*Paid Business Feature*
As we go forward into 2023, I’d like to take you in reverse for a moment and talk about Reverse Mortgages.
What exactly is a reverse mortgage, you might ask? Why is it called “reverse”? Who is this right for? These are all great, common questions, for which I’ll provide some straightforward information and strategies that will educate and help you decide if a reverse mortgage could be right for YOU!
First of all, reverse mortgages are mortgages for seniors who wish to stay in their homes. You must be at least 55 years old to even apply for this type of mortgage. Interest accrues throughout the term of the mortgage, and when you no longer occupy your home, the principal and accrued interest owing is paid back from the eventual sale, with the balance of net equity to your Estate, beneficiaries, etc.
Reverse mortgages are offered by a variety of lenders and have some unique characteristics that are specially designed just for seniors, such as:
Monthly Income – Many seniors have found the rising cost of inflation, lower interest yield on traditional fixed investments, or stock market variability has negatively impacted their monthly incomes. Coupled with the loss of a spouse (and associated income) means that although they own their home, they cannot maintain their financial obligations. A reverse mortgage can utilize the equity in their home to generate a predictable monthly income in an amount they choose. So instead of them paying a mortgage, the mortgage pays them — hence the term reverse!
Lump Sum – Some seniors find themselves in later years still with a traditional mortgage, or consumer debt, and are struggling to keep up the payments, having to curtail travel, home improvements, etc. A reverse mortgage can solve this problem, by providing a lump sum to pay out a traditional mortgage and/or various debts, thus improving cash flow and taking the financial pressure off their budget. This can also be used in the event of divorce, to pay out a departing spouse, and retaining ownership of their home.
Home Purchase – Many seniors downsize their large(r) family home, to locate near family in a smaller home/condo. Consider someone selling in Toronto for a large amount of money, and relocating to the Kingston area. Instead of using all the proceeds to pay cash for the new/smaller home, you can utilize a reverse mortgage and some cash, and retain the balance of cash from their previous sale for lifestyle enjoyment, income, etc.
Early Inheritance/Gift – Many seniors would like to provide early inheritances to family/grandchildren to assist them with the purchase of a home, or pay off a home, etc. A reverse mortgage can be obtained to free up cash without touching existing investments and allow them to be generous to families now.
Other important points to remember are that the lender does not own your home, nor do they take a Power of Attorney. Each client must obtain Independent Legal Advice, and no monthly payments are required, although you can make payments periodically if you wish.
Clients can have confidence their Estate is not unduly affected with a “no negative equity” guarantee, all proceeds are tax-free, and do not negatively affect any Government income programs.
A one-time lender fee is charged upfront and deducted from proceeds, which includes your legal fees. The only out-of-pocket fees generally are for an appraisal of the residence and Independent Legal Advice.
Some people will ask — why not just arrange a traditional mortgage or a Home Equity Line of Credit? Remember, you must have sufficient income to qualify for these types of mortgages, and you are still making regular mortgage payments, which is the opposite of the reverse mortgage plan.
Reverse mortgages can be a very effective planning tool properly positioned, and at Kingston Mortgage Solutions, we’ll take the necessary time to review your personal situation to see if this could be a solution for you, with no obligation or cost.
David Sutherland is the Principal Broker at Kingston Mortgage Solutions.
This article is sponsored by Kingston Mortgage Solutions, who also submitted the content. If you are interested in a Business Feature on Kingstonist, contact [email protected]