Why Wealthy Retirees Use Reverse Mortgages at Age 55, with Dan Kapellen of Prime Path Lending

0:03 Normally when we think of borrowing money, we think of something being bad. And I, you know, a lot of people who advocate having no debt at all. But there are ways that you can use loans strategically as a good tool to help you build your retirement freedom. Too many people are ending their income producing years with perhaps equity in property that's not liquid, but not enough cash flow to live the lifestyle they want to. Today I have an expert today on not just getting a mortgage but how to use the tool of reverse mortgages to help you build your using your home equity and turn that into retirement freedom. Dan Kapellen, he is a certified reverse mortgage specialist with Prime Path Lending Team. Dan, thanks for joining us today. Well, thank you, Bill, for inviting me and u I look forward to a conversation that can be helpful to your audience when it comes to thinking about how to consider home equity in their total financial wealth plan.

0:59 Well, let's start with what I pitched in the beginning, which is how possibly can borrowing money help you improve your wealth? Isn't borrowing money by definition a bad thing and moving you backwards on your net worth scenario? Well, I mean first of all nothing is free but it's a matter of how you utilize the resources available to you and home equity is something that you have built for your entire life and during that time you're making these monthly payments. You're paying the interest to the lender and you're paying some of the principal. So that principle declines and in the meantime the house value is increasing and the amount of equity available if you were to sell that house for example and move to another one is increasing. However, as you approach retirement and your regular paycheck stop, the advice that you've been living by changes and the home equity is like a savings account that you have built over time and utilizing it can help you get peace of mind and less stress as you think about retirement and live out your retirement.

2:20 So obviously that's a you know lofty goal, lofty ambition, but it requires some guidance, some education, some consulting. So let's talk about when you first meet with a client, is it just you know name, number, social security, start filling out a form or is it about really understanding their goals and how the how what tools they need in order to achieve those goals?

2:40 Oh, absolutely. The goals. They need to understand I, as a loan officer, you know, need to understand what they want. Do they want something that's going to last for a long time? Do they want something that's going to help their lifestyle? Do they want a stressfree living and retirement? What is their current cash flow? What is their income accord and what are their liabilities and debts that they have to make payments for every month and what are the assets available to them including their home equity and we start from that because as a doctor would say a prescription without diagnosis is malpractice right

3:29 And so before we recommend a mortgage which is really a tool to achieve an objective you know people nobody wants a mortgage They want a house and in retirement it the house is shelter but the retirement is something that they've worked for and for something that they want peace of mind.

3:51 Okay. So one of the things I know you talked about in researching you is that you have phrase flexibility brings peace of mind. Explain why that is and then how a reverse mortgage provides some flexibility for a potential retiree or retiree. Well, sure. And it's not just a reverse mortgage. There are other options besides reverse mortgages. And it depends again on what those goals and financial situation were are that I mentioned in my prior u comments. But the flexibility by having options, you know, you don't put yourself in a hole when an emergency or an unexpected expense comes up. You know, if the house needs a roof, you need a car, you've got a medical emergency. You want some resources that you can tap into. And there's a variety of ways to do that. And if all you have is your income is barely meeting your monthly budget, you're living in this house that you've paid into for your entire life, but you can't take a chunk of your house, for example, to your medical provider and pay the bill. You can't take a chunk of your house to the car dealer to buy a car.

5:14 That needs to be what's called liquid. And if it's just a structure that you're living in, you're not taking full advantage of what's available to you. So, I know there's, you know, different options as you mentioned. There's different types of products. You have, you know, standard home loans you can pull cash out. You have standard, you know, lines of credit that you qualify for maybe from a bank or whatever. You have, reverse mortgages. And then I think there's also even now some custom products in reverse space. So talk a little bit about how the different products work and how you analyze what the customer needs are and line them up with the right tool.

5:51 Well, sure and options have expanded so much in recent years and you know they it can be confusing and that's one of the challenges I have when I talk to potential borrowers is what you know how do I explain this in a way that they can understand and digest it? You know, I think of a funnel and I've got all these options up above that can flow into that funnel and then I go to the goals and depending on the goals, there's a subset of those options that are can fit, but they might not necessarily be the fa best fit. So we dig a little bit deeper and we go into the financials of that individual and we finally narrow it down to where you know one or two options are best. I can explain them, compare them side by side. And may there may even be three options. But, if we look at what they are, you know, I kind of think about, four categories. You know, there's home equity lines of credit. Those provide you with flexible access to cash when you need it, and they can be helpful for some people. The downside is that you do have to make pay make interest payments on the money that you take out of that home that home equity line of credit called a HELOC.

