Reverse Home Mortgage

[PaintearthCounty]

The neighbour lady who lives beside me , who is a widow in her late 60’s was asking me about a Home Reverse Mortgage, I said I don’t know much about it but thought AO might be a good place to get some opinions

[W921]

If you don't have anyone you want to leave anything to when you pass on its a way for you to have more cash before you pass on.

[schleprock]

From what I've read, the house has to be worth over $250k in order for her to qualify. Didn't look into it far enough to know if it's a really bad idea though.

[PaintearthCounty]

Her house is probably worth 300,000

[oilngas]

To me it's sorta like;

Money folks evaluate the house take that number n deduct repairs etc. to make it saleable, deduct a percentage based upon the home owners "best before date", deduct a percentage based upon the money they want to make on the deal + handling fee + mystery fee + legal fees + more fees if you want monthly deposits, etc., divide that number by the expected life span = payout to home owner.

Just a guess but the money folks actuarial is on their staff wink wink eh! More slanted numbers maybe.

[-JR-]

Is this when they buy the house from you ,then they rent it to you until your broke.

[Geraldsh]

It’s a deliberate scam aimed at seniors, you hope to die before the deal runs its course.

[brendan's dad]

Originally Posted by PaintearthCounty

The neighbour lady who lives beside me , who is a widow in her late 60’s was asking me about a Home Reverse Mortgage, I said I don’t know much about it but thought AO might be a good place to get some opinions

That a tough situation, being only in her late 60's she probably wants to stay at the house and feels she can take care of the property.

Has she maybe considered taking on a renter who may also be a widow in a similar situation?

[PaintearthCounty]

I’m not sure if she would be comfortable about taking on a renter

[HyperMOA]

Get some real info from the bank or institute. It’s not a great deal, but it’s far better than some are making it sound. Was there not a government sponsored version also???

[calgarychef]

Sell the house, move into low income seniors appt. And take a nice holiday every year.

[MyAlberta]

Based on rental rates, it might be an option. Up front lumps could clear hard credit debt. High rates, costs to get in, spiral. From an estate perspective, Beneficiaries often have negotiable resources.

[Off in the Bushes]

I think you can borrow up to 80% of the equity in your home. If you can get a better rate of return on your money then your mortgage why tie up all that potential earning power. But thats never the case.
I think it’s just another way for the bank to allow you access to money so you are always owing them and they are making money.

[Dean2]

Originally Posted by HyperMOA

Get some real info from the bank or institute. It’s not a great deal, but it’s far better than some are making it sound. Was there not a government sponsored version also???

Spot on. Reverse mortgages are NOT the scam many who posted are making them out to be.

Most of the big banks offer them; like any lending product, interest rate and terms decides whether it is something that makes sense. Less than 2 years ago, when mortgage rates were 7 year fixed at 2%, a reverse mortgage was a great way to free up cash and still stay living in your own home. One must factor in what rental cost have done over the last few years, and what they are likely to keep doing given the shortage of units. I have one person I know well who sold 4 years ago, and rented a two bedroom apartment in Edmonton. Rent has gone up so much, just over double, they are looking at having to downsize, and that is just 4 years.

They would have been way better off with a reverse mortgage than where they are now with having sold and rented. Also, their house has gone up 40% in the same time, so even had they taken a max reverse, between 45 and 55% depending on the lender, there is still lots of equity were they to sell. A reverse mortgage in a market where the house price is increasing is the best possible scenario, but even a flat market works.

OP, tell your friend to talk to a mortgage broker and her bank and get a proper assessment of her situation. At least have her do some basic Google research. Here is a link as a starting place.

https://www.canada.ca/en/financial-c...mortgages.html

[Big Grey Wolf]

Reverse Mtge works only if interest rates low. At 7% as many mtge rates are now and in future could be 10% the Bank may own your home before you die.
However some single elderly may be best of bad options to keep 'wolf from your door'.

[Dean2]

Originally Posted by Big Grey Wolf

Reverse Mtge works only if interest rates low. At 7% as many mtge rates are now and in future could be 10% the Bank may own your home before you die.
However some single elderly may be best of bad options to keep 'wolf from your door'.

How do you manage to continually post information that is just completely wrong. Do you know you are posting nonsense, or do you actually believe the stuff you post? Even at 10%, and assuming you elected a lump sum rather than monthly payments (Monthly payments means your outstanding loan balance grows MUCH more slowly), it will take a great many years before you could possibly owe more than the house was worth when you took the mortgage out, even excluding market increases in value.

https://www.forbes.com/advisor/ca/mo...age-pros-cons/

What Is a Reverse Mortgage?

If you’re a property owner who is at least 55 years old, you can borrow against your home’s equity (up to 55% of the current value of your home) to get tax-free cash from a lender. However, unlike a regular mortgage, you aren’t required to make monthly loan payments. Instead, you’ll repay the loan when you or your heirs sell the house. (Keep in mind you’ll still be responsible for property taxes and home insurance.)

