Ep 233: Turning Bricks into Cash with Archie Johnson

Hey, everybody.

David Chudick here.

Today's episode is going to be about your home's equity.

This hopefully is a large part of your personal net worth.

And we're going to talk about how you can get access to your home's equity.

So I hope that you enjoy this episode.

And here we go.

Welcome to the weekly wealth podcast.

I am certified financial planner David Chudick.

This podcast and my wealth management practice are both designed to help the mass affluent to live better lives by how they handle their money.

We talk about financial strategies, prosperous mindsets, and simply how to build true wealth.

So come on and let's enjoy this journey together.

Welcome to this week's episode of the weekly wealth podcast where we talk about the mindsets, the tactics and the strategies that can help you to build and maintain wealth.

Got a pretty cool strategy today.

We're going to talk about and we're going to talk about accessing your home equity today.

We have Archie Johnson with us.

Hey, Archie, how are you?

Great, David.

Thank you for having me today.

I'm excited to learn about this.

I've actually worked with a few clients lately and a big portion of their net worth was tied up in their home and that's a good thing because they have the asset.

You can't use your bricks and your two by fours and your doorknobs to pay your bills.

So today we are going to talk a little bit about, like, how can the high net worth, how can the high or earners positively use their home equity in order to either eliminate mortgage payments or fund their lifestyle or do some other cool things?

Super.

It's going to be super interesting for me.

So how long have you been in the, in the business, Archie?

I've been doing the home equity conversion mortgage for seniors for about a year and a half.

I've been in the mortgage business off and on for probably 30 years.

Okay.

Yeah.

Interestingly, you and I were talking the other week.

I have like less than a 3% interest mortgage, so I don't know that I'll ever be able to afford to move.

Those Covid mortgage rates were pretty nice while, while they were available.

I've got one of those.

They were great.

Absolutely.

All right, so let's go through almost like a case study.

Let's say I'm a senior, which I think by your definitions would be 62 or older.

But you can certainly correct me there.

And I'm at the point where I'm either retired or I'm going to be retired and my mortgage payment is a chunk of money.

Every month.

And I can afford it, but I would just rather not have a mortgage payment.

But I don't want to take a bunch of money from my investment accounts and pay off my mortgage.

So, very generally speaking, let's talk about a way that you help clients to eliminate their monthly mortgage payments, because this is pretty cool and pretty interesting.

But let's say, David, your client is retired, withdrawing five grand a month from their portfolio.

Okay.

1500, 2000 of that is going just to pay the mortgage.

Sure.

That's impacting their portfolio and the portfolio.

Absolutely.

Especially if we happen to have a down year.

Right.

If you're taking that extra 1500 or 2000amonth out when the portfolio's down, it's a double whammy.

It is.

And there is a way to combat that negative sequence of returns.

We all lived it in 2008.

We hope it won't happen again in our lifetime, but it very well could.

Never say never.

And we teach a strategy that after a down year, you want to cut off your withdrawals from your portfolio, utilize your line of credit with your home equity conversion mortgage to live for a year while you rebuild that portfolio without the burden of that monthly withdrawal.

Absolutely.

Yeah.

I mean, typically, typically, even when we've had the major down markets, within a year or two, your portfolio would be pretty much back to where it was.

But if you're taking money out of it or taking significant amounts of money out of your portfolios, when it's down, you are locking in that loss.

I'm sure you're familiar with the work of Dr. Wade Pfau, and he talks a lot about a buffer asset, which is basically a way to having an asset which is either just a lump sum of cash or a cash equivalent, or maybe access to your home equity that you can use to pay your living expenses.

When or if we do have down markets now, our firm manages money, and we'll tell you that down markets are coming.

We don't know when, but the markets don't always go up.

We would love to think that they do, but we will have some down years.

And if you have access to cash during a down market, you certainly can be putting yourself in a position to just let your portfolio grow back to.

Where it was, let it heal.

Absolutely.

What about if there's somebody who's there?

We're not in a down market, period.

We're not to where we had a 30% loss last year.

They're just thinking, I just don't like making this mortgage payment.

I'm 70 years old.

I'm 68 years old and I would rather not spend $2,000 a month towards my mortgage.

I would rather take my grandkids out.

