Reverse mortgages can help you stay in your home after retirement

Benefit of reverse mortgage

The most recent statistics from 2022 indicate there are more than 1.9 million divorced people between the ages of 55 and 89 years old in Canada.

This phenomenon, commonly known as “grey divorce”, is defined as those over the age of 55 going through a divorce. For many of these individuals, staying in the home they love is a priority, but they may not have the funds on hand to finance a buyout.

If you lack the means to generate new wealth or face difficulties borrowing due to a lack of employment income, it can be tempting to dip into your retirement savings or investments to cover the cost of a home buyout. However, there may be another solution.

For those looking to finance the buyout of their marital home, a reverse mortgage may be the answer. A reverse mortgage can help you tap into the equity you’ve built in your home to buy out your spouse’s half of the home. With a reverse mortgage, you can access up to 55% of the value of your home and turn it into tax-free cash. What’s more, there are no monthly mortgage payments.

There are many other ways a reverse mortgage can be used such as:

• Health care: 91% of Canadians say they want to remain in their own homes for as long as possible after retirement. If you are one of these Canadians, you can use a reverse mortgage to help you continue living in the comfort of your own home and community.

• Renovations/retrofitting: Many clients use the proceeds of the reverse mortgage for renovations and retrofitting.

• Income supplement: Like many other Canadians, you might fear that you cannot maintain the same standard of living once you retire due to a decreased income. However, with a reverse mortgage, you can get an increase in your cash flow with no monthly payments required and be financially secure to live out your retirement on your terms.

• Unplanned expenses: You may have the perfect retirement plan, which has been built to provide you with financial security. However, unplanned expenses are almost impossible to avoid, no matter how much planning you have done. Emergencies relating to damages to your home and unexpected health issues can always arise, the costs of which may not have been accounted for in your retirement plan. A reverse mortgage can help you by accessing the value of your home’s equity and giving you the tax-free cash, you need to be financially prepared for any unplanned expenses.

• Early inheritance: Many clients use a reverse mortgage funds to provide an early inheritance to their family. With the cash you receive from the reverse mortgage, you can help support your loved ones now and give them an early inheritance to help them with a down payment on a house.

• Debt consolidation: One of the most common use of funds of a reverse mortgage is for debt consolidation. You can use the tax-free funds you obtain from accessing your home’s equity to pay off all your debts and live a peaceful retired life.

Big life events like divorce or even retirement are challenging. Please don’t hesitate to contact me to learn more about how a reverse mortgage can make a difficult time a bit less challenging or to see if there are other options available for you. If you would like to chat please book a time here on my calendar calendly.com/april-dunn or email: [email protected]

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Dealing with debt in a time of rising interest rates

Rising rates and debt

A recent survey found 53% of Canadian mortgage borrowers are concerned about the prospect of higher monthly payments at renewal time.

Those in a variable rate or adjustable rate mortgage are already feeling the pinch with rising interest rates and increased payments and those who are currently in a lower rates fixed mortgage will be facing higher payments as their mortgages come up for renewal in the next few months.

Now, more than ever, is the time to take a review of your current debt picture along with your budget to see where you can cut back your cost of borrowing and potentially lower your overall monthly payments.

If you are carrying high interest credit card debt, car loans or other personal loans you know that it can be challenging to pay off everything that you owe.

If you are a homeowner and there is sufficient equity in your property, consolidating all of your debt and including it in your mortgage payment might be the right solution for you.

There are many benefits to debt consolidation including the following:

• A much lower monthly interest rate for all of your debts

• Lower monthly payments

• The comfort and convenience of making only one monthly payment instead of making multiple payments on your credit cards and other loans

• Improving your credit score by reducing the amount you owe and now being able to make all of your payments on time

A debt consolidation mortgage is not a quick fix and a full financial review should be completed with your mortgage broker. There could be costs to break your current mortgage to include those higher interest debts with your mortgage payment. You may be lowering your current monthly payments but now the debt is going to be repaid over a longer period of time. Is that really going to be financially beneficial?

It all comes down to the math as the overall cost of borrowing could be higher or lower than what you are currently paying. Crunching all the numbers is the only way to know for sure.

There is also another real danger to consider–are you disciplined enough to stick to a budget going forward and live within your current income or will you be tempted to use those credit cards again and end up in exactly the same situation in the near future?

It can become a vicious circle unless you learn to live within your budget. You don’t want to end up in the same place a year from now.

On the other hand, if you are disciplined and can live within a budget the benefits of the increased monthly cash flow could significantly improve your financial situation. These extra funds might be used for investing in your retirement with RRSP contributions and having an emergency financial fund in place for life’s surprises.

There are several possible options to consider for a debt consolidation mortgage including breaking your current mortgage to include the debt owed, a second mortgage for the consolidation or a home equity line of credit.

A small unsecured personal loan may be sufficient. In an extreme situation it may be necessary to sell your home to clear off all debts.