7:19 And after the end of a draw period, it could be anywhere from 3 to 10 years depending on the product. That payment goes up because you not only pay interest on what you borrowed, you have to begin paying that principal down as well. The second is what's called a home equity loan. That's really others call it a re a second mortgage. And the advantage to a home equity loan is for those people who have an existing mortgage that maybe they've got a real low interest rate on. You know, we've still got interest, you know, mortgages with two and a half 3% interest rate. And of course, interest rates today are double what they were. And they're maybe not quite old enough for a reverse mortgage or they're not mentally in a state where they want to take on a reverse mortgage. And this can be a second mortgage at the higher interest rate while ret retaining the lower payment in the first mortgage that they have. And then another is a straight up cash out refinance. This is you know the oldfashioned way. You pay off the existing mortgage and you take on another mortgage and maybe get a little bit extra, take the cash out. This was extremely popular during the period when interest rates were real low because a lot of people had four, five, six, 7% interest rates on their mortgages and they could refinance with a bigger mortgage and a lower or same payment.

8:59 Yeah. And then the last is the reverse mortgage. And there's two categories in the reverse mortgage. One is what's called the HECM, which stands for home equity conversion mortgage. This entered into law in 1987. It was signed into law by Reagan and the Department of Housing and Urban Development was put in charge of creating the regulations around this. FHA was put in charge of ensuring that the homeowner never owes more than the value of the house,

9:39 Right? And there were reverse mortgages prior to that, but it was kind of like the wild west. Anything went and there were stories developed out of that persist to this day and give reverse mortgages a bad name but the landscape has changed. I consider reverse mortgages to be safer than conventional mortgages for a number of reasons. You know, in 2008, when housing prices declined, those who had a conventional mortgage, that exceeded the value of the house, they were underwater. They owed the money that exceeded the value of the house. Or if they passed away, their heirs owed that money. With a reverse mortgage, with a HECM, that wasn't the case. They never owed more than the value of the house. And I give live monthly seminars here in The Villages Florida where I live. And I give the example, how much would you or your heirs owe if you had a sinkhole and the value of that house went to zero? Most people had get it by then and they put up zero. And that is correct. You wouldn't owe a thing because the value of the house is zero. So, HECMs have become extremely valuable for seniors and give them great peace of mind. The second type of reverse mortgage is a private lender mortgage. Some call it a proprietary mortgage. These will allow people to get their to qualify down to age 55 whereas a HECM you have to be 62. And then they also qualify for larger mortgages what you know many call jumbo because a HECM only will ensure up to a house value just over a million dollars. And so for those who have bigger houses or more valuable houses, the proprietary mortgage works for them. And they have become more popular because even

11:45 For those who would qualify for a HECM, the proprietary mortgage often gives them more upfront money. The alternative to that is that they get the upfront money, but the interest rate is higher, which means that the remaining home equity declines more quickly than what it does with a HECM. But for some people, especially those who don't really have to leave a you know, a major legacy for their heirs, these proprietary mortgages, give them more money and better peace of mind. You know, one of the one of the reasons I launched this podcast was I'm a real estate broker. I don't do reverse mortgages, but you know, as a real estate agent and as a an American, I think we are hurt by the lockup of equity or we're missing opportunities for growth and freedom and such because people have these mortgages, low rates, and they feel like they can't qualify to, you know, because their income maybe is less when they're older or it's less on paper or it's less of standard type of income. And so the reverse mortgage really unlocks for people have a property obviously, but one of the missing pieces I think is using it on the purchase side. And I was shocked as a real estate broker. I was actually looking to buy a home. And I was talking to a friend of mine who was a reverse originator and I told him what I was shopping for and you know because I only had so much cash I didn't want to sell my current residence and he said to me, "Well, have you considered reverse?" I said, "Well, no. Why would I?" And you know, at the time I was I was age qualified, but I'm thinking, why would I get a reverse mort? I don't need one. He said, 'Well, you know, instead of paying, in this case, I was looking to buy a $500,000 house for cash. He goes, you can get $800,000 house and in essence paid cash and use the reverse mortgage for the other 300. I said, what? How do you do that? It's shocking to me how few people use it for purchase and how rare it is to happen. And I know you don't do that many just because there aren't that many being done. It's not anything you or any

