Turning A Reverse Mortgage Into A Line Of Credit

 
Many people find themselves in the situation where they are deciding between reverse mortgages and a Home Equity Line Of Credit (HELOC).  

So we thought we would take a look at the pros and cons of both and how you can combine both into a product that we call the ‘Reverse Mortgage Line Of Credit (RM-HELOC)‘.
 

Basic Background To These Products

Before we start, let’s quickly recap exactly what is the difference between these products.

•  Reverse Mortgages:  First off, the name can be a confusing term. Most people, when they hear of this for the first time, think that they must just be another standard mortgage – you stake your home equity against a debt to, most often, a bank. Usually you don’t have the value of your home in your account (otherwise you may just buy it outright if you so choose), so the bank is lending you money with the knowledge that they are in a position to take possession of the home should you fail to pay your debt. Well, in the case of this particular mortgage product, this isn’t how it works at all. It only takes into account the equity you have built up in your home, and at a maximum of 55% of the home value, lends you that amount (the exact amount depends on your age). You are always in possession of the home, and the bank is never able to claim the home.
• A Home Equity Line of Credit (HELOC), however, is structured like a conventional mortgage. That means, should you fail to repay the loan or meet the loan requirements, you may be forced to foreclose on your home – i.e. the bank takes possession.

While the reverse mortgage can be structured in a number of ways, the idea remains the same. You are always in possession of your home. We’ll take a look at other ways to take out your money (whether lump sum, monthly installments, as a line of credit, or a combination of these), but in this article, we’re going to focus on the RM-HELOC of credit option to draw a direct comparison to a HELOC.
 

The ‘Reverse Mortgage Line Of Credit (RM-HELOC)’

This is the name for a product where you essentially turn it into a Home Equity Line Of Credit.

By voluntarily paying the interest each month on your mortgage you have effectively turned it into a HELOC – this is the ‘RM-HELOC’

The key word here is voluntarily – all payments you make are voluntary, where as under a Home Equity Line Of Credit you are required to make the payments every month.

Why Would You Choose A ‘RM-HELOC’ Over  A HELOC?

Aside from the fact that your payments are voluntary – as mentioned above – there are many other reasons to choose this product.

One of the main differences right from the get-go is the qualification requirements between the two.

HELOC borrowers must qualify based on their credit and income. A ‘RM-HELOC’ is based just on age and that you own your home.

These qualification requirements for the HELOC can be a challenge for seniors, especially if they don’t have an income, have a low credit score, or have a higher debt ratio. The RM-HELOC allows seniors to access their home equity when it’s needed so they can pay off bills, supplement income, settle debts, or even simply enjoy their retirement. The idea behind it is that you’ve worked hard to build up your home equity, so you should be able to access it in a way that is tailored for retirees.

It is important to note that both HELOCs and RM-HELOC require that you keep up to date with your property taxes.
 

What About Interest Rates?

Just now – at least for the time being – HELOC rates are lower than that of a reverse mortgage (although it is worth noting that they are variable – so they could go up).  For more on this see our article on the latest rates:
https://www.reversemortgagepros.ca/rates-and-penalties/

However, again the key point here is the fact that making these payments is actually voluntary under the a ‘RM-HELOC’.

If you’re a little stuck one month, skip the payment.  Want to go on vacation?  Skip the payment.  It is this flexibility and freedom that a RM-HELOC offers – the higher rate is the cost of this.

It is sometimes dangerous for seniors in a situation where they have no income to take out a HELOC versus a RM-HELOC due to the fact that they may in some cases have a ballooning debt as part of their HELOC and cannot make the monthly payments since they don’t have income.

Reverse mortgages are built solely for seniors, and allow you to access the equity you have built up in your home over your lifetime without having to worry about income monthly.
 

What About Home Equity And The Impact?

This has been mentioned, but it’s an important point, so we’ll return to it: when the loan becomes due, there can be a huge difference between a HELOC and a RM-HELOC.

Some HELOCs will allow you to take up to 80% of your home value out. While this value doesn’t usually become available to you since the lending requirements are often based on income and more, the important thing to note is how high the loan amount can get to.

A RM-HELOC in contrast, can only be for a maximum of 55%, and there is a good reason for this.

When the loan becomes due, should you move or the owners of the home pass away, your remaining 45% of your equity can be used to pay off this loan amount (and it is most common that homeowners don’t take out more than 50%).

