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

Government of Canada Moves to Protect, Strengthen Canadian Housing Market

The Government of Canada today announced adjustments to the rules for government guaranteed mortgages aimed at protecting and strengthening the Canadian housing market. The new measures include:

Fixing the maximum amortization period for new government-backed mortgages to 35 years;
Requiring a minimum down payment of five per cent for new government-backed mortgages;
Establishing a consistent minimum credit score requirement; and
Introducing new loan documentation standards.
Today’s announcement marks a responsible and measured approach by the Government to ensure Canada’s housing market remains strong and to reduce the risk of a U.S.-style housing bubble developing in Canada.

The new limits are planned to take effect October 15, 2008. This would allow existing mortgage pre-approvals with the common 90-day duration to be used or expire. Certain exceptions would also be permitted after October 15. The Government will work closely with all stakeholders to ensure timely and effective implementation of these measures.

As these measures relate only to new, government-backed insured mortgages, Canadians who already hold mortgages will not be affected by this announcement.

The measures announced today will build on the strength of Canada’s housing market. According to the International Monetary Fund, the increase in house prices in Canada is based on sound economic factors such as low interest rates, rising incomes and a growing population. A recent Statistics Canada report concluded that home ownership is at record levels, with over two-thirds of Canadians owning their own home.

Mortgage arrears—overdue mortgage payments—have also remained low. In recent years, the percentage of mortgages in arrears for three months or more continues to be at low levels not seen since 1990.

Beware fraudsters stealing homes

Beware fraudsters stealing homes:
You can lose your house without even
realizing it
The Vancouver Province
Thu 15 Mar 2007

Susan Lawrence was trying to sell her home, but had it stolen instead. The 55-year-old widow said she never imagined that a "For Sale" sign on her front lawn would make her the victim of mortgage fraud. Now she is cautioning others to learn from her troubles.

The Toronto woman was in Vancouver yesterday to raise awareness of mortgage fraud which is estimated to cost Canadians between $300 million and $1.5 billion a year.

Lawrence said she lost her 100-year-old Victorian home In Toronto last year when of home purchase is the identity thieves assumed her identity. They forged her signature to sell her home availability of land-title to an accomplice, discharged her small mortgage and took out a new one for almost $300,000.

They pocketed the money, defaulted on the mortgage and disappeared. Lawrence was left with the choice of paying off the debt or face eviction from her own home. "I learned a heck of a lot in the last year," said Lawrence. "It took me close to a year and $50,000 to get my house back."

As part of Fraud Awareness Month, organized by the Consumers Council of Canada, "Stolen/Not For Sale" signs were staked out in front of Vancouver homes yesterday to raise the profile of land-title fraud.

Bill Huzur, president of the Consumers Council of Canada, said one of the best ways to prevent real- estate swindlers from assuming your identity is to protect your private information. He also suggested that land-title insurance -- which costs about $350 for a house assessed at $500,000 --
is one of the best ways to protect yourself.

"The only way I could've stopped this was to have title insurance," echoed Lawrence. After a year-long struggle that took her to the Ontario Court of Appeal, Lawrence finally got the fraudulent mortgage dismissed and won her home back. No arrests have been made.

Lawrence says people need to be made aware of the problem because there is very little recourse available for homeowners. They first have to prove they are victims and that banks did not do due diligence before they can even make a claim to the provincial government's land-title assurance fund, which is financed by land-title fees.

First Canadian Title, a company that sells title insurance, estimates the average cost of a single real-estate fraud is $300,000. There are no statistics that track the number of mortgage frauds in B.C., although it's estimated to be a relatively small number, said Ken Fraser of the Financial Institutes Commission of B.C.

- For more information, visit www.ProtectYourTitle.com.

TIPS FROM THE PROS

The Canadian Institute of Mortgage Brokers and Lenders offers the following tips:

- Do not supply personal information unless you know the person you're dealing with. _ Regularly ask credit bureaus for your credit rating.

- Keep up to date with all credit and financial reports.

- Rely on professional REALTORS® when buying or selling a home. When closing a mortgage application, check its accuracy.

Mortgage Acceleration

I received an email today from a company I had never heard of, expounding the virtues of their mortgage acceleration software. After doing a fair bit of digging, I found that this software and others like it, are manifesting themselves in a virus-like fashion under different disguises. It is apparently very lucrative for the sellers of the software, which I gather retails for about $3500.00.

It was somewhat difficult to find many reviews, since the search results yielded hundreds of links promoting the same software, pushing the reviews down in the rankings to oblivion. From what I learned, most of the financial advisers who discussed the virtues of the software, recommended you steer clear of them. Personally, I'm adding this to my list of "get rich schemes" which really just eat up the equity you've already built up, and will not likely make any noticeably appreciation on your bottom line unless you happen to be extremely fortunate.

Moreover, the price of the software is prohibitive. Think about it, when was the last time you purchased any software over $100.00? Who are they trying to kid?? Here's an interesting clip I found on the topic. Excuse the relatively poor quality, but it does seem to drive the point home. (If you can't see the video, click here)

Finance Options for Investment Properties

CMHC announced their Rental Property program in January, however the Insurance Premium is fairly pricey! At 95% to 100% loan to value the premium would be 7.25% for a 25 year amortization. 40 year amortizations are available however the premium would increase by .60%


This program is available with Purchase or Purchase with improvements for up to 4 units. Clients have to have a strong credit history. It is available under Corporate names with personal guarantees. Income must be verified.

Best current rate on 5 year term is 5.74% and Variable is Prime - .60%.