13:48 Lacking. Part of it is I know as a listing agent, I'd be hesitant because many originators rarely do reverse mortgages. Most reverse originators aren't like you, experienced, focused in this field. They do other mortgages and this is just one on the rate sheet. But what can we do as an industry to at least get people buying? You live in The Villages in Florida, like a classic retirement facility where people are cashing out from their home maybe in the Midwest and moving and often paying cash. Those are people who should be getting reverse mortgages probably more than anybody. You should really be at the I would think ground zero of reverse for purchase in America. And I'm sure that you do some and I'm sure you don't do as many as you like to do. What do we do to help people accept reverse mortgages? Consider it at least consider on every cash purchase extending their purchasing power or conserving their cash when they buy. Well, first thing I think that we need to do more to educate real estate agents about that because they're the first line really when you know a buyer is looking for a new home or even a second home.

14:52 Although with a second home, you can't use a reverse mortgage. A reverse mortgage has to be used in your primary home. But people could use their primary home if they want to stay in the Midwest or in New York or wherever they live, they could do a reverse mortgage there and use the proceeds from that toward the second home they're buying. Now, here in The Villages, I've had people move full-time to The Villages. It be it's becoming their primary residence, and they did take advantage of a reverse mortgage for their purchase. What did that do for them? Depending on the person and everybody is different. In one case, the purchaser, they wanted to have cash in reserve. They didn't want to be house rich and cash poor. They didn't want all of the proceeds that they got from the sale of their house tied up in a house down here. Another buyer and this was most of the buyers. They had x amount of cash and they looked at houses that they could buy with that cash and then also leave a little bit of a buffer for landscaping and furniture and that type of thing, but they couldn't afford what they wanted. By incorporating a reverse mortgage into their strategy, they were able to buy the house they wanted. Was a little more expensive. You can buy 5% more house with a reverse mortgage than just paying cash for it. And you can you'll have money left over in many cases because you're probably not going to max it out if you are already looking at the houses that you could just buy cash with. Maybe you just need, you know, another 10 or 20% to make it a comfortable purchase. And I've done several of those and they're powerful.

16:49 Yeah. No, I think it's a I've not done one. I've not done one as a as a listing agent in a transaction. And I think the key is that if you're going to do it, you need an originator who knows what he's doing and can tell you the timeline and perform because as you know, too many of the mortgages are done by either, you know, you know, standard originators who've done one reverse in their lifetime or two, which is what I did and then I realized this is too intense for me to deal with unless I'm going to focus on it and I wasn't my choice at that time or it's being done by a call center. As a listing agent, I'd much rather work with a local specialist. So, you know, going to a local originator like you, I think is important and I think Realtors® in the area, particularly those in The Villages, be well served to meet you and see how that product can be used to help their incoming buyers use reverse for purchase on primary residences and then obviously you can refinance their residents if it's elsewhere as a second do as a second home. So you know one of one of the challenges is I also I feel that this is a product that really requires you know if not specialization requires some pretty intense education and training and camaraderie and resources meaning you know it's not that you can't you know I'm a real estate agent it's not that I can't work with you know this kind of property and that kind of property this property it's I can't do both well I in California license. I could do loans and do sales and I'm legally I do both.

18:24 I just couldn't do both at a high level. Talk a bit about your involvement with reverse mortgages as a percentage of your business. You know, how you made that decision and what resources you think originators need to be successful with reverse mortgages?

18:39 Well, I started with reverse mortgages a little over four years ago. I had become a loan officer five years ago

18:49 And a woman that I had known through business networking groups got married to somebody she had met in California. She was living here in The Villages and so he was a loan originator in Los Angeles. Came here and he said to her one day, "I had a nice referral network going in Los Angeles. I came here to marry you. And not only do I not know anybody, I suck at marketing and I hate marketing. What do I do?" Well, at the time I was a business coach specializing on marketing. And she said, "Well, let's take Dan Kapellen out to dinner and buy him a few drinks and maybe he'll join you." And that's exactly what happened. I became a loan officer through him. And then about six months later, she asked if I would be willing to give lunch and learns on the topic of reverse mortgages in The Villages. She was a financial advisor and she had clients who could benefit from a reverse mortgage, but it was something that she really was not allowed to talk about. She said, "If I have people like that, I will send them to your seminars." So, I

20:11 Didn't know much about reverse mortgages. And in fact, I you know, had heard the stories and I thought, well, you know, is this something I want to take on? And I studied them and the more I studied them the more I realized how valuable they are and how safe they are and I said this is something I want to be associated with and so I started giving these seminars. Well, the it just kind of grew from there in that you know, I learned about the various options I learned about proprietary reverse mortgages. And the more questions that people asked, the more backgrounds that I got exposed to as people told their stories,