The key takeaway is that you are a lot safer, and so is your family, should your loan become due when you can use your value of your equity, which tends to grow over the lifetime of the mortgage, to repay the amount outright.

In essence, a HELOC can actually be much more damaging to your home equity if you take out the full 80%.

 

Financial Stress And Freedom

A HELOC can cause severe financial stress should the loan become due and you do not have the value remaining, or the ability to access your remaining equity, to pay off the loan.

Banks can recall the HELOC loan at any time, for any reason.  This is very, very rare and unlikely to happen but it should definitely be considered.

You may be forced to give up on your home to pay off your loan should it have grown to an amount as high as allowed by HELOCs – something you will never have to do in the case of a RM-HELOC.

In some cases, especially for short-term periods, a HELOC may be better suited for your financial needs. If there is a short-term debt you need to pay off, and especially if you have the income to pay the loan back quickly, then a HELOC may be the best option. However, for the long-term, and especially for retirees with no source of income, a reverse mortgage is generally the best choice.
 

In Conclusion: HELOC vs RM-HELOC

While a RM-HELOC doesn’t quite have the same ring to it as HELOC, there is no doubt in our mind it is a superior product for the following reasons:

• Your payments are voluntary – so you can pause them any time you like.  This freedom and flexibility is massive.
• Because the payments are voluntary, the lender can never take your home for missing payments.  Missed payments under a HELOC could see you put your home in jeopardy.
• The amount you can take out of your home is capped to 55% – as opposed to 80% – this works to help ensure you don’t over leverage on your home.
• You do not need any income levels or credit score to quality for a RMLOC; you do for a HELOC.

Yes, the interest rate is a little higher on a RM-HELOC.  The question you have to ask yourself is: are all the above benefits worth paying a slightly higher interest rate to get?

As we have talked about before, there are many misconceptions about reverse mortgages (
click here to read our article with more on this). The above information should help guide you along the way.

I hope this article helped if you are thinking about a reverse mortgage – you should also check out our other article on the alternatives to a reverse mortgage for further information on the other options out there. If you have got any further questions regarding a RM-HELOC – please lease a comment below and we will answer them for you.

Turning A Reverse Mortgage Into A Line Of Credit first appeared on:
Reverse Mortgage Pros
Suite 201,
8 Sampson Mews
Toronto,
ON,
M3C 0H5
1-888-358-7771
https://goo.gl/TwzUYA

Examining The Bad Reputation Of Reverse Mortgages

There are many people out there who do not believe in Reverse Mortgages in Canada.

I used to be one of them.

Then I learned more about the product and now I can see it can and has benefited many people.

And yes, of course, there are people who a reverse mortgage is not right for.  Naturally, it is not the solution for everybody.  No one product is ‘perfect’.

However, I challenge anybody to find a better product for people over 55, who want to stay in their home, who need some additional cash and for whom the majority of their net worth is tied up in their home (“house rich, cash poor”).

As much as my attitude changed, as I learned more about the product, there is no doubt in my mind that reverse mortgages have had an undeserved bad name.  I come across many people who say this every day.  You might have too.

And in Canada this perception of reverse mortgages is largely unjustified.

So let’s look at the top 3 reasons why some people believe reverse mortgages are evil/bad/terrible:

 

1. People Don’t Understand Reverse Mortgages

Reverse mortgages aren’t the most straight forward product and this confusion leads to resentment.

Generally speaking, people are scared by things that confuse them.

This is why I wrote our free guide – to try and educate people about CHIP reverse mortgages in Canada.

I, too, once feared reverse mortgages because I didn’t understand them.

The only way to overcome this is to learn more about them – this is why I created ReversMortgagePros.ca and this is exactly what I do with my clients – I use the free guide I wrote and my reverse mortgage email tips to help people learn about the product.

Do 100% of my clients take reverse mortgages?  Absolutely not!  But until you’ve learned about the product then you won’t know whether or not it’s a good fit for you.
 

2. The Word ‘Mortgage’

Unfortunately, Reverse Mortgage is the correct term for the product in Canada.

But the word ‘mortgage’ has negative connotations.

What a ‘mortgage’ means at heart is a loan related to your home – this is why Reverse Mortgage is the correct term in Canada.

In Japan, reverse mortgages are called ‘Home Pensions’ – essentially recognising the fact that you are using your home equity as part of your pension.

This is a much better name for them and more clearly demonstrates what this product is about and the type of person who can benefit the most from them (as I mentioned above, the best candidates are people who the majority of their net worth lies in their home).

