Reverse Mortgages
Financing in “Reverse”
I’m sure you’ve all heard of “Reverse Mortgages”. “Reverse” I hear you say? How can you reverse a mortgage?
A “Reverse” Mortgage utilizes the equity in one’s home. It is specific in that it addresses a financing need for Canada’s fastest growing demographic – seniors.
Scenario:
Rhoda and Percy own a home and have no mortgage. Pension income barely covers the month to month expenses at the moment and besides they want to start “gifting” some of their estate to their grand children. Rhoda and Percy can utilize up to 40% of their equity and have opted to take a small lump sum draw followed by a monthly draw of $500. The good news is … these funds are not taxed as income!
The equity can be received in many different flexible ways and the interest accrued is only on the amount drawn from the maximum loan amount.
No monthly payments required
This is not a typo, you do not make any payments on a Reverse Mortgage. The reason is that the mortgage is structured in the following manner.
The mortgage is not unlike any other Canadian mortgage. It is registered on title and interest in added to the balance and is compounded semi-annually. The full loan amount only becomes due when the home is sold, or if both owners move out. Clients do, however, have the option to pay off the principal and interest, in full, at any time. The best part is…
There is no income or health qualification!
Dispelling Myth #1: You do not lose control of your home. The Reverse Mortgage is registered on title as is any other type of mortgage. The title remains in your name.
Property Values
Although property values have declined here in Calgary and area recently, over time a property should increase in value annually by approximately 4%. A Reverse Mortgage is structured in such a way that you typically cannot utilize more than 40% of the property’s value and because of this there is an inherent protection of equity for the homeowner. As well the only provider of Reverse Mortgages in Canada – CHIP Home Income Plan – guarantees, that no matter how long you live in your home, the amount to be repaid will never exceed the fair market value of your home at the time it is sold.
Qualifying Criteria
Qualifying criteria is fairly simple, everyone on title must be over 60 years old and there must be available equity in the home as determined by an independent appraiser. Financing can be arranged within 2-3weeks via independent legal counsel.
A Solution to many issues
There are no restrictions as to how this money can be used. Certainly one of the most common uses of a Reverse Mortgage is to pay off debt. Other uses have been participation in investments through an investment broker or Financial Advisor. In the case of an investment, the
Reverse Mortgage interest expense may be used to reduce taxes on investment income.
Scenario:
Violet and Lloyd’s daughter is looking to purchase a new home. Saving the down payment can be time consuming so Violet and Lloyd secured a Reverse Mortgage that would allow them to give their daughter $20,000 towards her down payment and they are taking a further $50,000 out for home improvements.
Dispelling Myth #2: Unlike many other equity take out mortgages, you’re not restricted in how you use the money. For example the money can be used to:
- Renovate
- Purchase a vacation property
- Go on vacation
- Investments
- Preservation of existing investments /assets
- As a gift it to a child as a down payment on a new home.
In summary
There are many more options available when it comes to Reverse Mortgages, from Fixed rates to Variable rates as well as different lengths of term. Reverse Mortgages are also available across Canada and can be secured against two properties (one being a vacation property).
If you think you have a parent, friend or neighbor who could benefit from a Reverse Mortgage, give us a call and we'll help you understand all the in's and out's of a Reverse Mortgage. CHIP is just one of the many lenders we deal with.
Matthew is an independent mortgage broker, a member of CAAMP and the Real Estate Council of Alberta. He is also the owner of Alberta Mortgage Solutions Inc. and can be reached at 403-836-2674. For more financing advice, or to find out your chances of getting a mortgage, visit his website at www.abmsi.ca.
I’m sure you’ve all heard of “Reverse Mortgages”. “Reverse” I hear you say? How can you reverse a mortgage?
A “Reverse” Mortgage utilizes the equity in one’s home. It is specific in that it addresses a financing need for Canada’s fastest growing demographic – seniors.
Scenario:
Rhoda and Percy own a home and have no mortgage. Pension income barely covers the month to month expenses at the moment and besides they want to start “gifting” some of their estate to their grand children. Rhoda and Percy can utilize up to 40% of their equity and have opted to take a small lump sum draw followed by a monthly draw of $500. The good news is … these funds are not taxed as income!
The equity can be received in many different flexible ways and the interest accrued is only on the amount drawn from the maximum loan amount.
No monthly payments required
This is not a typo, you do not make any payments on a Reverse Mortgage. The reason is that the mortgage is structured in the following manner.
The mortgage is not unlike any other Canadian mortgage. It is registered on title and interest in added to the balance and is compounded semi-annually. The full loan amount only becomes due when the home is sold, or if both owners move out. Clients do, however, have the option to pay off the principal and interest, in full, at any time. The best part is…
There is no income or health qualification!
Dispelling Myth #1: You do not lose control of your home. The Reverse Mortgage is registered on title as is any other type of mortgage. The title remains in your name.
Property Values
Although property values have declined here in Calgary and area recently, over time a property should increase in value annually by approximately 4%. A Reverse Mortgage is structured in such a way that you typically cannot utilize more than 40% of the property’s value and because of this there is an inherent protection of equity for the homeowner. As well the only provider of Reverse Mortgages in Canada – CHIP Home Income Plan – guarantees, that no matter how long you live in your home, the amount to be repaid will never exceed the fair market value of your home at the time it is sold.
Qualifying Criteria
Qualifying criteria is fairly simple, everyone on title must be over 60 years old and there must be available equity in the home as determined by an independent appraiser. Financing can be arranged within 2-3weeks via independent legal counsel.
A Solution to many issues
There are no restrictions as to how this money can be used. Certainly one of the most common uses of a Reverse Mortgage is to pay off debt. Other uses have been participation in investments through an investment broker or Financial Advisor. In the case of an investment, the
Reverse Mortgage interest expense may be used to reduce taxes on investment income.
Scenario:
Violet and Lloyd’s daughter is looking to purchase a new home. Saving the down payment can be time consuming so Violet and Lloyd secured a Reverse Mortgage that would allow them to give their daughter $20,000 towards her down payment and they are taking a further $50,000 out for home improvements.
Dispelling Myth #2: Unlike many other equity take out mortgages, you’re not restricted in how you use the money. For example the money can be used to:
- Renovate
- Purchase a vacation property
- Go on vacation
- Investments
- Preservation of existing investments /assets
- As a gift it to a child as a down payment on a new home.
In summary
There are many more options available when it comes to Reverse Mortgages, from Fixed rates to Variable rates as well as different lengths of term. Reverse Mortgages are also available across Canada and can be secured against two properties (one being a vacation property).
If you think you have a parent, friend or neighbor who could benefit from a Reverse Mortgage, give us a call and we'll help you understand all the in's and out's of a Reverse Mortgage. CHIP is just one of the many lenders we deal with.
Matthew is an independent mortgage broker, a member of CAAMP and the Real Estate Council of Alberta. He is also the owner of Alberta Mortgage Solutions Inc. and can be reached at 403-836-2674. For more financing advice, or to find out your chances of getting a mortgage, visit his website at www.abmsi.ca.
