Reverse mortgage is an income-boosting option
Bruce Constantineau
Vancouver Sun
But interest-rate charges are high, and compound quickly, warns adviser
Reverse mortgages allow anybody 60 or older to borrow money against the value already built up in their home.
If you're at least 60 years old, own your home mortgage-free and want to boost your income in tough times, you might consider a reverse mortgage.
But it's not for everybody.
Reverse mortgages, which have been available in Canada since 1986, allow mature homeowners to tap into the equity in their homes without having to sell them.
Borrowers can receive up to 40 per cent of the value of their home in a tax-free lump sum or in staggered payments over a set period of time. No repayment is required until the home owner dies or moves out of the home.
Borrowers must maintain their properties and stay up to date with taxes, insurance and condominium or maintenance fees.
So you can get immediate cash for any purpose you want and you don't have to repay it until you sell your home.
Sounds great, but there's a downside.
Interest rate charges are typically higher than those for conventional loans and they compound quickly, with borrowers often owing more than twice the amount they received, within 10 years.
Reverse mortgage underwriter Canadian Home Income Plan said an average of 50 per cent of a home's value is left after the property is sold and the reverse mortgage is paid off.
"I would only use it as a last resort," Vancouver financial adviser Adrian Mastracci said in an interview. "It's an expensive way to borrow. Everything accrues and one day, somebody has to pay out a significant amount of money.
"Before I went for a reverse mortgage, I would consider downsizing to a smaller home and using the proceeds from that."
The annual percentage rate for an $80,000 Canadian Home Income Plan reverse mortgage currently ranges from 11.75 per cent to 13.05 per cent, depending on the term of the plan.
There are also about $3,500 in "set-up costs" -- including appraisal fees, independent legal advice fees and other costs.
Mastracci said older homeowners would be better off getting a line of credit or a normal mortgage, but acknowledged many seniors might not qualify for those products.
"Reverse mortgages are for people who really need the money and have few other options," he said. "Maybe they just don't have the time to sell their home and downsize into something smaller, which can take a lot of time in today's market."
Reverse mortgages might be used as an alternative source of income by investors who don't want to sell shares in a down market. Higher-income seniors could use a reverse mortgage to avoid withdrawing additional investment income that would push them over the clawback threshold for Old Age Security.
CHIP has been the main underwriter of reverse mortgages in Canada since pioneering the concept 22 years ago. It currently has about 7,000 reverse mortgages worth a total of $798 million, secured by properties worth about $2.2 billion.
bconstantineau@vancouversun.com
End of Article
If you would like to inquire about a reverse mortgage, please contact Mike Leibel with Mortgage Alliance Company of Canada - 403-204-1111
Vancouver Sun
But interest-rate charges are high, and compound quickly, warns adviser
Reverse mortgages allow anybody 60 or older to borrow money against the value already built up in their home.
If you're at least 60 years old, own your home mortgage-free and want to boost your income in tough times, you might consider a reverse mortgage.
But it's not for everybody.
Reverse mortgages, which have been available in Canada since 1986, allow mature homeowners to tap into the equity in their homes without having to sell them.
Borrowers can receive up to 40 per cent of the value of their home in a tax-free lump sum or in staggered payments over a set period of time. No repayment is required until the home owner dies or moves out of the home.
Borrowers must maintain their properties and stay up to date with taxes, insurance and condominium or maintenance fees.
So you can get immediate cash for any purpose you want and you don't have to repay it until you sell your home.
Sounds great, but there's a downside.
Interest rate charges are typically higher than those for conventional loans and they compound quickly, with borrowers often owing more than twice the amount they received, within 10 years.
Reverse mortgage underwriter Canadian Home Income Plan said an average of 50 per cent of a home's value is left after the property is sold and the reverse mortgage is paid off.
"I would only use it as a last resort," Vancouver financial adviser Adrian Mastracci said in an interview. "It's an expensive way to borrow. Everything accrues and one day, somebody has to pay out a significant amount of money.
"Before I went for a reverse mortgage, I would consider downsizing to a smaller home and using the proceeds from that."
The annual percentage rate for an $80,000 Canadian Home Income Plan reverse mortgage currently ranges from 11.75 per cent to 13.05 per cent, depending on the term of the plan.
There are also about $3,500 in "set-up costs" -- including appraisal fees, independent legal advice fees and other costs.
Mastracci said older homeowners would be better off getting a line of credit or a normal mortgage, but acknowledged many seniors might not qualify for those products.
"Reverse mortgages are for people who really need the money and have few other options," he said. "Maybe they just don't have the time to sell their home and downsize into something smaller, which can take a lot of time in today's market."
Reverse mortgages might be used as an alternative source of income by investors who don't want to sell shares in a down market. Higher-income seniors could use a reverse mortgage to avoid withdrawing additional investment income that would push them over the clawback threshold for Old Age Security.
CHIP has been the main underwriter of reverse mortgages in Canada since pioneering the concept 22 years ago. It currently has about 7,000 reverse mortgages worth a total of $798 million, secured by properties worth about $2.2 billion.
bconstantineau@vancouversun.com
End of Article
If you would like to inquire about a reverse mortgage, please contact Mike Leibel with Mortgage Alliance Company of Canada - 403-204-1111
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