They are becoming more popular but brokers are divided on whether reverse mortgages are the best option for aging clients looking to take advantage of equity in their homes.
“I can understand why many homeowners would be attracted to this type of finance as it’s a fixed rate compared to a HELOC, and it’s a way of getting cash quickly if you are going through a financial patch, but it’s not ideal, especially if you want to sell in the future,” Marc Abramovitz from Northwood Mortgage and founder of ilovemymortgage.ca said. “There are a lot of other options available and homeowners really need to do a lot of due diligence and get independent advice before signing up for this.”
With house prices out of reach and desperate to get their hands on hard cash quickly, many homeowners are expected to use reverse mortgages to help their offspring buy their first property.
And while reverse mortgages have been available since the introduction of the Canadian Home Income Plan in the mid-1980s, very few financial lenders have openly offered the product. However, with an aging population and dependent children needing help with down payments, there has been a report of rising interest in this financial method.
“I am seeing a lot more use and interest in reverse mortgages, especially for those who are in difficult situations,” Abramovitz said. “For example, one my clients had no mortgage on her home, and needed cash to reinvest back in her house. Her only other was to sell the property so a reverse mortgage was the best solution.”
For his part, Terry Kilakos of North East Mortgages believes reverse mortgages can be beneficial for older clients who require money and have paid already paid off their homes.
“I think it’s a good tool to have to offer older clients; I don’t compare them to HELOCs; they’re a different tool altogether,” Kilakos said. “People also have the option of taking the reverse mortgage in either a lump sum payment or (staggered) payments.”
These staggered payments can be treated like a paycheque in the event that a pension is not providing enough income.
Lenders rarely give reverse mortgages to borrowers younger than 62 years-old while the loan-to-value ratio can be as low as 25 per cent after accounting for closing fees. The mortgage can be paid off from the proceeds of the home’s sale, or by the estate in the event of a client’s passing.