However, unfortunately, the Canadian name isn’t about to change anytime soon!

 

3. Reverse Mortgages In The USA

The USA has really given all mortgage products a bad name over the past 10 years.

It started with the subprime mortgage crisis – where lenders gave inflated mortgages to people who couldn’t afford them and they created products such as ‘interest only’ or ‘zero down’ mortgages.  This behaviour culminated in the global financial crisis of 2008.

However, it is important to remember that Canadian banks were not bailed out because our mortgage products are very different and our banking system is much more conservative than in the USA.  We don’t have ‘interest only’ or ‘zero down’ mortgages.

Well, Reverse Mortgages are no different.

The USA has also done things that Canadian lenders are not allowed to do – lending to people under 55, lending more than 55% of the value of the home, lending to people who had not obtained independent legal advice and building up debts greater than the value of the home.

Remember:  Canadian mortgages didn’t bring down our financial system because they are better products and lenders are more conservative.  This also applies to reverse mortgages.

In Canada, reverse mortgages have 4 very important safety nets that many US reverse mortgages do not:
– You cannot get a reverse mortgage if either you or your spouse is under 55. 
– You cannot borrow more than 55% (maximum) of your home under a reverse mortgage. 
– You can never owe more than your home is worth. 
– We require that you seek independent legal advice before signing. 
 
This why 99% of Canadian reverse mortgage holders get money back (i.e. have equity remaining) when they discharge their reverse mortgage.

So there you have it – the next time you hear someone bad mouthing reverse mortgages, please send them to this article!

Whether you are considering a reverse mortgage to help the kids or you’re a retiree short on cash – we can give you the professional advice and guidance you need to make your decision.

Examining The Bad Reputation Of Reverse Mortgages first appeared on:
Reverse Mortgage Pros
Suite 201,
8 Sampson Mews
Toronto,
ON,
M3C 0H5
1-888-358-7771
https://goo.gl/TwzUYA

Turning A Reverse Mortgage Into A Line Of Credit

 
Many people find themselves in the situation where they are deciding between reverse mortgages and a Home Equity Line Of Credit (HELOC).  

So we thought we would take a look at the pros and cons of both and how you can combine both into a product that we call the ‘Reverse Mortgage Line Of Credit (RM-HELOC)‘.
 

Basic Background To These Products

Before we start, let’s quickly recap exactly what is the difference between these products.

•  Reverse Mortgages:  First off, the name can be a confusing term. Most people, when they hear of this for the first time, think that they must just be another standard mortgage – you stake your home equity against a debt to, most often, a bank. Usually you don’t have the value of your home in your account (otherwise you may just buy it outright if you so choose), so the bank is lending you money with the knowledge that they are in a position to take possession of the home should you fail to pay your debt. Well, in the case of this particular mortgage product, this isn’t how it works at all. It only takes into account the equity you have built up in your home, and at a maximum of 55% of the home value, lends you that amount (the exact amount depends on your age). You are always in possession of the home, and the bank is never able to claim the home.
• A Home Equity Line of Credit (HELOC), however, is structured like a conventional mortgage. That means, should you fail to repay the loan or meet the loan requirements, you may be forced to foreclose on your home – i.e. the bank takes possession.

While the reverse mortgage can be structured in a number of ways, the idea remains the same. You are always in possession of your home. We’ll take a look at other ways to take out your money (whether lump sum, monthly installments, as a line of credit, or a combination of these), but in this article, we’re going to focus on the RM-HELOC of credit option to draw a direct comparison to a HELOC.
 

The ‘Reverse Mortgage Line Of Credit (RM-HELOC)’

This is the name for a product where you essentially turn it into a Home Equity Line Of Credit.

By voluntarily paying the interest each month on your mortgage you have effectively turned it into a HELOC – this is the ‘RM-HELOC’

The key word here is voluntarily – all payments you make are voluntary, where as under a Home Equity Line Of Credit you are required to make the payments every month.

Why Would You Choose A ‘RM-HELOC’ Over  A HELOC?

Aside from the fact that your payments are voluntary – as mentioned above – there are many other reasons to choose this product.

One of the main differences right from the get-go is the qualification requirements between the two.

HELOC borrowers must qualify based on their credit and income. A ‘RM-HELOC’ is based just on age and that you own your home.