21:02 The more I valued what a reverse mortgage can do for people. And I also learned more about listening to what's behind what's being said and ask deeper questions. So, you know, as I continue on, I think that, you know, when it comes to the purchases, the real estate agents need to understand that better. When they hear reverse mortgage, they say, "It's not for me." that's for people who want to refinance and take equity out of their house. Well, it's not always the case,

21:38 Right? All of us can be helpful when we listen to what the needs are, what the goals are, what the dreams are, and come up with the tool to help the client achieve what they're looking for.

21:52 Well, I think that's why I was drawn to you when we met the first time that like me, you're focused on educating clients. You know, I asked you how you get more business, and your answer was not, you know, buy some sort of list of data on cold call or, you know, sign up for some service that sends you leads off the website of people who consider your calls spam calls. You're saying teach people how to be how to achieve their goals. And in the process of teaching people, you learn. I think that's the one thing that you know is lost is that you don't have to know everything when you teach a class. You just have to know more than most of your guests do. And once you do that, then you'll learn it'll force you to learn more and raise your standards. So, congratulations. And if those are interested, even though this one will have passed by the time we publish, there's a link to his program for online workshops he runs, I think, monthly if I remember correctly.

22:43 Correct. And yeah, and so you can go there and learn about the process and you the oops, I lost the spot. The website is rmexplain.com. So for reverse mortgage rmexplain.com and if you sign up I'm told that not only do you get to see a picture of this handsome guy but you get a free gift as well. So I would encourage you if you're interested and want to remember go ahead and hit that register for his webinar and the answer is if you can't make the one that's upcoming he does it again. You'll get a chance to see the next one. And then there's a QR code if you want to sign up to make it easier for you as well because Dan is so tech forward, more tech forward than I am, but he has a QR code for his for a sign up. So, feel free to check that out. And what's the cost of the of the Oh, look at that. Free. My favorite price free online workshop.

23:33 Yeah, I like free as well. And the gift is it's a four-page document titled Seven Questions to Ask Before Using or ignoring Your Home Equity.

23:48 And you know, I wrote a book that focuses on the housing wealth advice that retirees never get. And so that is you know this helps supplement live and gives people the opportunity to ask questions because a good part of the content in that webinar comes out of the book that I wrote which was also an Amazon number one bestseller.

24:14 Wow. Wow. Well again Dan Kapellen is an originator focused on reverse mortgages with prime path lending team which is powered by NEXA Lending. Is contact info [phone number]. If you can't get this because you're driving, reach out to me. I'd be glad to make the introduction. Dan, I know you're f you live in Florida, central Florida, just south of Orlando in The Villages. Got kind of a you know, nationally recognized community. What states are you licensed in? Just Florida?

24:44 I'm just licensed in Florida, but being part of NEXA Lending, I have access to loan officers in 48 states. There you go.

24:53 And the ones that are available for referral are vetted loan officers. I just yesterday referred a loan officer to somebody in Wisconsin who was referred to me through a friend here in Florida who knew I wasn't licensed in Wisconsin, but knew that I would do the best job possible for understanding what this person wants and connecting them with the best loan officer for them. So, if I if you're not in Florida, I can still help you and I start with your goals before I do the referral.

25:34 Fantastic. Well, look, Dan Kapellen from Prime Path Lending Team. Thank you so much for sh sharing with us today strategies on using a reverse mortgage to or really your home equity as financial freedom and how to use the reverse mortgage as a tool to do that. Thank you so much for joining us. Really appreciate your time today. Well, thank you, Bill, and thanks to your audience for watching and listening.

25:54 Okay, there you go. Reverse Mortgage Podcast. Every week we interview most commonly originators like Dan, though not always as committed to education, I think as well, and offering some free advice. I think you should take them up on if you're interested in getting reverse mortgage. If I can help, you know, if you're an originator, want to be interviewed, let me know. Or a manager or a vendor. We always want to get, you know, get better at our craft and learn how to help our clients as well. I'm Bill Gross. I'm a real estate agent, but I come across reverse mortgages in probate all the time, unfortunately, because people don't get great originators end up after they pass probably end up facing probate perhaps or how to avoid that scenario. That's my specialty. If I can help any way, please reach out at Bill Gross Probate on social media. As always, make today your best day ever. Thanks so much.