Open Forum in The Villages, Florida
This weekly podcast will cover in detail, people, clubs and activities here in The Villages, Florida. Each show will run 10-30 minutes. Become a Supporter of this show for $3/month. Supporters will have access to all episodes. Our newest Supporters will get a Shout-out during a show.
Open Forum in The Villages, Florida
New Reverse Mortages -Explained
In today's episode, Dan Kapellen of Pacific Lending enlightens us on the NEW types of Reverse Mortgages In this show, we will explore the exciting world of Reverse Mortgages and how they can offer more flexibility and safety for borrowers.
Dan Kapellen, a seasoned mortgage professional with years of experience in the industry, will guide us through the ins and outs of Reverse Mortgages, including how they work, who can benefit from them, and what makes them different from other mortgage options.
In this episode, we will dive into specific topics related to Reverse Mortgages, such as the different types of products available, the application process, the benefits and risks, and much more. Dan will share his insights and expertise on various aspects of Reverse Mortgages.
Whether you are a homeowner exploring your options or a financial professional looking to expand your knowledge, this podcast will provide you with valuable information and actionable insights to help you make informed decisions. So tune in and join us on this exciting journey into the world of Reverse Mortgages!
Open Forum in The Villages, Florida is Produced & Directed by Mike Roth
A new episode will be released most Fridays at 9 AM
Direct all questions and comments to mike@rothvoice.com
If you know a Villager who should appear on the show, please contact us at: mike@rothvoice.com
Welcome to the Open Forum in the Villages, Florida podcast. In this show we are going to talk to leaders in the community, leaders of clubs and interesting folks who live here in the villages to give perspectives of what is happening here in the villages. We hope to add a new episode most Fridays at 9am. We have converted all of our shows to Buzzsprout. Of course, you can still listen to Apple Podcast, Amazon Music and about 20 other podcast platforms. Your favorite podcast player will still work. We are now a listener-supported podcast. You can become a supporter for only $3 or you can choose to pay more per month. Go to openforminthevillagescom and click on Support in the black box. There will be a shout out for supporters in episodes. This is a shout out to supporters. Tweet Coleman, Dan Cappellan, Ed Williams, Alvin Stenzel and Major supporter Doctor Craig Curtis at K2 in the Villages. We will be hearing more from Dr Curtis with Short Alzheimer's Tips each week.
Speaker 2:This is Mike Roth, and I'm here today with Dan Cappellan. He's a mortgage loan officer and certified reverse mortgage specialist for Pacific Lending Group. Thanks for joining me, dan.
Speaker 3:Thank you.
Speaker 2:Mike Dan is a 15-year resident of the Villages. He moved here from Chicago after 40 years in the automotive industry, during which his primary job was to simplify the explanation of complex technical concepts for customers. That means you were the finance man, dan.
Speaker 3:No, it means I was product manager.
Speaker 2:Oh, so, dan, what did you do in the automotive industry?
Speaker 3:I traveled the world working with customers and our sales teams. Our sales teams developed the relationships I met with the customers to determine what their needs were and whether we could satisfy those needs. I would work with management, in both the executive management as well as the engineering management, to work through what we could do. Because everything we did was custom, i was always tailoring what their needs were to what we were able to do.
Speaker 2:Today, Dan, you're known as a mortgage maestro for your ability to turn confusing loan options into simple solutions. Dan takes a customer-oriented approach with every customer. He helps them understand their loan options that are relevant for their goals and works closely with clients during the process closing their reverse mortgage loan. Dan, how long have you been in the reverse mortgage business?
Speaker 3:Well, i began focusing on reverse mortgages a couple years ago because interest rates started rising and the number of mortgages started declining. A couple of financial advisor friends suggested that maybe I could do some education around reverse mortgages. They saw a lot of people who could use a reverse mortgage in their overall financial plan but they didn't know much about them. My financial advisor friends admitted they didn't know a lot about it. They recognized that I had the ability to explain things and I loved getting in front of people. That led me to start some seminars here in the villages that I do once a month at Red Sauce Restaurant.
Speaker 2:Yeah, there have been a lot of confusion about reverse mortgages since they first came out, probably eight or 10 years ago. A lot of people were confused, and confused led to an action. Dan, briefly, can you tell our listeners what the difference is Okay are between a reverse mortgage and a standard?
