Reverse mortgage safeguards

There are many misconceptions surrounding reverse mortgages. There are only two reverse mortgage lenders in Canada and both 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 either of the banks will register a charge on the title of the property – you do not transfer home ownership to the bank.
  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, 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 both 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.


Buying in today's market

The most recent stats from OMREB (Okanagan Mainline Real Estate Board) confirm that we are still in a buyer’s market in the Central Okanagan. There definitely feels like there has been some pent-up demand given the COVID-19 situation. It’s been busy the last couple of weeks as more and more buyers seem to be out looking at homes. This will no doubt create more competition for the available properties.

If you are in the market for a home right now or are considering a purchase this spring, here is my tip to increase the odds of you being the successful bidder in a possible multiple-offer situation. By taking these steps you might avoid some of the craziness that could happen this late spring market.

This is my best tip and easiest tip. Get pre-approved for your mortgage financing. Not pre-qualified but a full pre-approval.

Prior to looking for a home or placing an offer, work with your mortgage broker to complete a full mortgage pre-approval. This will include the collecting of all supporting documentation that a lender will require to provide a final approval for your financing. We will advise you of your purchasing budget, review any potential challenges, and ensure you are set to go – other than finding a suitable property.

We can also review the types of properties you are interested in and advise whether there might be any potential financing challenges because of property issues.

If you do all the work upfront, it could prevent your offer from falling apart because you were not able to secure financing for your purchase or possibly losing the property by needing to request an extension to finalize your financing, which the seller may not be prepared to offer because there are backup offers on the property.

The lenders have made some adjustments to their policies and guidelines and even pulled some programs due to COVID-19 so it’s more important than ever to ensure you are pre-approved. It’s an ever changing mortgage market, and lenders along with the mortgage insurers have policy updates occurring almost daily as they adjust to our new environment.

But a word of caution – do not be tempted to place a ‘subject free’ offer. ‘SUBJECT TO SATISFACTORY FINANCING’ is a key clause that needs to be included in every offer. You could be the most well-qualified purchaser in history. Stellar credit, great income and job stability with a significant down payment, but in the end, a lender could still decline your request for financing.

Here’s why: mortgage financing approval not only includes the lender being happy with your qualifications but they must also approve the property. Essentially, it’s a two-step process.

My best advice to you would be to never place a ‘subject free’ offer regardless of what others are recommending and to think long and hard about it unless you have the cash in the bank to cover your purchase in the event that you can’t secure satisfactory financing.

Or have a detailed conversation with your mortgage broker well in advance to place a ‘subject free’ offer. There are some strategies to minimize your risk but an individual conversation would be required.

In our current market, you need to be prepared to be successful, so please give me a call to review your options and get pre-approved.

Mortgage rate shopping

The most frequent question that I hear from potential clients is – “What is your best rate?” and why wouldn’t you ask that question? The media is flooded with articles about how to shop for the best mortgage rate and rate sites are popping up all over the internet. That must be the most important question to ask when you are shopping for a mortgage. Right?

The worst kept secret? It’s really easy to get a low interest rate on your mortgage. All you have to do is make a couple of calls for rate quotes then pit your mortgage broker against your bank or vice versa and one of them is going to beat the other on rate. Excellent!

So back to your question – “What is your best rate?” Now you make think that this is an easy question for a mortgage broker to answer, but it’s really very complicated. You want me to just tell you what my best rate is for a certain term of mortgage. But I’m conflicted and I don’t really want to answer that question directly because I want you to understand that you aren’t asking the right question.

Understanding that the interest rate is only one small part of your mortgage’s terms and conditions is important. If you take a look at your mortgage documents, the interest rate is only mentioned once on the very first page. Have you ever wondered what’s in those other 25 pages?

There are dozens of mortgage lenders in Canada – mortgage companies, banks, credit unions, trust companies, etc. And there are many differences within their mortgage documents that lay out the terms and conditions of your mortgage, such as prepayment options and the penalties for breaking your mortgage early, portability and assumption options, and even renewal terms. But you know what? There is very little difference in their rates.

What could be in the fine print? Perhaps the mortgage is closed for the five-year term. 100% closed. That’s the trade-off for an extremely low rate. You can only break your mortgage if there is a bona-fide sale of your home so that means there is no way to access any equity in your home during the term of the mortgage.

