30 Aug

Pros and Cons of Reverse Mortgages

General

Posted by: Jen Lowe

REVERSE MORTGAGE – THE PROS AND CONS

by | Apr 25, 2018 | Blog, Homeownership, Mortgage |

Reverse Mortgage – The PROS and CONS

You may be seeing and hearing a lot more regarding the Reverse Mortgage in today’s marketplace. I have taken the time to get familiar with the program here in Canada and have been quite surprised by how it’s changed and how different it is to its counterpart in the US and how relevant it has become given our aging population in Canada.

Who are they best suited for? People age 55+ that own a house, townhouse, or condo and want to either increase their cash flow, or access equity without making a monthly payment. The older the client, the higher the approved limit.

Here is a list of PROS and CONS of the Reverse Mortgage.

Pros

  • Funds can be advanced as needed such as a line of credit with interest only accruing on the money advanced.
  • No income debt servicing like other ‘standard’ mortgages. Retirees with fixed incomes can qualify for much more money as our approvals are based on age and property.
  • No payments required. Borrower can retain more of their income and never worry about default or foreclosure.
  • Changes in interest rates don’t affect the client’s monthly cash flow since there no payment required.
  • Clients can pay up to 10% towards the loan if they choose each year, but there is no obligation.
  • Prepayment penalties are waived upon death and reduced by 50% if the borrower(s) are moving into a care home.
  • Borrowers will never owe more than the fair market value of the home at the time it is sold
  • There are no changes to the mortgage amount and no payments required if one spouse passes or moves into a care home.
  • With conservative house appreciation of just 2.5% to 3% per year over time will typically make up for the accruing interest on the reverse mortgage leaving clients with plenty of equity in the end.

Cons

  • Client are choosing to have more income/cash flow TODAY, in return for having less savings in the home TOMORROW.
  • All clients are required to obtain independent legal advice, which is a good thing. But there is a small extra cost. Total one-time set up and legal fees run approximately $2,500.
  • Rates are approximately 1.5% to 2% higher than a best rate secured line of credit.
  • If the housing market never goes up, and the client lives in the home long enough, there is a chance the client could exhaust all the equity in the home to fund their retirement.

If you, a family member, or a contact of yours could benefit from a reverse mortgage or want to learn more please let me know. I work directly with the lender to get you all the information you need to make the right decision.  If you decide to proceed, I will walk you through the entire process.

30 Aug

Reverse Mortgage–Common Uses

General

Posted by: Jen Lowe

REVERSE MORTGAGE – COMMON USES

Eliminate mortgage payment – Retired, or wanting to retire, but still have a mortgage and mortgage payment to make? Use a reverse mortgage to pay off the traditional mortgage, getting rid of that monthly payment.

Unexpected expenses – Home repairs, helping children, vehicle repairs, health care/home care, etc. A reverse mortgage gives you access to your tax-free equity whenever you need it. The equity can be used to pay for those expenses without the burden of adding a new monthly payment into your life.

Helping family – Home values have risen, and often the plan is to leave the house to children or grandchildren as an inheritance. A reverse mortgage is a way to access some of that inheritance money today, gift the money now and enjoy it with them as the family benefit much earlier in life.

Purchasing a new home – Some clients are moving to that just right, final home, but finding they cost more than anticipated. A reverse mortgage can be used to buy a new home, allowing clients to afford a much higher priced home, or keep more cash on hand.

Aging parents needing home care – As we age, sometimes a little additional help is needed to stay in the home. Instead of selling and moving to a care home or assisted living, some clients prefer to stay in the house and have in home care. A reverse mortgage is a terrific way to access the equity in the home, month by month, to pay for those care costs.

Tax free retirement funding – By using the home as part of the financial plan, clients can preserve investments, pay less tax, and often have a greater net worth in the end.

If you or a family member would like to learn more about reverse mortgages, contact me today at j.lowe@dominionlending.ca

9 Aug

What is a Monoline Lender?

General

Posted by: Jen Lowe

WHAT IS A MONOLINE LENDER?

What usually follows once someone hears the term “Monoline Lender” for the first time is a feeling of suspicion and lack of trust. It’s understandable, I mean why is this “bank” you’ve never heard of willing to loan you money when you’ve never banked with them before?

In an effort to help you see the benefits of working with a Monoline Lender, here is some basic information that will help you understand why you’ve never heard of them, why you want to, and the reason they are referred to as lenders, not banks.

Monoline Lenders only operate in the mortgage space. They do not offer chequing or savings accounts, nor do they offer investments through RRSPs, GICs, or Tax-Free Savings Accounts. They are called Monoline because they have one line of business- mortgages.

This also plays into the reasons you never see their name or locations anywhere. There is no need for them to market on bus stop benches or billboards as they are only accessible through mortgage brokers, making their need to market to you unnecessary. The branch locations are also unnecessary because you do not have day-to-day banking, savings accounts, investment accounts, or credit cards through them. All your banking stays the exact same, with the only difference of a pre-authorized payments coming from your account for the monthly mortgage payment. Any questions or concerns, they have a phone number and communicate documents through e-mail.

Would it help Monoline Lenders to advertise and create brand awareness with the public? Absolutely. Is it necessary for them to remain in business? No.

Monoline Lenders also have some of the lowest interest rates on the market, the most attractive pre-payment privileges, and the lowest pre-payment penalties, especially when compared to a bigger bank like CIBC or RBC. If you don’t think these points are important, ask someone whose had a mortgage with one of these bigger banks and sold their property before their term was up and paid upwards of $12,000 in penalty fees. An equivalent amount with a Monoline Lender would be anywhere from $2,000-$4,000 in fees.

Monoline Lenders are not to be feared, they should be welcomed, as they are some of the most accommodating and client service-oriented lenders around! If you have any questions, contact me today at j.lowe@dominionlending.ca