“Aging in Place” is a term which describes the phenomenon of Seniors choosing to stay at home rather than move to a retirement or nursing home. Most people would prefer to remain in their own home as long as they can but are often pressured to move to a retirement home due to health or safety concerns.The decision to “retire at home” or move to a retirement home is often determined by the following:
1) Cost
2) Health and safety
3) Proximity of family
4) Emotional Attachment
Cost is often the primary determining factor in choosing to “Age in Place”. When leaving the family home is not an option financially, some “healthy” renovations may ensure safety and address your needs. Moving laundry, bedroom, and bathroom to the main floor, lowering kitchen cabinet/countertops, adding walk in tub, stairlift, automatic lighting, etc are some of the most common renovations that will improve function and accessibility. The cost of “medical retrofit” renovations can be daunting for those on a fixed budget, however, the renovations can be usually be completed for a fraction of the annual cost of a retirement facility.
For seniors who own their home but have limited cash resources to spend on renovations, a Reverse Mortgage may be the perfect solution. A Reverse Mortgage will give access to the equity in your home and allow you to modify your living space, providing a
safe and comfortable home that you can enjoy for many more
years. A variety of mortgage options are available and monthly
payments are not required.
Renovations completed before the end of the year may qualify for
up to $10K in tax credits through the “Healthy Home Renovation
Tax Credit” program, which will end December 31st, 2016.

Just a few years ago, a federally imposed limit on how much equity you could access via refinancing your home was tightened to 80% of value. The requirement to maintain a minimum 20% equity in your property has made refinancing for many people difficult. Those who only put 5% or 10% down must wait years to build up to the 20% minimum as it is.

Over the last two years, I have seen many clients with more than 20% home equity yet carrying higher consumer debt load seek a refinance to access equity, pay off or consolidate all of their consumer debt. Many clients just did not have enough equity to make this possible.

Fast forward to spring 2016 and we are seeing a sellers’ market leading to bidding wars and increased home valuations. This recent surge may be of benefit to similar existing homeowners that do not wish to sell.

A refinance does not make what we owe disappear. We are looking to move debt from bad (unsecured) debt to good debt where it is secured against an appreciating asset. We are looking to wipe the slate clean and get a fresh start! Having high usage of your credit limits is likely eroding your credit score, adding needless stress to your life and costing you more over time than is necessary.

The major benefits of a refinance are roping all expenses into one low interest debt, reducing your overall monthly interest cost yet most important for families is the monthly cash flow improvement! I often recommend that some of the monthly savings be added to the mortgage prepayments to accelerate the debt reduction while keeping some cash left in pocket for lifestyle enjoyment!

Many people with fantastic jobs and incomes simply get a bit too deep into multiple lines of credit, new car payments and credit cards. It happens all too quickly where people overestimate what they can comfortably afford. The focus of debt cost unfortunately has shifted where folks are not concerned about the total debt amount or payoff schedule, the determining factor seems to have evolved to whether they can handle the monthly payment; cars, toys, vacations all start to add up.

These groups of clients had been able to make all payments, yet the debt did not seem to be reducing year over year. Their options were second mortgages, private mortgages or refinance to the 80% max and still keep a pile of monthly consumer debt repayments. Ultimately, I had recommended that a few clients opt to sell their home to pay off the entire debt load, and put 5-10% down on a newer home. This was the only way to access more of their equity to pay everything off. The average monthly savings that I have seen for these groups of clients was between $1,000 – $1,600/month!

This is a prime time to reassess your current financial situation. If you owe significant amounts on credit cards, lines of credit or other consumer debts, there may be enough headroom in your equity to allow you to refinance. Another prime reason to consider a refi would be property improvements and renovations, where you may be accessing equity yet the added debt may be directly offset by the potential increase in property value.

Ultimately, it is best to consult with a Dominion Lending Centres mortgage professional first. Let the math and numbers show you whether it makes sense to make a change. Our job is not to sell you a mortgage. We offer solutions or strategies through showing the numbers in a way that may have not occurred to you before!

Kris Grasty

Dominion Lending Centres – Accredited Mortgage Professional
Kris is part of DLC Canadian Mortgage Experts based in Surrey, BC.

As the average age of our Canadian population gets older (according to Employment and Social Development Canada, our country currently has over 5 million people over 65 years old), it is no doubt that you or your loved one may be faced with growing concerns about the ability to live life without financial constraints or difficulties. It may be mounting medical expenses or the limitations of living within a fixed income, or carrying debt load into retirement.

On the other hand, it may be the time to enjoy travelling or helping out grandchildren with university tuition, even the purchase of a home in sunnier climes. Perhaps it’s time to enjoy an active retirement and downsize into a smaller home!

Whatever the situation may be, a Reverse Mortgage might just be the perfect fit for you to find that extra income you hold in your home.