Some of these low-rate mortgages are “no-frills” mortgages which means they are packed with many restrictive conditions and potential landmines. If you commit to one of these products without reading all of the fine print, which most often happens, you could find yourself in a situation that you may find difficult in the near future, meaning sometime in the next three years given that six out of 10 Canadian mortgage holders break their mortgage at about the 38-month mark.

There is no denying that rate is important but what is the right question that you should really be asking? “What is the best mortgage available that is going to meet both my short-term and long-term goals?” And, yes, it should have a competitive interest rate. Ensure that you read and understand all of the fine print in your mortgage’s terms and conditions. 

Give me a call at 1-888-561-2683 and we will discuss rate at some point in our conversation but ensuring that you understand all of the terms and conditions of your mortgage contract is really more important to me as your mortgage broker.


Self-employed and owe tax?

The CRA has extended some of the filing and payment dates due to COVID-19. For people who are self-employed the filing date hasn’t changed and taxes must be filed by June 15, 2020. Any payments for the current tax year are due by Sept. 1, 2020, which applies to balances and instalments under Part 1 of the Income Tax Act due on or after March 18 and before Sept. 1, 2020.

When you are self-employed and do not have tax deductions coming off your paycheques and haven’t made other provisions to cover your tax debt at the end of the year, you could have a problem. Tax debt is serious and should be dealt with immediately. 

The Canada Revenue Agency has far reaching powers when you owe money to them. If you owe them, they will find a way to collect. They charge penalties and interest on your overdue taxes. They can withhold payment of your Child Tax Credit and GST rebate. They can take money from your bank account or garnishee your wages.

If you own real estate, the CRA can register a lien against your property if what you owe to them has been outstanding for an extended period of time. This is done to guarantee that you pay your outstanding debt. When a lien is registered against your property it can prohibit you from refinancing or selling your property until the outstanding debt is paid in full.

An important issue to consider is that if you are self-employed and your income tax is not current, you will not be able to secure mortgage financing to purchase a home, buy a vacation property, transfer your mortgage or access equity in your property. Even our alternative and private lenders will not advance a mortgage unless any CRA tax arrears are paid in full.

Canadian banks and credit unions will not provide an unsecured loan for the payment of income tax debt and they generally cannot refinance an existing mortgage to cover the debt either. 

The CRA will generally not accept any arrangement other than a full payment and this is due and payable at the time of your assessment or reassessment. They cannot set a precedent that would allow them to accept less from everyone else. They have one of the highest rates of collection activity in Canada as our taxes fund public goods and services. So what do you do if you can’t pay them in full?

Contact them immediately. You may be able to negotiate a payment schedule if you can’t pay the full amount, but they generally will not let it be outstanding for over a few months. Know that they will continue to charge the interest and penalties on the past due amount.

This is important to note – filing for bankruptcy, or filing a consumer proposal, does not discharge a lien against your property. If you go bankrupt on your CRA debt, the lien remains and – even worse – accrues interest over time. Even after your discharge from bankruptcy, the lien remains in force, until you eventually sell your home.

If you are a homeowner then having an experienced mortgage broker working for you can save you both time and money when seeking a solution to your CRA problem. If you simply can’t pay the full amount of your back taxes, consider refinancing your mortgage and using the equity in your home, a consolidation loan is possible which can include tax arrears and other debts.

Mortgage brokers have access to lenders that will allow a refinance of your existing mortgage or second mortgage options to pay off outstanding CRA debt. 

If you are a homeowner and are having issues paying off what is owed to the CRA this year, please give me a call to discuss at 1-888-561-2679 or email [email protected].

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About the Author

April Dunn is the owner and a Mortgage Broker with The Red Door Mortgage Group – Mortgage Architects. She has been assisting clients to purchase, refinance or renew their mortgages for over 20 years.

April has experience as a Credit Union manager, a Residential Mortgage Manager with a large financial institution and as a licensed Mortgage Broker. By specializing in Strategic Mortgage Planning she has the tools available to build a customized mortgage plan, with the features and options that meet your needs.

April provides a full range of residential and commercial mortgage financing options for clients all over the province of British Columbia and across Canada through the Mortgage Architects network.

Contact e-mail address: [email protected] or by phone at: 888-561-2679.

Website:  www.reddoormortgage.com

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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