I would rather maybe buy a boat with that money, maybe buy a condo at the beach, do something like that.

Now, is it too good to be true to say that you can eliminate your mortgage payment without taking a lump sum of cash from your investments to pay off your house, or is it possible that it can be done?

It is very possible, David.

And I tell my clients this.

The home equity conversion mortgage, which is the product we use 99% of the time in this situation, is truly, in my opinion, and I'm biased, probably the greatest thing the federal government has done for retirees in my lifetime.

They are able to eliminate that mortgage payment and never have to make one again unless they want to.

They can make a payment anytime they want to with no penalty.

A lot of high net worth clients do make that payment.

And the reason for that is there's a growing line of credit component.

The FHA has guaranteed that line of credit will grow year after year, regardless of what home values are doing.

Hard to believe, but they have created that for seniors.

And that rate of increase is tied directly to the rate of the interest accrual.

And as you're making payments, you are creating or growing, I should say, your line of credit limit.

I like it.

So that's.

And really, if you look at it, a line of credit is really just access to cash when or if you need it or want it.

Nothing more, nothing less.

I have a line of credit on my house.

The balance is zero, but there's money there in case I needed it or wanted it, as opposed to taking money from other sources.

So having access to a line of credit, I think is typically a really good, good thing.

But now if somebody's listening to the podcast and you're thinking, okay, this Archie guy, I'm not sure about this, we're just going to eliminate a mortgage payment.

That sounds too good to be true.

Can you give us, you know, maybe some halfway real world numbers and tell us what the process is and maybe what the process would be at the client's death?

Because that's really when the loan gets paid back, isn't it?

It can, and I hear that a lot, David, and you may have said that when we were first talking about it.

It does seem too good to be true.

But look, when you look at it this way, this kind of puts it in perspective with the traditional mortgages that you and I have and most of America has, we make payments and that balance goes down month after month.

It's not free money.

So if you're not making payments, that balance is growing every month, little by little, that interest is accruing.

Right.

A lot of folks do get that deer in the head, like, look, it just seems too good to be true.

So the homeowners can stay in the home as long as they want.

They are the owner of record for their lifetime.

They can sell the home whenever they want with no penalty, or they can die in the home.

And when they pass away, the heirs have 100% control over what happens with the home and the equity in the home.

It's no different than a traditional, what we call forward mortgage.

They would either sell the home and realize all the equity, or they would be given the opportunity to refinance it and keep the home strictly up to them.

Okay, so your company is actually just making money by the accruing interest over time because obviously your company needs to earn a profit.

You don't work, nobody works for free.

So is that basically how your company is making a profit?

That's a great question, David.

And what I tell people is we are forced to be patient.

We do not.

Other than the origination fee, which is part of all mortgages, we don't make anything on that loan until the last surviving spouse leaves the home either by selling.

And that can be decades, like, literally, you know, 20, 30 years or longer.

We have to be patient.

And that's, that's the reason that there aren't a ton of companies able to do this product.

You've got to be a Mutual of Omaha with our balance sheet to be able to provide this product.

And it's important to know Mutual of Omaha does more of these loans than anybody in the country.

We are the 900 pound gorilla in this field.

Okay.

No, that's really, really exciting.

What have you seen, people?

So let's go back to that, that, that example.

Somebody maybe has a $2,000 a month mortgage payment and they work with you and they eliminate their mortgage payment.

What are some things that you could do with that $2,000 a month that, that might just make your life better?

Because what I talk about on literally every podcast is I say, I believe that how we handle our money should positively impact our lives.

And, and oftentimes if you're eliminating a payment, that money's going to go somewhere.

So what are some things that people do with that money to give themselves better lives?

I hear a lot of people say, I want to travel.

Okay, that is a big one.

I hear that every week.

What are you going to do with the money?

I've got so many places on my bucket list that I've never been to.

You'll have grandparents who want to give their grandson, granddaughter a down payment on their first home or help them through college.

Sure.

One big use that we're seeing more and more.

The cost of long term care insurance as you know, is astronomical, especially if you don't start it when you're a kid and most people don't have the forethought to start it that early.

This is a great long term care policy for seniors.