These qualification requirements for the HELOC can be a challenge for seniors, especially if they don’t have an income, have a low credit score, or have a higher debt ratio. The RM-HELOC allows seniors to access their home equity when it’s needed so they can pay off bills, supplement income, settle debts, or even simply enjoy their retirement. The idea behind it is that you’ve worked hard to build up your home equity, so you should be able to access it in a way that is tailored for retirees.

It is important to note that both HELOCs and RM-HELOC require that you keep up to date with your property taxes.
 

What About Interest Rates?

Just now – at least for the time being – HELOC rates are lower than that of a reverse mortgage (although it is worth noting that they are variable – so they could go up).  For more on this see our article on the latest rates:
https://www.reversemortgagepros.ca/rates-and-penalties/

However, again the key point here is the fact that making these payments is actually voluntary under the a ‘RM-HELOC’.

If you’re a little stuck one month, skip the payment.  Want to go on vacation?  Skip the payment.  It is this flexibility and freedom that a RM-HELOC offers – the higher rate is the cost of this.

It is sometimes dangerous for seniors in a situation where they have no income to take out a HELOC versus a RM-HELOC due to the fact that they may in some cases have a ballooning debt as part of their HELOC and cannot make the monthly payments since they don’t have income.

Reverse mortgages are built solely for seniors, and allow you to access the equity you have built up in your home over your lifetime without having to worry about income monthly.
 

What About Home Equity And The Impact?

This has been mentioned, but it’s an important point, so we’ll return to it: when the loan becomes due, there can be a huge difference between a HELOC and a RM-HELOC.

Some HELOCs will allow you to take up to 80% of your home value out. While this value doesn’t usually become available to you since the lending requirements are often based on income and more, the important thing to note is how high the loan amount can get to.

A RM-HELOC in contrast, can only be for a maximum of 55%, and there is a good reason for this.

When the loan becomes due, should you move or the owners of the home pass away, your remaining 45% of your equity can be used to pay off this loan amount (and it is most common that homeowners don’t take out more than 50%).

The key takeaway is that you are a lot safer, and so is your family, should your loan become due when you can use your value of your equity, which tends to grow over the lifetime of the mortgage, to repay the amount outright.

In essence, a HELOC can actually be much more damaging to your home equity if you take out the full 80%.

 

Financial Stress And Freedom

A HELOC can cause severe financial stress should the loan become due and you do not have the value remaining, or the ability to access your remaining equity, to pay off the loan.

Banks can recall the HELOC loan at any time, for any reason.  This is very, very rare and unlikely to happen but it should definitely be considered.

You may be forced to give up on your home to pay off your loan should it have grown to an amount as high as allowed by HELOCs – something you will never have to do in the case of a RM-HELOC.

In some cases, especially for short-term periods, a HELOC may be better suited for your financial needs. If there is a short-term debt you need to pay off, and especially if you have the income to pay the loan back quickly, then a HELOC may be the best option. However, for the long-term, and especially for retirees with no source of income, a reverse mortgage is generally the best choice.
 

In Conclusion: HELOC vs RM-HELOC

While a RM-HELOC doesn’t quite have the same ring to it as HELOC, there is no doubt in our mind it is a superior product for the following reasons:

• Your payments are voluntary – so you can pause them any time you like.  This freedom and flexibility is massive.
• Because the payments are voluntary, the lender can never take your home for missing payments.  Missed payments under a HELOC could see you put your home in jeopardy.
• The amount you can take out of your home is capped to 55% – as opposed to 80% – this works to help ensure you don’t over leverage on your home.
• You do not need any income levels or credit score to quality for a RMLOC; you do for a HELOC.

Yes, the interest rate is a little higher on a RM-HELOC.  The question you have to ask yourself is: are all the above benefits worth paying a slightly higher interest rate to get?

As we have talked about before, there are many misconceptions about reverse mortgages (
click here to read our article with more on this). The above information should help guide you along the way.

I hope this article helped if you are thinking about a reverse mortgage – you should also check out our other article on the alternatives to a reverse mortgage for further information on the other options out there. If you have got any further questions regarding a RM-HELOC – please lease a comment below and we will answer them for you.

Turning A Reverse Mortgage Into A Line Of Credit first appeared on:
Reverse Mortgage Pros
Suite 201,
8 Sampson Mews
Toronto,
ON,
M3C 0H5
1-888-358-7771
https://goo.gl/TwzUYA

by Mich via Reverse Mortgage Pros

Examining The Bad Reputation Of Reverse Mortgages

There are many people out there who do not believe in Reverse Mortgages in Canada.

