale. And the family would, let's say if a person passes away, the heirs would put the home up for sale. And as long as it's sold and closed within a year, they get to keep whatever difference there is between what's [00:09:00] owed and, uh, in what they sell the property for.
Billie Tarascio: Okay. And if the interest rate on my mortgage is 4%, it just keeps growing as long as I have. Live there as long as, until I'm gone.
Rex Duffin: Until it's paid off. No, no
Billie Tarascio: limit, no max. So we go over the value. If there's no net gain to me, that's fine. The risk is on you all.
Rex Duffin: That's right. And the heirs never have to pay the difference if there is a difference.
And we saw that back in that same time period, 2011, I think was the bottom of the market, uh, here and there were people that, uh, You know, maybe passed away during that time that owed more than their house was worth. It's kind of rare that would happen now because of a couple of factors. But if it ever did happen to where the homeless worth, less than what was owed on the [00:10:00] property, the, the government picks up the difference and covers the lender.
So that's why lenders are okay doing the product.
Billie Tarascio: All right. Now, if. If a couple is living in a house and they get a reverse mortgage and one person moves out. Got a couple of questions for you. What happens to the reverse mortgage and how do we value the equity to determine the buyout of the spouse that's that's not going to have the house anymore?
Rex Duffin: Okay. So your first question was what happens to loan whatever if one of the parties moves out. And as long as we have the other party named and on that loan, um, protected, then there's no consequence to that remain remaining person that's living in that house.
And the loan goes on as if both of them were there. Okay. So that first off, second, how do you [00:11:00] value a house? You would value it the same way you would any home with a mortgage or encumbrance on it. You had simply. Uh, you know, have it appraised and that's what it's worth. And then the equity of course is the difference between the appraisal and the loan balance.
So there's really no difference, uh, valuing a home or its equity because the reverses on it. One thing I might mention to you too, is that the, the reverse. Uh, the other big question people have is, do I still own my house? I mean, once I put this reverse mortgage on there, the answer is yes, you can actually sell the home at any given time.
There's, you're not locked in for life or for a certain period. You can sell the home and, uh, and keep whatever difference there is between what you sell and what you owe at any time.
Billie Tarascio: Um, [00:12:00] Can it be refinanced because typically when a spouse is bought out of a home, the spouse who's keeping the home has to refinance it.
Rex Duffin: That's right. There's no prepayment penalties, uh, on a reverse mortgage. So you could refinance it at any time as well.
Billie Tarascio: What are the typical mortgage rates
Rex Duffin: typically? Probably today. Most, I would say 95%, maybe higher is done on the line of credit, even if you needed it. If you utilize every dime upfront, simply because the rates are by far and away and lower, and that is a variable rate loan.
It is right around 2% today. Uh, however, it's a very conservative, uh, variable. It's not a, um, it's not like one of those in years past where they had the teaser rate at 1.9. And you knew that it's [00:13:00] going to go to six in a year or two. If you'd had the loan five years, even five years ago, it would still be, it would be two today.
Wow. So yeah, it's not like going to one of the. Home improvement stores. I won't list the name and getting a card for zero interest. Then you find out if you don't pay it off in six months, it goes to 18. It's a very conservative product that has conservative caps on it. No matter what happens, if you close it today, it would never go above 7%.
Even if, uh, a former peanut farmer president got reelected and we had rates going through the roof, like, like we had back in the early eighties.
Billie Tarascio: Got it. Okay. So who is a good candidate? And who's a bad
candidate.
Rex Duffin: Okay. So a good candidate is somebody who has equity in their house first off and, uh, who is over the age of 62.
Now you see, uh, [00:14:00] I'll, I'll touch on that in just a minute, but, uh, and then the other thing is, are you going to be staying in the home a long term? Are you buying somebody out and you need to make a quick, uh, quick move now it may not be that important how long you stay in the house. But overall it's meant for, uh, people who are planning on staying in that home who want.
Um, now touching on the, what I, uh, started talking to you about, um, and that is the age of 62. You can do a reverse if one of the parties, as long as one of the parties is 62 and the other party could be younger than that. And they will still have every bit of protection. You don't get quite as much money because the younger, the borrower is the less.
Um, money is available. Uh, you know, it just, it stairsteps down a little bit, but it is possible to [00:15:00] do a reverse mortgage for a 30 or 40 year old person, as long as their spouse or significant other, whatever is at least 60. And I believe it has to be actually a spouse to have that differential. Okay.
Billie Tarascio: Okay. And, and so the amount, you mean like the percentage of equity that, that, that will be lent on,
Rex Duffin: right. That amount, uh, decreases with the lower the age. Okay.
Billie Tarascio: That makes sense. I mean, if it's going to be a long, long time while you stay in the house, because you don't have to make it.
That's right. That's a pretty cool.
Rex Duffin: Sometimes when there's a divorce situation or other things, you know, money can be tight, it changes everything. And to get rid of a, a mortgage payment can be a huge deal.
