Moving Forward on Reverse Mortgages
2020-06-15 | 08:49:29
Happy Monday everyone!!
Hope you were all able to enjoy slightly larger gatherings with friends and family as the GTA and periphery begin moving to the next phase of openings.
With cautious optimism, we all look forward to the loosening of the grip COVID-19 has had on our city, province, country and lives.
Discussions with many of our friends surround the long awaited decision from the province of Ontario to allow visiting our loved ones whom are housed in long term facilities.
No one will deny the tragedy, sadness and anger that this pandemic has bestowed on our aging loved ones who live in these facilities. COVID-19 has exposed many shortfalls, failures and inadequacies in many provincially funded and private long term care homes.
It is not a surprise to hear more and more people talking about there having to be a better way to taking care of our aging loved ones.
I believe over the course of the coming years, reverse mortgages will become a major solution for aging parents and their family’s to consider before deciding on whether moving out of one’s home to a care facility or downsizing are the only viable options.
Reverse mortgages have, in the past, been looked at through a negative lens.
I believe it is a very powerful instrument for aging people to consider, along with their family.
In Canada, HomeEquity and Equitable are the current providers of varying reverse mortgage products.
Where HomeEquity will allow people 55 years and older to extract up to 55% of the equity in their home, Equitable will allow clients to access up to 40% of their home’s equity.
In the coming years, I believe that with the current uptick in popularity for the reverse mortgage, other lenders will begin to participate and contribute to even more benefits that increased competition will create in this segment of the mortgage market.
HERE ARE THE FACTS
- 20% of retirees in Canada are still paying off mortgages
- 66% of retirees carry varying levels of credit card debt
- 42% of all homeowners in Canada are over the age of 55
- The average annual expense for those 65+ in Canada is $60,000 but their average income is only $40,000 received from pension plans, Old Age Security and limited investment
- 47% of those aged between 55 – 64 do not have an employer pension
- Because we are living longer lives, many will outlive their savings and contributions made in their financial plans
Why then, all of the cynical press and complete nonsense surrounding what reverse mortgages will negatively do to people’s equity and ownership of their homes?
It is not true that a reverse mortgage is a predatory instrument used by either of the banks mentioned above to swindle people out of their home. Also, it is virtually not possible that a homeowner will ever need to pay back more than they ever borrowed. HomeEquity clients are guaranteed that they will never owe more than what they borrow on a reverse mortage.
Many of our parents purchased their homes decades ago at prices we will never experience again and, their current equity held in their home will easily absorb even today’s worst scenario of an 8% to 18% drop in home prices post COVID-19. This because since 1945, home prices in the GTA havehave increased at an annual rate of over 5%. This annual rate includes every economic downturn, market correction and housing bubble since 1945.
When considering a reverse mortgage for yourself or suggesting one for an aging family member, it is important to note that one is able to extract up to a maximum of 55% of a home’s equity. Also, the older you are, the more money you are able to access.
OTHER FACTS TO CONSIDER
- The money you receive from a reverse mortgage is tax free
- There are no payments (aside from the initial set up fee ranging from $1800 to $2500 or any default) until the home is sold either by the homeowner or their estate following the passing of the homeowner
- Client retains full ownership of home and the monies received will not affect their pension nor Old Age Security payments
- Clients decide on whether they wish for a lump sum payment or monthly, quarterly, and other such draws – client only pays for the amount they have used within their reverse mortgage
- So far, I believe, there are NO negative points to draw upon.
Yes, it is true that interest rates on reverse mortgages are higher than the super low rates we see advertised today.
At HomeEquity, rates range from an APR of 4.99% to 5.25% (please contact me for more detailed information and terms).
At Equitable, rates range from 3.74% to 4.54% (please contact me for more detailed information and terms).
But all that we have been talking about is money money money!!
Reverse mortgages should be considered for the people whom we love because of what it will allow them to enjoy. Agreed, there are obviously those who can no longer live in their homes safely because of extreme medical and physical conditions.
But what we generally need to focus on for those who have been blessed with better health and the prospect of living a longer life is:
- 93% of all people surveyed, pre COVID-19, say they wish to live in their homes and do not want to move into a care facility. Nor do they want to downsize. 93%!!!
- That living in their own homes empowers people from 55 to over 85 to live with more dignity by living in their own homes
- That reverse mortgages will fund renovating their homes to allow for assisted or full time care
- That a reverse mortgage can be used to renovate and modernize a home to further increase its value
- That travel and leisure wishes do not become unreachable during years where people are still very active and healthy
- To be able to offer financial assistance to their children and grandchildren while they are alive.
- To experience the effect of their financial gifts they intend to leave in their estate
The list can go on and on but I hope that you can see the emotional and physical advantages that a reverse mortgage can offer a loved one.
I always ask myself, would I want to consider a reverse mortgage when I reach a certain age? If I maintain my mental and physical health or, if I am able to communicate with my family that I would want to live out my life at home if my capacities became limited, yes, a reverse mortgage is definitely a fantastic product I would consider when the time comes.
Like everything else in life, please take the time to discover the many details of a reverse mortgage and how this financing instrument is suitable for your situation, or that of a loved one.
The impact that COVID-19 has wrought in our lives thus far, including the exposure of the tragic deficiencies in many of our long term facilities are only two of the reasons why you should contact me to find out more on reverse mortgages.
Most importantly, when it is the wish of our aging elderly to live in their homes and, a reverse mortgage will allow them the dignity and freedom to decide how they live, this should be the primary reason why anyone should consider it.
A media report reduced to 2 to 4 minutes of airtime on the evening news should not be how any of us make crucial decisions that when fully informed, can improve and have people live their lives as they should – on their own terms.
For more detailed information, please do not hesitate to contact me with your questions.
Looking forward to your calls and comments, I wish you a wonderful week ahead.
Marco