Speaker 3:I sure will. And going back into the history a little bit, surprisingly, most people do not know that the first reverse mortgage was written in 1961. And it was a football coach a beloved football coach in Portland Maine who passed away And one of his players was the president of a bank and the widow wasn't able to make her monthly mortgage payments. He rewrote her mortgage in a way that she didn't have to make any mortgage payments and the principal in interest would only be paid after she passed away. This allowed her to live in the house for the rest of her life. That is the principle on which reverse mortgages were created.
Speaker 3:In 1987, congress recognized the value of reverse mortgages for the aging population and began writing some laws to codify them and allow them to be available to the public People over 62 years old. A lot of the confusion that you mentioned about reverse mortgages came because people often there were a couple things. One is that the reverse mortgage industry was new and they allowed too much of the equity to be converted into a reverse mortgage. As a result, it exceeded the value of the house and if people died, they owed money, much like what happened in 2008 with regular mortgages, when the housing market collapsed.
Speaker 2:So that's an interesting question, Dan. What happens if the housing market goes down? Who pays the money that the bank doesn't get by selling the home?
Speaker 3:That's the beauty of reverse mortgages today. Over time, a need was recognized to make sure that the borrower never owed more than the value of their home. Fha stepped in and provides insurance that there's a premium that's paid at closing and there's a premium paid monthly. But it ensures that the borrower never owes more than the value of their home, even if the market collapses.
Speaker 2:Okay, so the loved ones who are maybe responsible never get hit with a big lump sum payment to settle the reverse?
Speaker 3:mortgage. That is correct. They don't get hit. And not only that, but if they decide that they want to settle into the house, they only have to pay 95% of the lesser of the house value or the mortgage to pay back the lender. So you also asked what is the difference between a regular mortgage and a reverse mortgage? and they're both mortgages And so when it comes to title, the borrower always owns the home.
Speaker 3:Whether it's a regular mortgage or a reverse mortgage. The difference is when the lender gets paid their principal and interest. With a regular mortgage, you're writing that check every month to pay the lender the principal and interest on the mortgage. With a reverse mortgage, that principal and interest is not paid to the lender until the house is sold, and that means the borrower does not have to make any mortgage payments or any interest payments during the life of well as long as they stay in the home and it's as long as it's their primary residence they don't owe anything on the mortgage. They still have to pay their taxes, they still have to pay their homeowners insurance, they still have to pay their amenity fees, but they don't have to pay principal and interest.
Speaker 2:And how expensive are the insurance fees that you talked about?
Speaker 3:So the upfront fee paid to FHA is 2% of the home value and then monthly it's a half percent. Now in the earlier days it was typically one and a quarter or even one and a half percent, but today it's only 0.5% of the monthly interest.
Speaker 2:So let's say the home was valued at a half a million dollars, $500,000. That means at closing they have to pay $1,000. $1,000. 10,000.
Speaker 3:Yeah, and that goes to FHA. It doesn't go to the lender or anybody involved in making that payment. That is the insurance premium. Just like you pay insurance on your house or your car or your life. It is what ensures you will never owe more than the value of the house.
Speaker 2:And then what is the monthly insurance premium?
Speaker 3:It's 0.5%. So if the interest rate on the loan is 6%, the total interest paid would be 6.5%, because that extra 0.5% goes to FHA.
Speaker 2:Well, we're going to take a quick break here, and this is today's brain health tip from Dr Craig Curtis. Dr Curtis, can you tell our listeners something they can do to improve the nourishment?
Speaker 4:that they give to their brains? Absolutely, our brain only weighs about 2% of our overall body weight, yet it receives about 20% of our blood supply. So it's very important that we essentially nourish our blood vessels. As we nourish our blood vessels, we'll essentially then nourish our brain. So lowering the amounts of sugars, red meat that's high in cholesterol, can go a long way to nourishing our brain by making our blood vessels more compliant. Tell you a quick joke.
Speaker 2:Mike grandson, evan Dan. That way I made Evan listen to the show this far. He could tell me what happened earlier.
Speaker 3:I could tell you we're a smart guy.
Speaker 2:I used to be dumb and put the joke in the beginning of the show. So Dan, where did the music teacher leave her keys?
Speaker 3:On the piano.
Speaker 2:In the piano.
Speaker 3:In the piano. Okay, that's close.
Speaker 2:Close, okay, and let me give you another question, dan. How can a reverse mortgage fit into a senior's overall financial strategy?
Speaker 3:Interestingly, the prevailing wisdom was that reverse mortgages were only for people who needed it as a last resort. Basically, what a reverse mortgage does is take some of the equity in your home and convert it into spendable cash. The thinking today, now, is that it can be part of an overall financial plan in which it provides flexibility to the borrower. For example, somebody who has investments may not want to sell their investments when the market is down. They can use money from their reverse mortgage because today's reverse mortgages offer a line of credit. That line of credit does not require any taxes, any service fees, but it grows at the same interest rate that would be paid on the mortgage.
