28 Nov

Exploring the Benefits of Reverse Mortgages


Posted by: Alisa Aragon-Lloyd

Most Canadian seniors have 80 per cent of assets tied up in their house – and they can access that money in retirement. As seen in REW.ca

Perhaps you have a friend or family member who has been dreaming about this moment throughout their working life. That dream is to retire and have the time and money to travel, fix up the family home, indulge in hobbies, visit grandchildren, spend weekends at the cottage, help their children buy a home, pay off debts, help their grandchildren with tuition fees, and most importantly, not have to worry about money.

But now that they are 55 or older, they may have been caught off guard by the expenses associated with retirement, such asproperty taxes, rising energy and utility expenses, and the overall cost of living, which seems to get higher every year. Sure, they have their pension income, but it may not be enough to make ends meet. Most Canadian seniors have 80 per cent of their assets tied up in their house. But accessing that equity can be difficult. Most banks won’t give them a mortgage because they don’t have enough income to make monthly payments.

So what are the options?

Well, they could downsize and sell their house. But isn’t that where they always dreamed they would spend your retirement? Leaving the home where they raised their family, put down roots and made lifelong friends would be heartbreaking. Besides, selling and moving can be very expensive once they have paid real estate fees, moving expenses, legal fees and so on. There’s got to be a better solution than leaving their family home.

There is a better solution for many seniors, and that’s a reverse mortgage. A reverse mortgage is a specialized financial product for people aged 55 and over, who own their own home. It lets them stay in their home while benefiting from the value they have built up in that property over the years. Compared with a regular mortgage, a reverse mortgage can offer substantial monthly cash savings, so they have all the income they need to live the retirement of their dreams.

Let’s explore the benefits of a reverse mortgage.

Regular mortgages require you to pay a lender – a reverse mortgage pays you:

If you and your spouse are 55 or older and you own your home as your principal residence, you may be eligible to receive up to 40 per cent of your home’s current appraised value in cash. The specific amount you will receive is based on your age, your spouse’s age, the location and type of home you have, and your home’s current appraised value. No matter how much you receive, you never have to make monthly principal or interest payments (until you move), so you get the money you need without reducing your cash flow.

There are no income, asset, employment or credit requirements:

Since the amount you receive is secured against your home, qualifying is easy and hassle-free – even if you are living on a very limited retirement income. You can receive the money whichever way works best for your lifestyle With a reverse mortgage, you can choose a single lump-sum payment or ongoing monthly, quarterly, semi-annual or annual income.You can even choose a lump sum to begin with, followed by ongoing advances over time.

A reverse mortgage can be used to clear up all your remaining debts:

Maybe you still have a mortgage remaining on your house and the payments are cutting into your lifestyle. Maybe you have monthly credit card bills piling up. A reverse mortgage can be the ideal solution. In most cases, you can use the funds to eliminate mortgage payments and credit card debts, and still have enough left over so you can enjoy life more and not have to worry about money. Your income taxes and pension are unaffected As a retired person, one of your major concerns is how much you will be paying in taxes each year, since that can really affect your cash flow. Fortunately, the money you receive from a reverse mortgage isn’t considered income – even if it’s invested in an account or annuity with monthly withdrawals. This is because the home equity you are accessing has already been taxed, since you purchased your home with after-tax dollars. Not only don’t you have to pay taxes on your reverse mortgage proceeds, they won’t bump you up into the next tax bracket. And since they’re not considered income, they won’t affect your Old Age Security (OAS) or Guaranteed Income Supplement (GIS) payments.

Your home remains your home:

You will never be asked to move or sell your home to repay your reverse mortgage, as long as you maintain the property and stay up-to-date with property taxes, fire insurance and strata fees. Your equity and estate is fully protected since the reverse mortgage amount can never exceed your home value. Sure, the equity in your home will decrease over the years as you receive payments, but your home’s value could increase even more quickly over the same period. Generally, 99 per cent of homeowners have money left over when their reverse mortgage is finally repaid (when you move or die). On average, the amount left over is 50 per cent of the value of the home when it’s sold. The interest on your reverse mortgage can sometimes be tax deductible If you use the money you receive to make non-registered investments such as GICs and mutual funds, the interest costs on your reverse mortgage can be written off at tax time. This can help offset the taxes you owe on your income, RRIF or RRSP withdrawals.