And so are you talking about using that money that you're not paying towards a mortgage to pay for long term care premiums if you qualify, or are you talking about just having that money available to use to pay for long, long term care expenses, but in essence.

You'Re self insuring just having that money available and self insuring.

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So when I got my mortgage, I had to submit documents on, on my net worth and my income and even have an appraisal on the house.

And in theory, the mortgage company could have come back and said, hey, you don't fit our guidelines.

You have too much debt or you, you can't, we don't believe you can make this payment, so we're not going to give you this mortgage.

I guess that happens all the time.

What is the process for your type of mortgage for someone to get started or get approved?

It's very similar with a couple of additional caveats.

One thing the FHA has done and they have really regulated this product to the nth degree to protect seniors.

And one way they do that is very early in the process, before we even work through the application that senior borrower or borrowers are going to, they're going to go through a counseling session with an FHA counselor.

So that's not you, that's somebody.

A third party.

A third party company.

Typically, it's a community nonprofit.

It's done over the phone and It'll typically take 30, 40 minutes.

And they're doing a couple of different things.

One, they want to make sure that the borrower understands what they're doing and how the product works.

Obviously, they want to make sure they're competent to make a decision like this.

And two, they are verifying that they're with a reputable company like Mutual of Omaha.

And we're not gouging them, we're giving them a fair rate and doing what we're supposed to be doing.

So other than that, it's very similar to a traditional mortgage.

There are things we need.

We don't get quite as much blood as a traditional mortgage lender requires.

It's a little simpler.

What is a typical amount of equity that's needed?

I know it may vary, but what's your typical amount of equity needed to work with you?

The qualification on the product, David, is it's totally different how much you can qualify for.

You can call your friend who's a mortgage broker and say, hey, we want to buy a house, we want to use a conventional mortgage.

How much am I going to put down?

And they can just spit the numbers out.

This product is different, that it's tied to several things.

One, the age of the younger borrower.

Interest rates drive how much of your equity you can access.

Higher interest rates, equity access drops down a little bit.

Low interest rate.

Back in 21, man, people were eating it up a lot of.

So you mentioned older in age.

Are there any health questions?

Are they saying, hey, Archie's 85 but really sick, so his life expectancy is shorter than your average 85 year old?

Or are health questions not asked?

No health questions.

Are you a longtime listener of the weekly wealth podcast?

If you've learned anything and if you've enjoyed the podcast, will you do me a favor?

If you will you tell a few of your friends, your families, your colleagues or your co workers about the show.

As I always say, I believe that how we handle our money should positively impact our lives and the lives of those around us.

And I hope that this podcast can be a small piece of that puzzle for all of our listeners.

Now, what's like a timeframe from start until finish?

If someone were going to talk to you, how long could it be potentially before, before a home equity conversion loan is finalized?

It's going to be a matter of just how quickly they get the Documentation we need to us typically it's going to be in the 30 to 45 day range close.

And again, Dave, one thing we haven't talked about.

This is not just a refinance loan.

We have a lot of seniors use this to purchase homes.

And just like with a regular mortgage company, I don't know if most people realize this, but purchase money.

Loans take priority in the mortgage industry because they tend to be can be more time sensitive.

We don't like to have to jump through hoops and close a purchase money quickly.

But sometimes it happens.

I've seen us do it in three weeks.

Wow.

No, I like that.

And I think there are many financial tools out there and what I try to spread the word on the podcast and in my private wealth management practice that many tools are appropriate for many people.

Of course you have to know details, you have to know what you're doing.

And even by default, anybody working with you needs to go through that counseling session.

That's just a law.

But there's so much out there in the money world, in the financial world that the average person just doesn't know or they may have some misconceptions about.

So that's why I was really excited to talk with you and to get you to, to spread the word on these types of loans because I do think that it can be a really good thing for the right person.

With that being said, if somebody were listening to this and you're like, you know what, this might fit me, like, I, I don't know, I think possibly eliminating my mortgage payment or I'm looking at buying a house and I'd like to not have a mortgage payment.

How would this, how would anybody get in touch with you and what would at least the beginning of that process look like?

Again, David, for everybody listening, my name's Archie Johnson.

I work with Mutual of Omaha Mortgage.

I am a home equity retirement originator and I work with clients all over the country.

