- About 25 per cent of Canadian homeowners are mortgage free, and 20 per cent are considered low income (making less than C$40,000 a year)
- Reverse mortgages are available to homeowners 55 and older
- The bank can lend up to 55 per cent of the property value, and you don’t have to pay off the loan until you sell the property
- “Mortgage Maven” Kimberly Coutts sees people use reverse mortgages “to just live,” take vacations and help family members
Since June, the Bank of Canada has lowered the policy rate 75 basis points. The policy rate helps to set borrowing costs and informs the rates on mortgages and other loans.
With interest rates expected to continue to decline as we head into the end of the year, increased stimulation in the real estate market might be on the horizon.
When considering down payments or alternative investments, a reverse mortgage may be an option to create some immediate cash flow.
In the above video, Lower Mainland mortgage broker Kimberly Coutts, aka the “Mortgage Maven,” joins The Market Online for an in-depth look at reverse mortgages and how to utilize being house rich and cash poor to your advantage.
Coutts addresses the facts that nearly 25 percent of Canadians who are homeowners are mortgage free and 20 percent are considered low income (making less than C$40,000 a year.
She outlines for homeowners 55 and older, a reverse mortgage might be a viable solution to get some extra cash without monthly mortgage payments. Unlike traditional mortgages, she says, “you don’t pay for the loan until after you sell the property.”
Coutts explains the qualifying differences from a traditional mortgage, which you qualify for based on your income, down payment, as well as stress tests. With a reverse mortgage, you qualify based on being a homeowner, your primary residence, and being 55 or older.
Coutts addresses a negative perception associated with reverse mortgages – that the bank may end up owning the property title. Coutts clarifies this is not the case as the bank can lend up to only 55 percent of the property. As well, in the past 15 years, property has appreciated approximately 6 per cent, which can offset the accruing interest.
In terms of what she sees reverse mortgages getting used for, she notes that people use them “to just live,” which can include maintaining a monthly budget and lifestyle events such as vacations.
In addition, people use the money to make investments and to help family members.
With the challenges of expensive down payments, reverse mortgage holders are gifting down payments “without tapping into their home equity lines, without tapping into their investments, both which come at a cost, whether it’s a tax burden or whether it’s those interest only payments.”
In a previous interview, Coutts discusses how the prime rate affects variable mortgages, and the potential for using home equity to finance other investments and grow your money and wealth.
In addition, we discuss the difference between directly approaching a bank for a reverse mortgage or speaking with a mortgage broker.
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Also check out our recent interview with Allan Small, senior investment advisor of the Allan Small Investment Group with iA Private Wealth, where we discuss the potential BoC quarter point cut: “Investment expert eyes Bank of Canada’s next interest rate move.”
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