Reverse Mortgages – Maybe not as evil as you thought

General Pam Pikkert 26 Jun

Reverse Mortgages – Maybe not as evil as you thought

The best part of writing about mortgages is that I get the chance to educate people about a topic which I find endlessly interesting.  Reverse mortgages are certainly a topic which deserves some consideration.  Everyone seems to be quite polarized over this issue so it seems it is past time we took a closer look.

Imagine the following scenarios:

  1. Bob receives a CPP and OAS and a small work pension. His fridge has died but all of Bob’s credit facilities are maxed and he has been declined for additional credit.
  2. Sue needs to put her husband Joe into long term care but the cost is much higher than they anticipated and she knows their savings will not last long.
  3. Mary and Bill want to purchase a property in Arizona so they can enjoy the warmer weather.
  4. Steve wants to be able to use the equity in his home to purchase a rental property so he has additional cash flow
  5. Eveline recently saw an increase in her living expenses and cannot make the ends meet.
  6. Cyrill and his wife would like to gift the inheritance to the kids while they are able to watch them enjoy it.

So you get the idea.  There are many situations that a person may benefit from having a reverse mortgage.  The extra funds could help them through a tough spot or allow the freedom extra funds can offer.

Here in a nutshell are the facts.

  • There is only one provider of reverse mortgages in Canada and they are regulated by the Federal government like any other bank.
  • They have been around for 30 years.
  • You remain the owner of the home, not the bank.
  • Unlike a regular mortgage, you do not need to qualify based on income.
  • The goal is equity preservation. They want you to have the same equity in your home at the end as you do now.
  • NO payments are required as long as you still live in the home though you can if you like.
  • The rates are not horrible and the only fees you pay are $1495 for the closing costs, an appraisal and the fee for independent legal advice.
  • The amount you can borrow is based on your age, location, property type and the value of the home.
  • The money can be taken as a lump sum or month by month, whichever suits you better and it can be used for whatever you like though there is due diligence to protect you.
  • If you are survived by your spouse they can remain in the home payment free.
  • Tax arrears, OPD, bankruptcies can all be paid from the proceeds.
  • Your family is welcome to ask their questions to protect your interests and the mortgage company knows that you want to have something to leave the kids, they will help you achieve that goal.

As always you should speak with a qualified mortgage professional.  My hope is that you may have seen that a reverse mortgage is not an evil entity designed to take your home but instead should be viewed as just another tool available to you.

Call me or visit https://www.chip.ca/

To Port or Not to Port Your Mortgage

General Pam Pikkert 10 Jun

To Port or Not to Port Your Mortgage

So you find yourself looking to move for whatever reason.  Maybe you and the neighbours have become the Hatfield’s and McCoy’s or maybe your dream home has come available.  Whatever the situation, when you find yourself considering a move, I hope you will remember this article and the sage advice it offers and save yourself some money.  It is your money after all so you really should keep as much of it as you possibly can.

The first thing to consider is the mortgage penalty.  Before you list your home you would be very smart to call your current mortgage provider and find out exactly what your penalty will be.  There is no set rule as to how lenders have to calculate this amount and it does vary greatly from bank to bank.

The second thing to consider is the mortgage insurance premium.  If you purchased your home with less than 20% down you will have paid the mortgage default insurance premium.   If you do not have 20% down for the new home you will be looking at incurring this cost again.  If you port, you will only pay on the new funds you are borrowing.

Let’s look at this in real dollars so you get an idea what we are talking about.  Here is the story of Joe and Joanna.

They bought the current home for $300,000 with 5% down.  The mortgage was a 5 year fixed rate at 3.09% over 25 years.  They paid an insurance premium of 3.60% or $10,260 which was added to the mortgage making the total loan $295,260.  After 3 years and 5 months they owe about $269,225.  They did some work to the house so they can sell for $350,000.  That gives them $80,775 less Realtor fees and legal fees.   The new home is $400,000 and they go online and figure out the payments at the low rates of today.    The payments are affordable and they are ready to go.  But wait!  There is a lot more to consider.

Depending on where they got their mortgage in the first place, that penalty to break the contract to take the new low rate can vary between $2,423 and $6,461 based on the lender.  (Hopefully you did your research the first time around to make sure you are with the first one)

There is also the consideration of the insurance premium.   If our heroes take a new mortgage putting down 10% they will incur a mortgage premium of $11,160.00.  If they ported the mortgage over they would only have to pay the premium on the new funds they are borrowing which would make the premium only $5,718.82.

When you add the lesser of the penalties and the difference on the premium insurance amount you can see that they would have saved $8141, or a whopping $12,180 on the second, by porting.

If you do decide to port  check with you mortgage lender to find out how your new rate will be determined, what amortization you have to keep, their porting timeline maximums and any other policies which could affect you.   Each lender is so different that the onus really is on you to cover all your bases.   Hopefully you can see that you should at least consider a port to save yourself money.

Things Your Mortgage Professional Wants Everybody to Know

General Pam Pikkert 5 Jun

Things Your Mortgage Professional Wants Everybody to Know

 

There have been so many changes to the mortgage universe and the whole thing can be really confusing so let’s take a look at the some of the core things that mortgage professionals want you to know.

  1. You can buy your next home with as little as 5% down if you are willing to pay the mortgage default premiums again.
  2. We can only refinance a home up to 80% of its appraised value.
  3. You can use a gift, borrowed funds, savings of nearly any sort, sale of an asset to provide the down payment on a home
  4. All mortgages with less than 20% down must qualify at a rate of 4.64%, as of today, though the rate you will actually be given is lower.  That is to ensure you can afford the mortgage payments when rates go up.
  5. The magic number is 2 as far as credit is concerned.  You need to have 2 types of credit for 2 years with a minimum limit of $2000 to show that you can manage your credit well and be offered the best rates.
  6. Fallback is the new black.  Gone are the days where they just need to know you have the 5% down plus the 1.5% for the closing costs.  The lenders all want to know you have a cushion of savings for unexpected life events.
  7. The onus is on you to choose the best mortgage and they are not all created equal.   Portability, prepayment privileges and penalties are a few things to compare.  If you sign a mortgage then make sure you understand the specifics as compared to other mortgages.  Penalties vary greatly lender to lender and not knowing is not going to get you out of a large penalty.
  8. If you are offered a $13,000 line of credit and a $54,000 car loan and you accept, you cannot later blame them for ‘letting’ you get yourself into trouble.  A large credit balance and a high vehicle payment will dramatically affect your ability to purchase a home.  That $13,000 line of credit or a $400/month vehicle payment will each decrease your purchasing power by $100,000.
  9. Cell phones report on the credit bureau as do mortgages, lines of credit, student loans, and installment loans like a vehicle payment.   To keep your credit strong, make sure you make your payments on time, don’t exceed 50% of the available limit and have at least one credit card to give the lenders a full idea of your ability to manage credit.
  10. Disability is the number one reason for mortgage default in Canada.   Budget for a good disability policy and maybe a job loss policy as well to protect your home.   Going through a third-party provider beyond your bank is a good idea so that you don’t end up tied to your bank forever.

As always, a mortgage professional is your best bet to ensuring you have the best mortgage and they are a friendly bunch so feel free to ask your questions.