Marty and Max: A conversation with Keith Pitsh

What if there was a way for you to have your real estate cake and eat it too? What if you could sell your home, not use all your equity to purchase your new home and still have cash in the bank for lifestyle, vacations or hobbies? 

So many are stressed out about mortgage rates and the affordability index. What if mortgage rates did not matter? What if you could have an income and not lose benefits from Social Security? In the old classic movie “Meatballs,” Bill Murray leads the chant over and over again, “IT JUST DOESN’T MATTER ... IT JUST DOESN’T MATTER!” What if there was a way to purchase a home and mortgage rates just did not matter? 

We have spent much time discussing solutions for first-time home buyers, but today I had the opportunity to visit with Keith Pitsh with Revolution Mortgage about options for seniors. 

What is a Home Equity Conversion Mortgage? 

It is a mortgage for homeowners 62 and older that will allow them to purchase a new home or refinance their existing home and gain access to their equity, without the requirement of a monthly mortgage payment.    

HECM is no longer a secret. Seniors in North Idaho are learning how to access one of the largest assets in their retirement portfolio, their home’s equity, by using Home Equity Conversion Mortgages (HECMs) for refinance or for purchase of a new home.   

Why would anyone want a HECM? 

We can all agree the cost of living is not getting any cheaper. Inflation has hit us in the wallet, and it doesn’t look like it is getting better anytime soon. Seniors on fixed incomes have been hit harder than most to make ends meet. Sadly, many seniors believe the best way to solve the problem is to sell their home to get their cash, and sadly, just turn around to pay rent. An HECM refinance can give seniors 62 and older access to their equity and age in place, without a monthly mortgage payment, solving both access to cash and monthly housing payment problems in one mortgage.  

What if I want a different home? 

If you are a senior, a similar situation works for purchasing a new home.   One scenario that crosses my desk frequently is the “downsizer.” This is for the senior who is trading in their huge multi-level home with high maintenance for a nice livable and low-maintenance rambler. Often the senior sells their home and simply pays cash for the smaller home, leaving them cash poor. I teach what I call, the “liquidity method.” Senior homebuyers can keep a portion of their cash available by utilizing an HECM for purchase. Instead of sinking all their money into the new home, seniors can keep part of the proceeds from their sale in the bank and take out the HECM for purchase to bridge the difference. This accomplishes the goal of getting into a house that fits their lifestyle AND keeps the cash liquid available.    

Tell me about having your cake and eating it too. 

Now, you may be asking yourself “how can you have a mortgage and not be required to make a payment?” Unlike a traditional mortgage, where you make monthly mortgage payments that include principal and interest; HECM mortgages provide access to the principal through refinance or purchase and the interest gets added to the mortgage balance monthly, through the term of the loan. Finally, accumulated principal and interest will be paid once the senior no longer lives at the home for 12 consecutive months.    

How have these changed over the years? 

In 2014, there were many changes. One important feature of HECM mortgages is they are non-recourse. As you can imagine, since the interest is being added to the loan there could be a possibility that the mortgage payoff balance is greater than the home’s value. Unlikely, but a possibility. FHA has taken that possibility into account by making HECM mortgages, non-recourse. Non-recourse means in the case the mortgage payoff is higher than the value of the house (underwater) there is no personal requirement to pay. The house simply goes back to FHA, no harm no foul or the estate can purchase the home back from FHA for 95% of the current market value and the difference is forgiven. The surviving spouse may remain in the house as long as they choose.

Does this impact a senior's Social Security benefits?  

This will not impact a senior's Social Security benefits.

In summary, there are many ways to maximize the equity in your real estate. One of the advantages to using one of these types of mortgages is that you can put much of your proceeds from the sale of your home into a bank account to use as income, while at the same time not having a mortgage payment. All of this can be accomplished without impacting your Social Security benefits. This may not be for everyone, and you need to review carefully, but I am willing to bet most were not aware of the downsizer. For many, the interest rate just won’t matter anymore. There are a host of additional benefits to HECM mortgages (spousal benefits, annual cash access growth availability, Life Expectancy Set Asides) that simply will not fit in this column today. So if you have any questions, please reach out to the Marty and Max team or contact Keith.

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For more information, contact Marty Walker at marty@21goldchoice.com. Keith Pitsh: MLO 1012367, Revolution Mortgage, 250 Northwest Blvd, STE 108, Coeur d’Alene, ID 83814, office number 208-216-1711 Revolution Mortgage is an Equal Housing Lender. This article was not written by and does not necessarily reflect the opinions of Coeur d'Alene Regional Realtors.