I used to be one of them.

Then I learned more about the product and now I can see it can and has benefited many people.

And yes, of course, there are people who a reverse mortgage is not right for.  Naturally, it is not the solution for everybody.  No one product is ‘perfect’.

However, I challenge anybody to find a better product for people over 55, who want to stay in their home, who need some additional cash and for whom the majority of their net worth is tied up in their home (“house rich, cash poor”).

As much as my attitude changed, as I learned more about the product, there is no doubt in my mind that reverse mortgages have had an undeserved bad name.  I come across many people who say this every day.  You might have too.

And in Canada this perception of reverse mortgages is largely unjustified.

So let’s look at the top 3 reasons why some people believe reverse mortgages are evil/bad/terrible:

 

1. People Don’t Understand Reverse Mortgages

Reverse mortgages aren’t the most straight forward product and this confusion leads to resentment.

Generally speaking, people are scared by things that confuse them.

This is why I wrote our free guide – to try and educate people about CHIP reverse mortgages in Canada.

I, too, once feared reverse mortgages because I didn’t understand them.

The only way to overcome this is to learn more about them – this is why I created ReversMortgagePros.ca and this is exactly what I do with my clients – I use the free guide I wrote and my reverse mortgage email tips to help people learn about the product.

Do 100% of my clients take reverse mortgages?  Absolutely not!  But until you’ve learned about the product then you won’t know whether or not it’s a good fit for you.
 

2. The Word ‘Mortgage’

Unfortunately, Reverse Mortgage is the correct term for the product in Canada.

But the word ‘mortgage’ has negative connotations.

What a ‘mortgage’ means at heart is a loan related to your home – this is why Reverse Mortgage is the correct term in Canada.

In Japan, reverse mortgages are called ‘Home Pensions’ – essentially recognising the fact that you are using your home equity as part of your pension.

This is a much better name for them and more clearly demonstrates what this product is about and the type of person who can benefit the most from them (as I mentioned above, the best candidates are people who the majority of their net worth lies in their home).

However, unfortunately, the Canadian name isn’t about to change anytime soon!

 

3. Reverse Mortgages In The USA

The USA has really given all mortgage products a bad name over the past 10 years.

It started with the subprime mortgage crisis – where lenders gave inflated mortgages to people who couldn’t afford them and they created products such as ‘interest only’ or ‘zero down’ mortgages.  This behaviour culminated in the global financial crisis of 2008.

However, it is important to remember that Canadian banks were not bailed out because our mortgage products are very different and our banking system is much more conservative than in the USA.  We don’t have ‘interest only’ or ‘zero down’ mortgages.

Well, Reverse Mortgages are no different.

The USA has also done things that Canadian lenders are not allowed to do – lending to people under 55, lending more than 55% of the value of the home, lending to people who had not obtained independent legal advice and building up debts greater than the value of the home.

Remember:  Canadian mortgages didn’t bring down our financial system because they are better products and lenders are more conservative.  This also applies to reverse mortgages.

In Canada, reverse mortgages have 4 very important safety nets that many US reverse mortgages do not:
– You cannot get a reverse mortgage if either you or your spouse is under 55. 
– You cannot borrow more than 55% (maximum) of your home under a reverse mortgage. 
– You can never owe more than your home is worth. 
– We require that you seek independent legal advice before signing. 
 
This why 99% of Canadian reverse mortgage holders get money back (i.e. have equity remaining) when they discharge their reverse mortgage.

So there you have it – the next time you hear someone bad mouthing reverse mortgages, please send them to this article!

Whether you are considering a reverse mortgage to help the kids or you’re a retiree short on cash – we can give you the professional advice and guidance you need to make your decision.

Examining The Bad Reputation Of Reverse Mortgages first appeared on:
Reverse Mortgage Pros
Suite 201,
8 Sampson Mews
Toronto,
ON,
M3C 0H5
1-888-358-7771
https://goo.gl/TwzUYA

by Mich via Reverse Mortgage Pros

Top 8 Misconceptions About Reverse Mortgages In Canada

There is little doubt that reverse mortgages are one of the most misunderstood financial products in Canada.

You might be wondering: where does this misunderstanding come from?

Well we already know the answer, it is very simple.  This misunderstanding comes from the U.S.A.