Speaker 2:Let's deal with the $500,000 dollar village house. How much of a line of credit would a new reverse mortgage owner get?
Speaker 3:Well, there's three things that determine how much money they get The value of the house you said $500,000, the age of the borrowers and the current interest rate.
Speaker 2:How does the age of the borrower affect the principal, the?
Speaker 3:older the borrower, the more money they get Really Yeah, it works on an actuarial table. The older they are, the fewer years that the lender has the money out there waiting to collect.
Speaker 2:Is this money on the line of credit totally unrestricted in how the borrower uses the money?
Speaker 3:It is. They can use that money any way they want, as long as the loan is on their primary residence. They could take the money, use the money to invest in an investment property if they want, but they cannot use it to create a mortgage on that investment property.
Speaker 2:So if they wanted to or needed to get a new roof, they could use the money to pay the roofing contract.
Speaker 3:That's exactly right.
Speaker 2:If they wanted to get a new Ferrari, they could use some of the proceeds to get the new Ferrari.
Speaker 3:They can. They've got that. The other factor that determines how much money they get are the current interest rates. So the higher the rate, the less amount of money they get. But let's just take the example you cite. Let's say we've got a couple who's 70, the youngest borrower it's always based on the age of the youngest borrower is in their 70s or his 70s And with interest rates where they are today, they would qualify for about 40% of that $500,000 house.
Speaker 3:So that would be about $200,000. They can use that $200,000 to pay off an existing mortgage, if they still have one, or if they don't have an existing mortgage, all of that money can go into a line of credit.
Speaker 3:That is everything that they receive in that $200,000 is not taxable. They don't even have to report it on their taxes because it's their money. It's money being returned from their house, from their equity, from their equity. What they can then do is determine maybe they want to take, say, $30,000 of that in cash because they want to take a trip or take the kids on the cruise, and the rest into that line of credit. That line of credit grows at today's interest rate, which is about 7%, with interest and the mortgage insurance premium to FHA And yes, that mortgage insurance premium is included in the growth of that line of credit.
Speaker 2:So I'd say they take the line of credit for $200,000. They don't spend the penny Right At the end of the first year after taking that line of credit. How much money would be in the line of credit?
Speaker 3:Next year that would be $214,000.
Speaker 2:Okay, so that's like taking money and putting it in a savings account.
Speaker 3:Exactly, exactly.
Speaker 2:That's a very good, extremely good advantage to reverse mortgage. Dan, let me ask you a different question. How can a senior or senior couple determine if a reverse mortgage is the right option for them?
Speaker 3:Well, the first thing to do is to look at whether they qualify for it. Is the loan on the house that is their primary residence and do they own it? And the second is one of the borrowers has to be over 62 years old.
Speaker 2:Okay, So they make means that probably 75% of villagers would qualify. Many would yes.
Speaker 3:There's also now a provision for what's called the non-borrowing spouse, because if that spouse is less than 62 years, old they cannot be on the mortgage. However, that's a horrible thing if the older borrower passes away first and that younger spouse wants to continue living in the house. They would otherwise get kicked out of the house. That's one of the things that led to bad reputations about reverse mortgages.
Speaker 2:So today a 55-year-old is married to a 70-year-old. The 70-year-old dies. Does the 55-year-old spouse have to move out or can they repay the reverse mortgage?
Speaker 3:Well, they can always repay the reverse mortgage, but that's not always an option if they're settled with limited funds. However, with what's called the non-borrowing spouse provision, if they're married at the time the loan is taken out, And if the non-borrowing spouse is included as a non-borrowing spouse on an addendum to that loan, that non-borrowing spouse can never get kicked out of that house no matter what, okay.
Speaker 2:What would the payments be for non-borrowing spouse?
Speaker 3:Zero, okay, so all the non-borrowing spouse has to do is continue paying taxes, insurance and amenity fees, but they don't have to pay anything on the mortgage itself.
Speaker 2:So let's pretend non-borrowing spouse wants to sell the house and move it to an even more expensive house. Is that possible?
Speaker 3:It is. You have the ability to sell the house at any time for any reason. And that's another myth about reverse mortgages. Some people think that if they take out a reverse mortgage on the house, they're stuck with that house for the rest of their life. That's not the case. You can sell it at any time. All that's required is to pay off the mortgage, which is the same with a regular mortgage as well.