In addition to being at least 55 years old, there are a few other requirements to get a reverse mortgage, depending on your lender. For example:

All people listed on your home’s title must be at least 55 years old.
The property has to be your principal residence, meaning you live there for at least six months of the year.
Your home must have a minimum $250,000 property value.
Your lender may require you (and any non-title holding spouse) to get Independent Legal Advice (ILA) and provide an ILA Certificate as proof that you obtained ILA.
You must pay off and close any outstanding loans or lines of credit secured by your home, such as a home equity line of credit (HELOC) before getting a reverse mortgage. (However, you can use the money you get from a reverse mortgage to do this.)

Types of Reverse Mortgages

Similar to a conventional mortgage, a reverse mortgage can be available either on a fixed-rate term or a variable-rate term.

A fixed rate reverse mortgage has an interest rate locked in for a determined period, namely six months, one year, three years or five years.

With a variable rate reverse mortgage, the interest rate fluctuates according to the Bank of Canada’s lending rate and may fluctuate up or down during the mortgage term.
How Reverse Mortgages Work

You’re probably wondering how it’s possible to get a mortgage with no payments. Normally, when you take out a mortgage loan, the bank gives you a lump sum that you pay back with interest over time. At the end of the term, the loan is paid down to $0.

A reverse mortgage works in, well, reverse. The lender actually makes payments to you: You can choose to receive a lump sum or one smaller payment followed by installments over time.

The interest and fees associated with the loan get rolled into the balance each month. That means the amount you owe grows over time, while your home equity decreases. You get to keep the title to your home the whole time, and the balance isn’t due until you sell the property or die.

When that time comes, proceeds from the home’s sale are used to pay off the debt. If there’s any equity left over, it goes to the estate. If not, or if the loan is actually worth more than the house, the heirs aren’t required to pay the difference. Heirs also can choose to pay off the reverse mortgage or refinance if they want to keep the property.

In addition, you may be required to pay off the reverse mortgage early if you default on your loan. This could happen if:

You used the money for an illegal purpose or activity.
You were found to be dishonest in your loan application.
You allow your house to fall into disrepair, thereby lowering its value.
You don’t follow the conditions in your reverse mortgage contract, such as living off of the property for greater than six months of the year.
You fail to pay your property taxes, home insurance or other associated costs with home ownership.

Where Can I Get a Reverse Mortgage?

The two main providers of reverse mortgages in Canada are HomeEquity Bank (known for the CHIP Reverse Mortgage) that is available across Canada and Equitable Bank, which offers a reverse mortgage in cities and most large towns across Ontario, Alberta, B.C. and Quebec.
Reverse Mortgage Pros

If you’re struggling to meet your financial obligations, a reverse mortgage may help you stay afloat. Here are a few benefits to opting for a reverse mortgage.
1. Helps Secure Your Retirement

Reverse mortgages are ideal for retirees who don’t have a lot of cash savings or investments but do have a lot of wealth built up in their homes. A reverse mortgage allows you to turn an otherwise illiquid asset into cash that you can use to cover expenses in retirement.
2. You Can Stay in Your Home

Instead of having to sell your home in order to liquify your asset, you can keep the property and still get cash out of it. This means you don’t have to worry about potentially downsizing or getting priced out of your neighborhood if you had to move.
3. You’ll Pay Off Your Existing Home Loan

Your home doesn’t have to be paid off in order to take out a reverse mortgage. In fact, you can use the proceeds of a reverse mortgage to pay off an existing home loan. This frees up money to put toward other expenses.
4. You Won’t Have Tax Liability

According to the Canada Revenue Agency, the funds from a reverse mortgage are tax-free, unlike money withdrawn from your RRSP, RRIF or other taxable accounts.
5. You’re Protected If the Balance Exceeds Your Home’s Value

In some cases, the value of your home could end up being less than the total amount owed on the reverse mortgage. This can happen if home prices fall, for example. If this occurs, your heirs don’t have to worry about paying the balance. Both HomeEquity Bank and Equitable Bank have a No Negative Equity Guarantee on their products.
Reverse Mortgage Cons

So what is the downside of a reverse mortgage? Though it might seem like there are many benefits, there are also some serious risks to consider.
1. You Could Lose Your Home to Foreclosure

In order to qualify for a reverse mortgage, you have to be able to afford your property taxes, homeowners insurance and other costs associated with owning your home. You’re also required to live inside the home as your principal residence for over six months of the year.