We have talked about this many times before and the fact that there are two products with the same name available in both Canada and the U.S.A. leads to a lot of confusion. We have covered this in great detail in our free reverse mortgage guide (if you haven’t already got a copy of this, get one at http://ift.tt/2w1li7v.

Essentially, the 2 products are completely different in many ways.

So today we thought we’d outline what we believe are the top 8 biggest misconceptions that we encounter.

 

The Top 8 Misconceptions

1. I Will Lose My Home

Easily coming in at number 1, is the idea that you will lose your home.  The ironic thing is that this product was actually designed to let you stay in your home for life – and this is actually more of a disadvantage rather than advantage!

In Canada it is actually written into the legal contract that you cannot lose your home to a reverse mortgage.

Nobody in Canada has ever, ever, ever lost their home because of this product.  It is literally impossible.

 

2. I Will Lose My Home Equity

The next logical worry is that you will lose all the equity in your home as the interest grows.  This is a legitimate concern – unlike number 1 – but most people are overly concerned like this because they do not understand home value appreciation.

The simple fact is that for a lot of people in Canada their home equity is actually increasing while they hold a reverse mortgage.  This is because home appreciation rates are higher than interest rates and because home appreciation grows 100% of the property – unlike the mortgage which only grows up to 55%.

For more on this, including the latest interest rates, see our article on this – click here.

In addition to this, people fail to appreciate how much interest they pay under a normal mortgage – because it is blended in with the payments, so they don’t really notice it.

Finally, add in the fact that 99% of Canadian homes under a reverse mortgage still had equity remaining in them when the mortgage was discharged and that should ease your concerns regarding this.

 

3. I Can’t Make Any Payments

Like a normal mortgage, you can repay the balance owed anytime.  If you paid off the whole thing, penalties apply in the first 5 years; however you can also pay off up to 10% every year with no penalty. This is exactly how a traditional mortgage works as well.

In fact, several people choose to make payments of the interest only – effectively turning their reverse mortgage into a Home Equity Line Of Credit (HELOC).  We created a special product name – we call this a ‘RM-HELOC – read more about it here‘.

 

4. I Already Have A Mortgage – Do I Still Qualify?

Actually, taking out a reverse mortgage to pay off an existing mortgage – and free up your cash – is one of the most popular reasons for our customers taking this product.

Many people use this to free themselves from the burden of their monthly mortgage payment.

It should also be borne in mind that any existing mortgage must be paid off in full and you only get to keep the leftover funds after this. Still, even if there are no leftover funds, then freeing yourself from that pesky monthly mortgage payment could be worth it just by itself.

 

5. My Family Won’t Like It

Obviously family issues vary from person to person and family to family.  However, we have actually seen reverse mortgages initiated by family members and well supported by them.  In addition to this we have also seen:

• The money being used to gift family members their inheritance early
• The money being used to help family members with a down-payment on their home – especially in hot markets like Toronto and Vancouver.

I believe you should absolutely have the conversation with your family members.  Educate them on this product too (feel free to send these articles to them!) – or many of them might believe some of the misconceptions on this page.

 

6. The Rates Are Too High

First of all, there is no doubt that interest rates are higher than that you can get with a traditional mortgage or a Home Equity Line Of Credit (HELOC).

However, you have to remember that they are completely different products to these – with a much lower risk.  With a traditional mortgage or HELOC you could lose your home if you don’t make payments – that is because you are required to make payments and you are also required to qualify for them.

A reverse mortgage is completely risk free (in terms of losing your home), tax free and you are not required to make any payments.  So of course they are at a higher rate – this is the ‘price’ you pay to get all these benefits.

In addition to this, the interest rate is much lower than some car loans, credit cards, normal loans or a line of credit (unsecured).  All these products are much worse – in terms of the risk to you as well.

 

7. My Estate Size Is Being Reduced

This is true – but only if you spend the money!  The easiest way to show this is with an example:

In this example, the person is taking out a $200,000 reverse mortgage.  As you can see, the total estate size is not impacted – as they have not yet spent any of the cash!

In future, the home value will continue to grow and – depending on the home appreciation they get – they could actually still see their estate size grow over time.

 

8. My Neighbour/Friend/Relative Says They Are Bad!

Finally, the largest misconception usually comes from people around you saying they are ‘bad’ – usually without understanding the product at all.

In addition to this, these people usually believe one of the above statements and do not understand the trade off between home value appreciation and interest that is vital to understand before making your decision on this (see number 2 above).

My advice would be to do your research, learn the real facts and then make an informed and educated decision about if they are the right solution for you.

