Reverse Mortgages
by Carol Loewen | Chair, ARTA Pension and Financial Wellness Committee
The ARTA Pension and Financial Wellness Committee recently had the opportunity to attend a presentation on reverse mortgages offered by Dallas Sleeman (a mortgage agent with On The Mark Mortgages in Edmonton). The following article summarizes points discussed during the presentation.
Reverse mortgages have become an item widely advertised on television as an easy way to finance a variety of ‘wants’ after retirement. This financial option would seem to indicate that before retirement, money was perhaps not an issue, and now it would apparently be easy to get money from your home to do things you want to do — travel, home improvement, paying off debts, family assistance, or any other dreams for which you may not have funds readily available.
In Canada, at the present time, there are two banks offering reverse mortgages: HomeEquity Bank with the CHIP Reverse Mortgage and Equitable Bank with the PATH Home Plan. Both offer similar programs with the option of taking a lump sum advance or a large initial advance then recurring advances.
The loan amount depends on two primary factors: the age of the youngest applicant on the application and the current value of the home, based on an appraisal. The equity available for the reverse mortgage ranges from 15% to 55% based on age. The younger you are at the time of application the less money you are eligible to receive in the reverse mortgage. This precondition is in place to preserve the remaining equity of the home for the life expectancy of the applicant.
In Canada, reverse mortgages are legislated so that you will never owe more than the current market value of your home when you sell or move to a retirement unit.
There are three options to access the funds in a reverse mortgage:
- Single payment or lump-sum: The homeowner gets the full amount of funds approved.
- Initial lump-sum with subsequent advances: the homeowner takes less than the full amount of funds approved, the minimum of which is $25,000, and the balance is set aside for future advances.
- Initial lump-sum and following monthly payments (advances): The homeowner gets an initial $25,000 advance, then monthly payments are made until the full amount of the funds
approved is reached.
Documents needed for a reverse mortgage include government-issued identification, an appraisal of the home from a lender-approved appraiser, and proof that independent legal advice has been obtained.
Costs associated with setting up a reverse mortgage include a one-time lender administrative fee, legal fees for the independent legal advice, and the appraisal fee. After consideration, there are some good and some perhaps not-so-good reasons for obtaining a reverse mortgage — depending on your life situation. You must be the primary resident or owner and the home must be valued at more than $250,000. The maximum amount borrowed at age 55 would be 15%, while at age 83 it would be 55% of the appraised value of the home. It is important to talk with a mortgage agent and independent financial adviser. Prepare well in advance any questions you believe are of interest or importance to you. Be sure to get answers to these questions — and obtain a response that satisfies you — before acting.