Seniors in Mission are learning about the possible benefits of a reverse mortgage. Though not suitable for every senior, a reverse mortgage can be a life-changing move for those facing financial concerns before and during retirement.
Doug Lifford, a mortgage broker in Mission, explained reverse mortgages are available for people who are 55-plus and have equity in their home.
He said reverse mortgages are there to help people get ready for retirement, or to help them in retirement.
“It’s really all about keeping seniors in their homes,” said Lifford, adding that every situation is unique.
Explaining how this kind of mortgage works can be complicated.
According to Lifford a client would come into his office and he would ascertain the equity in their home and what their financial goals are.
“The older you are the more that you can take, based on the home and its equity.”
While your home remains in your name, a company would buy out the remainder of your mortgage (which results in the client no longer having to make payments), assess what value remains and then determine how much of that remaining value (usually up to about 45-49 per cent) can be used.
Many factors are taken into consideration – the value of the home, what’s still owed on the mortgage, the age of the client, even the gender (men tend to pass away at a younger age).
Lifford used a home worth $1 million as an example.
“Let’s say after the mortgage is paid, the client qualifies for $400,000. That money becomes available forth to use,” he said.
Lifford said some people ask for monthly payments, maybe $1,000 a month to supplement their incline. Or, perhaps they want $100,000 in a lump sum.
“Some clients do that to give their children an early inheritance or help with the down payment on a new house.”
Interest only accumulates on the amount a client uses, not the whole amount they are eligible for.
Lifford explained: “The idea is, if you take out $100,000 and let’s say the interest is six per cent at the end of the year the interest would be $6,000. However, if the home is valued at $1 million and it’s gone up two per cent, the value of the home has increased by $20,000, while the reverse mortgage only increased by $6,000, so the equity in the mortgage will never top the value of the home.”
That way the client doesn’t have to pay the $6,000 it just goes into the mortgage and there is still plenty of equity remaining if more funds are needed.
The client is also allowed to defer taxes if they choose to.
If the client eventually wants to sell the home, then the lending company will have to pay out what remains of the equity agreed upon when the reverse mortgage was signed.
If the client passes away, the company has four months to sell it and whatever money is left over goes to the inheritance.
“Reverse mortgages, to us, are kind of special because you really see how it changes people's lives. We have probably done more reverse mortgages this year than we have in the past three years,” said Lifford.
There are three companies in Canada that provide reverse mortgages and Lifford said part of his job is to determine which one is best suited to each client's needs.
“People are getting more educated about reverse mortgages. Back in the day, the attitude was, no, you don’t want to do that it’s kind of a last resort,” he said, adding now people are seeing it as a solution.
Recently seniors have been impacted by the increase in interest rates and other cost of living increases. Every situation is different.
“Some people don’t need a reverse mortgage every case has to be looked at.”
Lifford’s first reverse mortgage client was his own mother.
After it was determined that his mom was living on a pension of $1,400, the family decided to look into ways to help.
“Mom would never complain, because that was her upbringing.”
“Where it really helped is when she got a special assessment of $43,000 against her condo and she was very upset that she had to spend the money,” he explained.
The reverse mortgage made it easy to pay the bill and his mom had her unit repaired and fixed up.
“It took a lot of pressure off of mom, once she got her mind around it and understood it.”
Another example that came to mind was a 78-year-old client who was still driving a heavy truck, full-time.
“His wife had suffered some pretty severe health setbacks and could no longer get out of bed and needed care.”
They had lived in the same house for more than 50 years and he still had a mortgage on the home he was working to pay off.
“He didn’t want to sell his home, he didn’t want to move his wife and he had 50 years of memories there.”
Lifford said he eventually negotiated a reverse mortgage for him and it allowed him to quit his job, stay with his wife and stay in his home.
“It feels like we’re helping and it really changes people’s lives.”
Lifford has been in the finance and mortgage business for 38 years, the same amount of time he has lived in Mission. He has been in his First Ave. location for more than 19 years.
“It’s nice to be here on First Avenue, it's very accessible to our clients. We have a lot of our clients drop by to talk and let us know what’s going on in their lives. Mission has been a great place to do business.”