 

Top 8 Misconceptions In Summary

There are many incorrect and ignorant beliefs about this kind of home loan.  In this article we addressed the top 8.

Do you have any questions or concerns not addressed in this article?  Leave a comment below and we will answer them for you.

 

Top 8 Misconceptions About Reverse Mortgages In Canada first appeared on:
Reverse Mortgage Pros
Suite 201,
8 Sampson Mews
Toronto,
ON,
M3C 0H5
1-888-358-7771
https://goo.gl/TwzUYA

Top 8 Misconceptions About Reverse Mortgages In Canada

There is little doubt that reverse mortgages are one of the most misunderstood financial products in Canada.

You might be wondering: where does this misunderstanding come from?

Well we already know the answer, it is very simple.  This misunderstanding comes from the U.S.A.

We have talked about this many times before and the fact that there are two products with the same name available in both Canada and the U.S.A. leads to a lot of confusion. We have covered this in great detail in our free reverse mortgage guide (if you haven’t already got a copy of this, get one at http://ift.tt/2w1li7v.

Essentially, the 2 products are completely different in many ways.

So today we thought we’d outline what we believe are the top 8 biggest misconceptions that we encounter.

 

The Top 8 Misconceptions

1. I Will Lose My Home

Easily coming in at number 1, is the idea that you will lose your home.  The ironic thing is that this product was actually designed to let you stay in your home for life – and this is actually more of a disadvantage rather than advantage!

In Canada it is actually written into the legal contract that you cannot lose your home to a reverse mortgage.

Nobody in Canada has ever, ever, ever lost their home because of this product.  It is literally impossible.

 

2. I Will Lose My Home Equity

The next logical worry is that you will lose all the equity in your home as the interest grows.  This is a legitimate concern – unlike number 1 – but most people are overly concerned like this because they do not understand home value appreciation.

The simple fact is that for a lot of people in Canada their home equity is actually increasing while they hold a reverse mortgage.  This is because home appreciation rates are higher than interest rates and because home appreciation grows 100% of the property – unlike the mortgage which only grows up to 55%.

For more on this, including the latest interest rates, see our article on this – click here.

In addition to this, people fail to appreciate how much interest they pay under a normal mortgage – because it is blended in with the payments, so they don’t really notice it.

Finally, add in the fact that 99% of Canadian homes under a reverse mortgage still had equity remaining in them when the mortgage was discharged and that should ease your concerns regarding this.

 

3. I Can’t Make Any Payments

Like a normal mortgage, you can repay the balance owed anytime.  If you paid off the whole thing, penalties apply in the first 5 years; however you can also pay off up to 10% every year with no penalty. This is exactly how a traditional mortgage works as well.

In fact, several people choose to make payments of the interest only – effectively turning their reverse mortgage into a Home Equity Line Of Credit (HELOC).  We created a special product name – we call this a ‘RM-HELOC – read more about it here‘.

 

4. I Already Have A Mortgage – Do I Still Qualify?

Actually, taking out a reverse mortgage to pay off an existing mortgage – and free up your cash – is one of the most popular reasons for our customers taking this product.

Many people use this to free themselves from the burden of their monthly mortgage payment.

It should also be borne in mind that any existing mortgage must be paid off in full and you only get to keep the leftover funds after this. Still, even if there are no leftover funds, then freeing yourself from that pesky monthly mortgage payment could be worth it just by itself.

 

5. My Family Won’t Like It

Obviously family issues vary from person to person and family to family.  However, we have actually seen reverse mortgages initiated by family members and well supported by them.  In addition to this we have also seen:

• The money being used to gift family members their inheritance early
• The money being used to help family members with a down-payment on their home – especially in hot markets like Toronto and Vancouver.

I believe you should absolutely have the conversation with your family members.  Educate them on this product too (feel free to send these articles to them!) – or many of them might believe some of the misconceptions on this page.

 

6. The Rates Are Too High

First of all, there is no doubt that interest rates are higher than that you can get with a traditional mortgage or a Home Equity Line Of Credit (HELOC).

However, you have to remember that they are completely different products to these – with a much lower risk.  With a traditional mortgage or HELOC you could lose your home if you don’t make payments – that is because you are required to make payments and you are also required to qualify for them.

A reverse mortgage is completely risk free (in terms of losing your home), tax free and you are not required to make any payments.  So of course they are at a higher rate – this is the ‘price’ you pay to get all these benefits.