You may have heard about “interest free” debt consolidation programs, where a company will negotiate on your behalf to reduce the debt and arrange a single monthly payment. With very careful consideration that may be a last resort option but be aware, that type of solution will ruin your credit rating for a long time.

Get all of the facts before entering into this type of arrangement.

Now all that’s left is to figure out precisely which solution is best for you to wipe out all those high interest payments. If you would like a complete confidential assessment and discussion of all the possible options, please email [email protected] or, if you are ready to chat, you can book a time here on my calendar www.calendly.com/april-dunn.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Divorce does not necessarily mean you have to sell your home

Spousal buyout mortgage

You might be going through, or considering, a separation or divorce but the end of a relationship does not necessarily mean that you will have to sell your home. Your home may be able to give both partners a new start.

For many, their home is their largest asset and where most of their net worth has accumulated. There are mortgage products available that can allow you to buy out the other party while enabling you to stay in your home. A divorce or separation doesn’t always mean you will have to sell your property.

You will require a finalized separation or divorce agreement, as that is required by the lender and the agreement needs to clearly detail the asset allocation and any joint debts that need to be cleared.

The mortgage funds can only be used to buyout the other party’s equity the home unless it is clearly laid out in the separation agreement that some joint debts need to be paid out to a maximum of 95% of the value of the property. The property must be your primary residence.

Sometimes friends or siblings have bought a home and live together in the property. This program may be used in that circumstance also, but this will require an exception for an approval by the mortgage insurer.

There are insured mortgage programs available that could help you stay in your home in the event of a separation, divorce or dissolution of a relationship by purchasing the home from your ex-spouse or partner for up to 95% of the home’s value.

To qualify for this program you must be able to afford the mortgage payment on your own along with your other liabilities. Not only must the lender approve your application but also a mortgage insurer. Both parties must also be on title on the home prior to the separation.

There are some differences between two of the programs.

With the first mortgage insurer, the funds can only be used for a spousal buy-out or the dissolution of a relationship. This could be friends, relatives, etc. There cannot be any matrimonial debts or pre-payment penalties or fees included in the new financing.

With the other mortgage insurer, the funds can only be used for a spousal buy-out and no other relationship breakdown but the new financing can include matrimonial debts if they are listed on the separation or divorce agreement. They will also allow pre-payment penalties and fees to be included.

To qualify for both of these programs you must have good credit and earn sufficient income to support the mortgage payments.

It’s so important to seek the advice of a mortgage broker very early in the process, as they can guide you along the way to a successful separation so you can both have the best possible outcome going forward.

If you already have a separation agreement in place, they can show you how the value in your home can make it work out for you both.

If you have any questions on this program please give me a call at 1-888-561-2679 or email me at [email protected]. You can also book a time here on my calendar for a chat.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Busting myths about reverse mortgage safeguards

Reverse mortgage safety

There are many misconceptions surrounding reverse mortgages. There are only three reverse mortgage lenders in Canada along with an alternative lender option and all of them have safeguards in place to ensure that the equity in your property is kept safe and secure.

Here are the four most common misconceptions about reverse mortgages in Canada. Let’s bust those myths.

1. You will always retain title and ownership of your home
Just like a regular mortgage, your home is used to secure the loan – and the lenders will register a charge on the title of the property – you do not transfer home ownership to the lender.

2. Lending amounts are conservative
The reverse mortgage lenders will only lend up to 55% of the value of the home, while factoring in the homeowner's age, property type and property location. The older the client, the higher the loan amount they can qualify for. This is done so that the reverse mortgage never exceeds the value of the home.

3. Homes typically appreciate in value
The total value of your home is likely to appreciate over time -- especially if it is located in a major city. Meanwhile, only the interest on the borrowed amount accrues. Based on that differential, even a modest home appreciation allows for equity preservation. This is why over 99% of homeowners have money left over when their loan is repaid.

4. No Negative equity guarantee means loan can never be more than the sale price of the home
Many people think that if their home equity depreciates at the time of sale, they/their heirs will end up owing more than the house is worth. However, one of the lenders guarantees that if the home depreciates in value and the mortgage amount due is more than the gross proceeds from the sale of the property, the lender covers the difference between the sale price and the loan amount (as long as the property taxes and mortgage obligations are met and it does exclude administrative fees and the interest accumulated after the due date).

As your mortgage broker and along with the lenders I am focused on preserving your equity. That's why the lenders have built these safeguards into the reverse mortgage products to ensure that you will not be at risk of losing your home when accessing your home equity.

Please contact me to find out more about how a reverse mortgage is actually a great way to improve cash flow, while allowing you to stay in your home. Together we will compare the products of the reverse mortgage lenders and also review other possible mortgage options for you to accomplish your goals. We will help to find you the right solution while making the process as stress free as possible.

Please give me a call at 1-888-561-2679 or alternatively you can book a time on my calendar for a chat. www.calendly.com/april-dunn

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.