Let's chat: 866-435-3748
|

Reverse mortgages are increasing in popularity.

Reverse mortgages have recently increased in popularity as nearly one-third of Canadians are approaching retirement with little or no savings. In this edition of our Money123 series, Erica Alini (globe and Mail) looks at the pros and cons of this form of lending

Reverse mortgages are losing their stigma.

With interest rates at rock bottom and home prices skyrocketing, reverse mortgages are losing their stigma.

Once considered by many a last-ditch solution for cash-strapped seniors, reverse mortgages have been growing in popularity for years. But the housing boom that’s taken hold in much of Canada during the COVID-19 pandemic is giving reverse-mortgage lenders yet another boost.

 Reverse mortgages have become a viable option for long-term care facilities.

Reverse mortgage lenders expect to see more demand from seniors concerned about COVID-19 outbreaks in long-term care (LTC) homes and looking for financial options that would let them age in their own homes. Even with increased interest in reverse mortgages linked to concern around LTC facilities has grown, the main drivers seem to be, quite simply, low borrowing costs and rapid home-price appreciation.

Reverse mortgages allow a freeing of locked-in equity.

Reverse mortgages allow homeowners aged 55 and over to juice cash out of their real estate equity without leaving their house or making payments until they move out or pass away. Both interest and principal come out of the home equity, and the bank makes its money back when the house is sold. Borrowers can opt to receive a lump-sum loan or a certain amount of cash at regular intervals.

Soaring home prices mean many older homeowners now have more room to borrow with a reverse mortgage. And low-interest rates make it cheaper to do so.

 Many borrowers take out a reverse mortgage loan to pay off other debts, a strategy that allows them to eliminate debt repayments and free up some cash flow. Seniors have also traditionally used these loans to provide a regular, tax-free income supplement.

 Good for helping children now.

But in recent months, there has been an increase in the number of applicants, who want to borrow against their home to help their children or grandchildren get into the real estate market. Presently, they are excluded by high prices.

 Reverse mortgages allow wealth transfer.

Reverse mortgages allow house-rich parents and grandparents to transfer some of that wealth to younger generations when the children or grandchildren actually need to buy a house, Macqueen says. Grandma and grandpa are presumably going to leave an estate in the form of the house. Well, why not give out some of that estate and have it do some good today?.

 Managing the risk of reverse mortgages

Two risks associated with reverse mortgages are rising interest rates and falling home prices.

 While the possibility of higher borrowing costs is a concern for anyone taking out a mortgage, we should note that reverse mortgages are significantly pricier, to begin with, a fact which allows the lender to waive mortgage interest payments.

 While borrowing costs could climb in the future, there’s a strong incentive for anyone considering a reverse mortgage to jump in now, while rates are low, she adds.

 Falling home prices mean there would be less cash if any, leftover for the homeowners or their heirs once the home is sold and the reverse mortgage repaid. But borrowers don’t have to worry about the value of their home falling below the amount owed on the loan,

 To reduce the risks, obviously, you want to take out as little as possible, as late (in life) as possible and ask advice from your professional mortgage agent.

 https://globalnews.ca/news/7602336/the-pandemic-housing-craze-is-fuelling-another-boom-reverse-mortgages/

 Simple appetizer or dinner: Lentils and smoked salmon.

1 cop of green lentils simmered 20 minutes. 1.4 cup of finely chopped onions, carrots, garlic and whatever. Sauté the veggies in lots of olive oil; add lentils when veggies are soft.  Mix well and plate, using a small ramekin as a mold. Top with slices of smoke salmon and a sprig of dill

Paraphrased from © 2021 Global News, a division of Corus Entertainment Inc. By Erica Alini  Global News