In addition to this, the interest rate is much lower than some car loans, credit cards, normal loans or a line of credit (unsecured).  All these products are much worse – in terms of the risk to you as well.

 

7. My Estate Size Is Being Reduced

This is true – but only if you spend the money!  The easiest way to show this is with an example:

In this example, the person is taking out a $200,000 reverse mortgage.  As you can see, the total estate size is not impacted – as they have not yet spent any of the cash!

In future, the home value will continue to grow and – depending on the home appreciation they get – they could actually still see their estate size grow over time.

 

8. My Neighbour/Friend/Relative Says They Are Bad!

Finally, the largest misconception usually comes from people around you saying they are ‘bad’ – usually without understanding the product at all.

In addition to this, these people usually believe one of the above statements and do not understand the trade off between home value appreciation and interest that is vital to understand before making your decision on this (see number 2 above).

My advice would be to do your research, learn the real facts and then make an informed and educated decision about if they are the right solution for you.

 

Top 8 Misconceptions In Summary

There are many incorrect and ignorant beliefs about this kind of home loan.  In this article we addressed the top 8.

Do you have any questions or concerns not addressed in this article?  Leave a comment below and we will answer them for you.

 

Top 8 Misconceptions About Reverse Mortgages In Canada first appeared on:
Reverse Mortgage Pros
Suite 201,
8 Sampson Mews
Toronto,
ON,
M3C 0H5
1-888-358-7771
https://goo.gl/TwzUYA

by Reverse Mortgage Pros via Reverse Mortgage Pros

Mortgage Options For Seniors

Introduction

Home is where everyone feels comfortable and it is a vital part of everyone’s life. If you are in your 50’s or 60’s, you have lived many years in your house and have thousands of memories there. You have raised your children there and spend valuable time with your friends and family.

But, the house which homed your memories may turn into a real problem if you don’t plan ahead. For many people, the strain is maintenance and for others, the strain is financial in the form of bills and mortgage. You can learn more on typical senior mortgage problems here.

In this guide, you will learn about the possible options of the mortgage after retirement. We have gathered valuable information which will help you in making the right decision, however, we would recommend you to do further research on Mortgage Financing Options for People 55+ before making any commitments.

Mortgage Options

While living in Canada, you may find a bundle of mortgage options but not every option is suitable for you. Selection of the right mortgage option depends upon whether you want to downsize your property or want to reinforce it.

There are many loan options available in Canada, and some of those are discussed below:

• Standard Mortgage

It is a traditional mortgage plan and lasts between 5-30 years. If you have a good credit rating and income, you are eligible for this mortgage.

• Second Mortgage

If you have low cash, then you should go for Second Mortgage. This type of loan has higher interest rates and involve more risk as well.

• Refinanced Mortgage

When you change loan type like change amount of loan, length of loan or rate, you are actually applying for a Refinanced mortgage.

You can learn more on Mortgage options here.

Protecting Yourself

Anything that involves money and seniors is incomplete without warning about scams. People always look to take advantage from seniors who do not have enough sense to make the right decision on their property.

It is highly recommended to consult an attorney or financial advisor before making any decision about the mortgage. Keep in mind the following tips if you want to avoid scams:

• Carefully read the fine print before signing anything.
• If anyone is rushing you, it means you are about to be looted.
• Have proper market analysis.
• Keep in touch with the neighbors of the house which is sold.
• Search the web and have an estimated rate of the neighborhood areas of your house.

Additional info

Other than what we have mentioned, do visit the following links to have a deeper understanding of mortgage options for seniors:

http://ift.tt/2lYHTLT

http://ift.tt/2CIOPHn

Conclusion

It is almost impossible to cover all the factors in one guide. However, as we mentioned above, you should make further research before committing to anything. Here are few things which you should consider before signing any paper:

• If you live in a house which is too big for you, downsize.
• If you are about to retire with a mortgage, do whatever it takes to make it affordable.
• If you find yourself in trouble, a reverse mortgage can be a decent asset for you.

The decision you will make about your house and mortgage will have a deep impact on your life and the ones who are close to you. Your house may become the best financial asset for you, so learn how to invest it properly.

 

 

 

 

 

 

 

Mortgage Options For Seniors first appeared on:
Reverse Mortgage Pros
Suite 201,
8 Sampson Mews
Toronto,
ON,
M3C 0H5
1-888-358-7771
https://goo.gl/TwzUYA