WHAT IS A REVERSE MORTGAGE:

A Reverse Mortgage is a loan secured against the value of your home.

Unlike a loan or a regular mortgage, with this type of mortgage, you are not required to make payments. You only repay the loan when you move or sell your home.

A Reverse Mortgage is a means for homeowners, aged 55 years or older, to access a portion of the stored value in their home to use today while still retaining ownership. In effect, converting the equity to cash, which can be received in a lump sum payment, regular payments or a combination of the two.

Advantages:

• Payments from a reverse mortgage are tax-­â€free income.
• There are no payments to make as long as you or your spouse lives in your home. The principal and interest are only due when your home is either sold or you move out..
• The freedom to eliminate monthly payments can be a benefit for stretched budgets.
• You can repay the loan at any time.
• If the investment market takes a downturn, a reverse mortgage could fill the gap until your investments stabilize or reach maturity.
• The amount you owe can never exceed the value of your property.

* You and your beneficiaries will not be responsible for any shortfall if interest rates increase and housing values drop.

* Interest paid on the reverse mortgage is tax deductible if the proceeds were used to earn investment income

A CASE SCENARIO

Mr. and Mrs. Walsh 82 and 78 years old, found that the townhome they were in no longer suited them as Mr. Walsh has deteriorating health and was having trouble managing the stairs. They were ready to find a nice little condo to settle into.

Challenge:

Mr. and Mrs. Walsh had some concerns, as, now that they were on pensions, they were unable to qualify for the difference they needed. They owned a $400,000 townhouse with a $250,000 mortgage.

Solution:

Sold their current home for $400,000.

Purchased a $230,000 condo with a $125,000 down payment, proceeds of which were from the sale.

They got a $105,000 CHIP Reverse Mortgage on the new property to cover the difference.

• No income
• No credit requirements and most of all no payments for as long as they live in their home
• If one partner passes away, nothing changes
• Provides them with complete control over their home and with peace of mind and living life on their terms!

There are some out of pocket costs associated with setting up this type of mortgage (Appraisal and legal advice) with the set up fees coming out of the proceeds of the loan. The interest rate is a bit higher than if you were purchasing a home but still competitive with variable or fixed rate options available.

Unlocking the value in your home with a Reverse Mortgage may just be the answer to bring you peace and security in your financial health. As always, get professional advice from Dominion Lending Centres so we can help you determine whether or not this product is right for you!

Pros and Cons of Collateral Mortgages

During the past couple of years the term “collateral mortgage” has gained a bit of a negative reputation, especially since TV shows like CBC’s Marketplace have taken notice. Marketplace felt it was worth doing a segment about collateral mortgages because the lenders offering this product were not disclosing the downside of this type of mortgage.

Collateral mortgages are designed to allow more flexibility in repayment terms and products secured by a residential property. Under the cap, or global limit, a borrower can have a regular mortgage, line of credit, a credit card and multiples of each of these products. When used for this purpose, collateral mortgages are excellent products that enable homeowners to attain cheaper interest, access higher limits and take advantage of splitting mortgages.

Collateral mortgages have been making news lately not because of these positives, however, but due to the negative ways lenders have been using them. When a regular conventional five-year mortgage (or any other term) comes due, or is up for renewal, the borrower can “switch” their mortgage to another lender at no cost. This type of mortgage is registered against the title of the property with the amortization outlined, so another lender simply pays out the other mortgage and continues on with the same amortization and balance as the previous lender had in place.

Under a collateral mortgage however, when the mortgage comes up for renewal, it would actually have to be discharged before another lender could take over the mortgage. This means a lawyer must discharge one mortgage and register a new one, which can result in fees ranging from $500 to $1,000. Not only would it be subject to legal fees, but all secured debt would have to be paid out with the mortgage, including secured credit cards and lines of credit.

Technically, this is considered a refinance and, according to the new federal guidelines, refinances are limited to 80 per cent of the property’s value. So, if the total amount being borrowed is greater than 80 per cent of the property’s value, it may be impossible to switch to another lender until either the debt is paid down or the home value increases. Some lenders have been using this as a retention tool, meaning that they place all of their clients in collateral mortgages knowing that, at the end of their term, it will cost them a significant sum to switch their mortgage to another lender – if it’s even possible to switch given the loan-to-value restrictions. This is why collateral mortgages have gained a bad reputation. Clients weren’t being notified that they couldn’t simply switch their mortgage to a new lender upon renewal.

In order to attain a full objective understanding of whether this type of mortgage is right for your client, be sure to consult with Dominion Lending Centres.  We have access to both collateral and standard mortgages.

Wow! Can’t believe that interest rates are on the decline again! Five year rates as low as 2.84%, and 3 years at 2.65%!