If at any point during the loan period you become delinquent on these expenses, or spend the majority of the year living outside the property, you could default on the reverse mortgage and lose your home to foreclosure.
2. Your Heirs Could Inherit Less

Homeownership is a key path to building generational wealth. However, a reverse mortgage usually requires the home to be sold to repay the debt. When you die, your heirs or estate will be required to pay the full loan balance. Usually, that means either selling the home to repay the loan or foreclosing the property (essentially turning the property over to the lender) to satisfy the debt.

Not to mention, a reverse mortgage eats away at your home’s equity. By the time it needs to be paid off, there may not even be any equity to be left to your heirs.
3. It’s Not Free

You might not have to make payments with a reverse mortgage, but there are still plenty of expenses associated with one. Interest rates are typically higher than a HELOC. Not only do you have to keep up on your taxes and insurance, but there may be either a set up or closing fee. And if you want to pay off the loan early, there may be early repayment charges.
4. The Amount of Money You Can Access is Capped

With a reverse mortgage you can access up to 55% of the appraised value of your home, but the amount you qualify for may be less. For example, the range for Equitable Bank’s Flex reverse mortgage is between 15% and 55% of your home’s value. Various factors affect your final payout including your age, the type of home (condo, townhouse, semi-detached or detached) and the location of your house.
5. Reverse Mortgages Are Complicated

There are a lot of rules and caveats to reverse mortgages. These loans come with many risks that may not be worth the extra cash. You should be wary of any reverse mortgage offer unless you understand the terms really well.

A reverse mortgage may be helpful but isn’t for everyone. There are a few factors that can make a reverse mortgage worth it:

Your home is increasing in value considerably. If you’re building up a lot of equity in your home, you may be able to take out a reverse mortgage and still have money left over for your estate.
You plan to stay in your home for a long time. Just like a regular mortgage, there are significant upfront costs associated with the loan. You’ll want to be sure you plan to live in that home long enough to make those costs worth it.
You can cover the costs of your home. Since staying current on property taxes, insurance, maintenance, etc. is required to keep your reverse mortgage current, it’s important that you have plenty of cash flow for these expenses.

Ultimately, the decision to take out a reverse mortgage is one you should weigh very carefully. Though it’s an easy way to get cash, it could put your finances at more risk in the long run. Be sure you fully understand reverse mortgage pros and cons before taking one on.

Related: 15 Things You Should Know Before Taking Out A Reverse Mortgage

[Grizzly Adams1]

Forgive me, just another out in a society that doesn't give a crap about the elderly. That reverse mortgage is probably going to eat into your kids inheritance, who may well need it to stay in their own home after retirement. I know people in their 50s who still owe 200 grand on their home, they'll never pay that off.

[HyperMOA]

Originally Posted by Grizzly Adams1

Forgive me, just another out in a society that doesn't give a crap about the elderly. That reverse mortgage is probably going to eat into your kids inheritance, who may well need it to stay in their own home after retirement. I know people in their 50s who still owe 200 grand on their home, they'll never pay that off.

It’s not my parents job to pay off my mortgage. I told them to spend my inheritance.

[PaintearthCounty]

Thanks for all your very helpful information

[Dean2]

Originally Posted by HyperMOA

It’s not my parents job to pay off my mortgage. I told them to spend my inheritance.

Spot on!!!!! The entitlement of many Boomers kids is fracking disgusting.

[Grizzly Adams1]

Originally Posted by Dean2

Spot on!!!!! The entitlement of many Boomers kids is fracking disgusting.

My kids are definitely not entitled, they managed home ownership on their own. I am where I am largely because My FIL gave us a financial boost, very early in our marriage, that enabled us to buy a house. My kids are past that but I plan to leave them and the grand children in a better position

[Dean2]

Originally Posted by Grizzly Adams1

My kids are definitely not entitled, they managed home ownership on their own. I am where I am largely because My FIL gave us a financial boost, very early in our marriage, that enabled us to buy a house. My kids are past that but I plan to leave them and the grand children in a better position

Was not referring to your comment specifically. If you can and you choose to, that is fine. But I am also seeing my friends kids DEMAND their parents contribute to home purchases, cabin purchases, fund holidays, look after kids for free, pay for stuff they want and can't afford, while these same Boomer parents are having trouble covering their own bills and monthly expenses. That is the entitlement that offends the hell out of me. Their parents inherited nothing and earned every penny they have. Their kids have come to expect a standard of living they grew up with and don't comprehend that they too need to work hard to accomplish that.

[Gammaboy]

When my mom passed we found out she had a reverse mortgage on her house. We had no idea she was short or we kids would have helped out.
Do you realize that the mortgage must be paid out within 365 days of death or it automatically in default and foreclosed? It was a scramble to get probate, taxes done, and the house emptied, cleaned, listed and sold within the time frame. Made a stressful time worse. Just something to be aware of.