Speaker 2:Do the people who take out a reverse mortgage have a requirement to keep the house as their primary resident?
Speaker 3:Yes, if at any time the borrower does not remain that as their primary residence, the mortgage is due.
Speaker 2:Okay, but that's some interesting information. Are there any other drawbacks that we haven't touched on before? people should consider using a reverse mortgage.
Speaker 3:I think we've touched on them. The one caution that I talk with borrowers about is don't view it as a windfall and spend all the available money right away. Think of it as a financial buffer, as a savings account, as something that you want to manage carefully, like you would any other money that you have coming in. And that is another thing in the early days of reverse mortgages People would view the mortgage, the money that they get from the reverse mortgage, as a windfall and they go out and they spend it and then they don't have any buffer any longer.
Speaker 3:Today they're counseled. One of the requirements to get a reverse mortgage is a HUD counseling session, And it's qualified counselors who make sure that, number one, you understand that you're obligated to pay your insurance and your property taxes. And also to make sure that you've got sufficient money to live on outside of the reverse mortgage, that the reverse mortgage becomes part of your overall plan, instead of a windfall that you think is available to spend now.
Speaker 2:How long does it take from the time someone decides that they want to get a reverse mortgage to the time they actually get funded?
Speaker 3:I just completed one last month that we did in three weeks. Most of them take 30 days, between 30 and 40 days. Most of that delay comes from just collecting the documents. The housing and urban development regulations require us to scrutinize everything for compliance, and we have to keep those records, and so we have to ask for many of the same records that are required for a conventional mortgage, and sometimes it takes people a little while to collect everything.
Speaker 2:Okay, dan, maybe you can tell our listeners a success story or two from reverse mortgages that you've done.
Speaker 3:Yeah, so I just closed on a reverse mortgage for a couple who needed a new roof for their house. They had investments, they had the option of taking the money out of their investments, but right now the market is down. They're very smart people and they realize that when the market is down, it's not when you want to sell your investments. As a result, they took a reverse mortgage, so they could use money from that to supplement the roof that they need to buy right now in order to get insurance next year.
Speaker 1:A couple of others actually had two people.
Speaker 3:I didn't even do the reverse mortgage for these people, because they had done a reverse mortgage years ago. They did not realize that they had built a line of credit. They approached me about doing a refinance because their house had increased in value, so they anticipated that if they did a refinance they could get additional money. But when I looked at their records and looked at their statement, i said the one. I said you have $150,000 that you can access at any time. If you were to refinance your reverse mortgage, you would lose what you have accumulated. Take that out and use that if you're looking for money right now. This was also a couple who needed a roof and they wanted money to put a new roof on their house.
Speaker 2:Okay, Dan, why don't you tell our listeners how they might be able to contact you, or something about your seminars that you do on a monthly basis?
Speaker 3:Sure For the seminars. They can register by going to rmexplainedcom, That's rm as in reverse mortgage. Also, they can call me at 352-600-6655 and they can ask me questions. They can ask me questions about a reverse mortgage they have something they're just thinking about or to make a reservation for the seminar. I also have a website which is pacificalendingnet forward slash.
Speaker 2:Dan. Good Dan. is there anything else you want to add before we sign off for today?
Speaker 3:What I want to make sure people understand is that today's reverse mortgage is not your parents' reverse mortgage. It is very regulated. It ensures that it's done for the right reasons. I evaluate that as well. I do not initiate a reverse mortgage if it's not for the right reasons. I evaluate the goals, i educate my borrowers and then I navigate them through the process, making sure they understand every step. It's something to embrace as a possibility not to be afraid of Dan.
Speaker 2:Just a last question What is the percentage of reverse mortgage applicants that are actually approved?
Speaker 3:100% of those who meet the qualifications that I just set, while almost 100% HUD does look at whether they have the ability to repay. I've not yet run into somebody who doesn't have the ability to repay because they are getting Social Security that pays for their insurance, taxes and money to live, It's much easier to get approved for a reverse mortgage than it is for a conventional mortgage.
Speaker 2:Dan, thanks again for being on the show. I'm sure you're going to hear from some of our listeners. Thank you, Dan.
Speaker 3:Thank you, mike. I love the opportunity and I love the villages and I love the people here.
Speaker 1:Remember our next episode will be released next Friday at 9 am. Should you want to become a major supporter of the show or have questions, please contact us at mikeatrothvoicecom. If you know someone who should be on the show, contact us at mikeatrothvoicecom. We thank everyone for listening to the show. The content of the show is copyrighted by Rothvoice 2023, all rights reserved.