Billie Tarascio: Yeah. The other thing I'm wondering is if, if someone could even do a Revo, a reverse mortgage, [00:16:00] buy out the equity of their spouse and then um, stay in their home under the reverse and not, not have a mortgage.
Yeah, absolutely. The only issue is you're still limited to that. You know, roughly 50 to 60%, again, age of, of the total equity, you can borrow on a reverse though. If the house were paid off or close to paid off, they might be able to cash out.
And the other party, uh, all other things considered with just the reverse.
Yeah, and then not have a house payment. And then the other thing that might do is reduce the need of paying spousal maintenance by the, by the spouse. Who's leaving. Let's say if they happen to have more money, if you're reducing the overall income needs moving forward.
So it's definitely an interesting planning tool that I don't think many of us are really tracking. So who's a bad candidate besides being young. Like how long do you [00:17:00] really want to stay? When you say you want to stay a long time? What does that
mean? Well, that means, I would say that you're going to stay there in the house at least five years.
Rex Duffin: Um, like I mentioned, there are exceptions to that rule. Um, I have people from time to time that say, you know what I need, this is a tool that I need right now. I don't, uh, I don't care if I. And I'm moving a year or two. And you know, I now go ahead and do it just because of the financial necessity of it, but it's generally viewed as something, a long-term tool to help you live in the house to stay in the house.
And that's where you plan, you're planning on it.
And I want to make sure I understand the difference between just getting a line of credit on a line of credit. You can get more of your equity out, but you have to continue to pay your mortgage. And your line of credit is that the only
difference you actually don't have to pay that either it's treated the same way as the, as the fixed rate closed in reverse [00:18:00] mortgage.
But, um, if you were to. To look at the difference between the fixed rates and the variable rate line of credit. The fixed rate, as far as the loan to value, uh, is cut way, way down because the rates are high. So that's the only, that's the biggest difference. And there's another difference I won't go into here, uh, talking about how much you get up front and how much you can get after a year.
The fixed rate really prohibits you getting any additional payment other than what you can get upfront. And so, um, that's, you know, that's a big factor too, but mostly it's it's, uh, it's the difference in the total loan amount. Yeah, it is just way different on the fixed.
Billie Tarascio: Very interesting. Have I missed anything?
Is there anything else on reverse mortgages we should talk about?
Rex Duffin: Well, you can talk about, uh, [00:19:00] we can talk about the procedure to get a reverse kind of what is expected and what you might expect if you wanted to. To look at getting a reverse, right. Um, one of the interesting facets of reverse mortgages is the government requires a counseling session to be done.
We're not talking about marriage counseling here. We're talking about. Uh, home buyer counseling makes sure they understand how the reverse works. And, uh, and also it's kinda to keep the lenders honest because if, uh, if a lender were to explain it, uh, in a wrong way, you know, try to paint a picture that it wasn't or whatever they want the seniors to be protected the government that is.
And so. They require a phone conversation lasts about 45 minutes where an independent counselor, who the borrowers choose. We have to give them an official list. Then they choose the counselor. So, [00:20:00] uh, that conversation lasts about 45 minutes. They review their situation. They review the pros and cons of reverse mortgages, whether it's a good fit and, and, uh, but the borrower still has a decision to make whether they want to do it or not.
And once that's done, we can order an appraisal and an appraisers, just like any other appraisal. There's no, uh, it's not any real different. They look at what's sold in your area and, and value, value your home based on that. And, uh, the whole procedure takes about. 30 to forty-five days, uh, to, to get from start to finish.
And there's only like five pieces of information that we need, uh, on the reverse mortgage. Uh, we need to do some basic income, uh, checking. And so, and we need a driver's license. We need, uh, a insurance policy. We need an HOA, uh, Uh, [00:21:00] printout the information on their HOA and so very few items. Do you really need?
It's a lot easier and a lot simpler than a normal mortgage.
Billie Tarascio: Wow. Well, this has just been fantastic information. If people want to get ahold of you, what's the best way for them to find you?
Rex Duffin: Well, they can call me directly if they want my, I just give everybody my cell. I figured years ago that the biggest complaint I heard in the mortgage business.
Was that people could never get ahold of their person. So I said, you know, I'm just going to give everybody myself and two late at night or whatever. I maybe not answer it, but, uh, I typically try to be accessible.
Billie Tarascio: All right, well, let's hear
Rex Duffin: the number is 602-430-7200.
Billie Tarascio: Great.
We'll, we'll get it up for people to see so that they can get ahold of you.
And just to reiterate, you can help with any type of mortgage. Um, but if there's any questions on reverse mortgages, you're the guy to call.
[00:22:00] I'd be happy to answer them, even if it's a, you know, a question about it. I get questions about my parents reverse mortgage or whatever. I'm happy to. To share what little information that I know about reverses.
Well, thank you so much for being here today. This topic, and this show came in because of questions. So as always, our listeners are encouraged to drop us their questions. Let us know what you want. Don't forget to like subscribe, comment and rate this episode because it's been a really good one. Thank you so much for being here and we'll talk to you soon.
Rex Duffin: Thanks Billie. Bye bye.