I'm based here in the Upstate like you are.

So my immediate footprint is the Upstate, but I can work with anybody, anywhere.

First step is going to be a conversation.

We're, we like to think of ourselves as educators, not salespeople.

This job, at this time in my life, this is a mission for me.

So I want to make sure that the prospect understands what the product can do for them, how it can help them.

It's very versatile.

But more importantly, I want to make sure it's right for them.

Because if it's not a good fit, we're not going to do it.

So there would be an initial conversation, I would get some financial information, we would work through a proposal, and at that point, if they see the benefit, want to move forward, we'll move forward.

Get the counseling session set up, start gathering documentation, work through the complete application, and that's done over the phone and get the ball rolling.

Pretty simple.

I like it.

I like it.

And is, are there any states where these are not available, or are they pretty much available in every state?

All 50 states.

Perfect.

Excellent.

What's the best email address for you?

Best email address for me is Archie.johnsonutualmortgage.com and my personal cell phone number is 864-616-4066.

We'll absolutely put that in the show notes.

But yeah, if this sounds like something that interests you, reach out to Archie.

What's the worst that can happen?

Maybe you'll chat for 10 or 15 or 30 minutes and find out that it doesn't work for you, or you can learn just a new and innovative strategy that can help you potentially to meet your financial goals.

So I think this is, this is actually pre exciting, but, Archie, we are the weekly wealth podcast, and we do talk about the mindsets, the tactics and the strategies that can help you to build and maintain wealth.

And we do that by talking about tools, we do that by talking about strategies.

But ultimately, what I want to know from Archie is what is your definition of wealth?

What does wealth mean to you and all of the people in your life that you love and care about?

That's what it's all about, David.

It's about.

I'm all about family.

And like you said, wealth for you might mean something totally different than wealth for me.

For me personally, wealth is not about how many toys I can accumulate and put in the garage.

Wealth for me is being able to take care of my family and live comfortably, not extravagantly, and retire in comfort and dignity.

And it's really not about the money, at least for me.

It's about what the money can do for us.

So we mentioned before, what might somebody do if they're eliminating their mortgage payment?

And you said, many people say that I'd like to travel.

There are places I haven't been.

Traveling is awesome, but is also not free.

So in order to travel, you got to have some money or else they don't let you on the plane when you get to the airport.

So the money allows you to do these things.

The money allows you maybe to see your grandkids smile when they get their diploma and you help them to not have any student debt.

Maybe the money allows you to smile when you see your children at their first real estate closing and you know that they bought their house because you were able to set them up financially and maybe give them part of a down payment.

So these are all the things that you think these are money items, but really it's what the money does for us.

And I don't know if you're like me, Archie, but you get to a point in life where you have as much stuff as you need, right?

There's not a whole lot I can't.

I can go out and buy new.

A new shirt if I need it.

You start thinking about what are two things that we can invest in.

We can invest in people and we can invest in experiences.

And you get to those points in life.

Number one, it's a beautiful place to be.

But number two, investing in people and investing in experience does take some actual physical money.

And how we handle our money should allow us to do that.

And I think you've shared with us a potential tool that can allow some listeners maybe to access their home equity and use it while they're living and create some freedom.

So I appreciate, I appreciate your expertise on this matter.

This was pretty fascinating.

Thank you, David.

I appreciate you having me.

Absolutely.

All right, everybody.

So again, reach out to Archie.

Check the show notes.

You'll be able to just click on his email if you'd like to discuss if this sort of a scenario would work for you.

And until next episode, I wish everybody a blessed week.

Thanks, everybody.

Thanks, Archie.

Thank you.

The information contained herein included, but not not limited to research.

Market valuations, calculations, estimates and other materials obtained from Parallel Financial and other sources are believed to be reliable.

However, Parallel Financial does not warrant its accuracy or completeness.

These materials are provided for informational purposes only and should not be used for or construed as an offer to sell or a solicitation of an offer to buy any security.

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Bonus content time.

If you are not sure of the best ways to use your home's equity to your best benefit, hey, schedule your vision.

Call with me.

We can talk about it and we can maybe point you in the right direction.

So go to www.weeklywealthpodcast.com vision and let's talk about your home's equity.