[Big Grey Wolf]

Dean, always respect your posts especially on banking topics. Do the math on 55 year old staying in home to 85 (30 years). Throw in a potential depreciation/recession of maybe a $100-200K. Then at 10% interest on the interest/principal on the money, fees etc I believe your home is gone!

[Dean2]

Originally Posted by Big Grey Wolf

Dean, always respect your posts especially on banking topics. Do the math on 55 year old staying in home to 85 (30 years). Throw in a potential depreciation/recession of maybe a $100-200K. Then at 10% interest on the interest/principal on the money, fees etc I believe your home is gone!

If you read what I posted above, in Canada, the lender cannot force you to sell, even if the loan grows to be bigger than the house value. Repayment is only due when the house is sold or when the owner dies, or can no longer live in the home full time for more than 6 months a year. There are events of default per above, but as long as thise aren't triggered, no ability to foreclose or trigger a sale exists.

Even on sale, the bank gets what the house is worth, and shortfall is their loss. The bank of course is charging a higher interest rate than a conventional mortgage and betting on house values increasing over the long term to mitigate their risks. That is one of the reasons the max advance amount is lower in some markets like Saskatoon,
or Edmpmton for example and lower on housing like condos, that don't tend to rise as fast as single detached in say Toronto.

[tranq78]

Originally Posted by Dean2

If you read what I posted above, in Canada, the lender cannot force you to sell, even if the loan grows to be bigger than the house value. Repayment is only due when the house is sold or when the owner dies, or can no longer live in the home full time for more than 6 months a year. There are events of default per above, but as long as thise aren't triggered, no ability to foreclose or trigger a sale exists.

Even on sale, the bank gets what the house is worth, and shortfall is their loss. The bank of course is charging a higher interest rate than a conventional mortgage and betting on house values increasing over the long term to mitigate their risks. That is one of the reasons the max advance amount is lower in some markets like Saskatoon,
or Edmpmton for example and lower on housing like condos, that don't tend to rise as fast as single detached in say Toronto.

The number of people who do a reverse mortgage and beat the system by outliving are very very few.

You constantly see reverse mortgages advertised. Just watch BNN for awhile and see how often the adverts pop up. That should tell you how incredibly profitable reverse mortgages are for the lender.

You can actually participate as a lender if you want through private pools. The advertised historic returns are astounding. Emphasis on historic. I'm not sure what the current or expected returns are at current interest rates. But I will bet current reverse mortgages will have factored high and/or rising interest rates into their offers.

Anyone reading this thread had best remember a saying from life insurance, which applies to reverse mortgages. It is a product that is sold, not bought. A lot of wisdom is crammed into this simple sentence.

My MiL almost fell for a reverse mortgage because she saw the advertising. Fortunately we staged an intervention and stopped her.

[MyAlberta]

Originally Posted by Dean2

If you read what I posted above, in Canada, the lender cannot force you to sell, even if the loan grows to be bigger than the house value. Repayment is only due when the house is sold or when the owner dies, or can no longer live in the home full time for more than 6 months a year. There are events of default per above, but as long as thise aren't triggered, no ability to foreclose or trigger a sale exists.

Even on sale, the bank gets what the house is worth, and shortfall is their loss. The bank of course is charging a higher interest rate than a conventional mortgage and betting on house values increasing over the long term to mitigate their risks. That is one of the reasons the max advance amount is lower in some markets like Saskatoon,
or Edmpmton for example and lower on housing like condos, that don't tend to rise as fast as single detached in say Toronto.

Add to that, preventing charges against title, keeping your taxes paid, maintaining the property. In all likelihood, all other equity instruments are locked out. It could be an easier path to fund unconventional activities, where you can only find capital at substantially higher rates. It could shine as a means of clearing credit debt.

[MyAlberta]

In its most basic form, it’s a loan, using equity in your home, at a somewhat higher rate. Either you pay it back, or you don’t. If other avenues are not available, it could be a tool. Good time to council with your appointed Executor.

[pikergolf]

Originally Posted by Dean2

Was not referring to your comment specifically. If you can and you choose to, that is fine. But I am also seeing my friends kids DEMAND their parents contribute to home purchases, cabin purchases, fund holidays, look after kids for free, pay for stuff they want and can't afford, while these same Boomer parents are having trouble covering their own bills and monthly expenses. That is the entitlement that offends the hell out of me. Their parents inherited nothing and earned every penny they have. Their kids have come to expect a standard of living they grew up with and don't comprehend that they too need to work hard to accomplish that.

That is not a kid short coming that is a parent shortcoming. We did not share with our children how hard it was to get to where we got to, and neglected to teach them patience and perseverance. Gave them to much because we could.

[valenzuelapc]

Originally Posted by Dean2

How do you manage to continually post information that is just completely wrong. Do you know you are posting nonsense, or do you actually believe the stuff you post?

you puffed out your chest the other day,
that you don't frequent the general discussion.
but here you are in every thread.