Mortgage experts like ourselves can introduce clients to all the benefits of a reverse mortgage. However, since we are not tied to any one lender or type of product, before recommending a reverse mortgage, we will do a thorough analysis of our clients’ situation, needs and goals. Only then will we make an unbiased recommendation about which product is right for them.

In most cases, that will be a reverse mortgage. But as mortgage experts, we have access to innovative lines of credit and other home lending products that may fit their specific needs even better.

19 Nov

How to Finance Renovations on your New Home


Posted by: Alisa Aragon-Lloyd

If you need to renovate your new home, there are innovative mortgage programs that can help you out. As seen in REW.ca

With house prices continually rising, sometimes the only home you can afford is a home that needs a bit of updating or needs renovations. But traditional financing can sometimes make these types of home unaffordable. That’s because you first have to come up with a down payment to qualify for a mortgage for the purchase price. Then as soon as you take possession, you have to qualify for some kind of home improvement loan. Not only is it difficult to qualify for two separate loans at the same time, it also makes buying more expensive.

Fortunately, there are innovative programs from mortgage insurers such as CMHC and Genworth that are designed for just this purpose. These programs helps qualified homebuyers make their new home just right for them, by making customized improvements, immediately after taking possession of their new home. All this is done with one manageable mortgage and with as little as 5 per cent down.

The improvements to be made under such programs can’t include structural changes to the home. Some of the improvements allowed include:

  • Updating or renovating kitchen
  • Updating or renovating bathrooms
  • New flooring
  • New paint
  • Finishing or renovating basement
  • New patio or deck
  • New energy windows/doors
  • Addition of garage, etc.

Some of the parameters of the program include:

  • As low as 5 per cent down payment (conditions apply)
  • Depending on the insurer, you can go up to 20 per cent of the purchase price with a maximum of $40,000 or 10 per cent of the as-improved value
  • Owner-occupied properties only
  • Down payment is based on the as-improved value
  • Other conditions apply

For example, the CMHC Improvements program lets qualified buyers borrow up to 10 per cent of the post-renovation value of a house and use that money to cover the cost of renovations.

Let’s say the house’s purchase price is $400,000 and the renovations you have in mind would increase its value by $40,000. That means the post-renovation value would be $440,000 so you could borrow $40,000 to cover the renovations.

Let’s See the Monthly Savings:

Straight mortgage with $40,000 line of credit:

  • Purchase price $400,000
  • Down payment $20,000
  • Improvements using line of credit $40,000
  • $1,773.51* mortgage + line of credit $316.67** per month
  • Total monthly payments: $2,090.17*

Purchase Plus Improvements:

  • Purchase price $440,000
  • Down payment $22,000
  • Total monthly payments $1,857.52*
  • Improved cash flow and lower interest costs
  • Living in dream home

To qualify, you have to provide a quote from a contractor or suppliers at the time of submitting the application to the lender. Once insurer (CMHC or Genworth) and your lender approve the renovation amount, it’s then added to your mortgage loan. However, you don’t receive the funds until the renovation is complete and has been appraised or inspected. This usually means you will need a short-term line of credit or come up with the funds ahead of time.

The best option is to work with a mortgage expert, such as myself, who has partnered with renovators and suppliers to make this program even more attractive. The renovator and suppliers will take care of the financing for you until the project is finished. Once the work is complete the solicitor will pay them directly the cost of the renovation. You will be rest assured that there will be no cost overruns (unless due to unforeseen circumstances), hidden costs and that the job will be completed on time and on budget.

The good news is that Alisa Aragon from Your Mortgage Solutions Group has partnered with renovators and suppliers to make this program even more attractive. The renovator and suppliers will take care of the financing for you until the project is finished. Once the work is complete the solicitor will pay them directly the cost of the renovation. You will be rest assured that there will be no cost overruns (unless due to unforeseen circumstances), hidden costs and that the job will be completed on time and on budget.

To see whether this type of program can help you affordably improve your new house into the home of your dreams, talk to a mortgage expert and we will provide you with a no-charge analysis of your needs and financial situation.

* Mortgage based on 5 per cent down payment with a fixed rate of 2.59 per cent, closed for five years and 25-year amortization
** Line of credit based on interest rate of 9.25 per cent interest payments only