Reverse mortgages can help older couples who are getting divorced

'Grey divorce'

So far in 2022, there are more than 1.9 million divorced people between the ages of 55 and 89 years old in Canada.

This phenomenon, commonly known as “grey divorce,” is defined as those over the age of 55 going through a divorce. For many of these individuals, staying in the home they love is a priority. But they may not have the funds on hand to finance a buyout.

If you lack the means to generate new wealth or face difficulties borrowing due to a lack of employment income, it can be tempting to dip into your retirement savings or investments to cover the cost of a home buyout. However, there may be another solution.

For those looking to finance the buyout of their marital home, a reverse mortgage may be the answer. A reverse mortgage can help you tap into the equity you’ve built in your home to buy out your spouse’s half of the home.

With a reverse mortgage, you can access up to 55% of the value of your home and turn it into tax-free cash. What’s more, there are no monthly mortgage payments.

There are also many other ways that a reverse mortgage can be used such as:

• Health care: 91% of Canadians say they want to remain in their own homes for as long as possible after retirement. If you are one of these Canadians, you can use a reverse mortgage to help you continue living in the comfort of your own home and community.

• Renovations/retrofitting: Many clients use the proceeds of a reverse mortgage for renovations and retrofitting.

• Income supplement: Like many other Canadians, you might fear you cannot maintain the same standard of living once you retire due to a decreased income. However, with a reverse mortgage, you can get an increase in your cash flow with no monthly payments required and be financially secure to live out your retirement on your terms.

• Unplanned expenses: You may have the perfect retirement plan, which has been built to provide you with financial security. However, unplanned expenses are almost impossible to avoid, no matter how much planning you have done. Emergencies relating to damages to your home and unexpected health issues can always arise, the costs of which may not have been accounted for in your retirement plan. A reverse mortgage can help you by accessing the value of your home’s equity and giving you the tax-free cash, you need to be financially prepared for any unplanned expenses.

• Early inheritance: Many clients use reverse mortgage funds to provide an early inheritance to their family. With the cash you receive from the reverse mortgage, you can help support your loved ones now and give them an early inheritance to help them with a down payment on a house.

• Debt consolidation: One of the most common use of funds of a reverse mortgage is for debt consolidation. You can use the tax-free funds you obtain from accessing your home’s equity to pay off all your debts and live a peaceful retired life.

Big life events like divorce or even retirement are challenging. Please don’t hesitate to contact me to learn more about how a reverse mortgage can make a difficult time a bit less challenging.

If you would like to chat, please book a time on my calendar at calendly.com/april-dunn or email [email protected].

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

For some, a consolidation loan may be answer to dealing with debt

Rising rates and debt

A recent survey found 53% of Canadian mortgage borrowers are concerned about the prospect of higher monthly payments at renewal time.

Those with a variable rate or adjustable rate mortgage are already feeling the pinch with rising interest rates and increased payments, and those who currently have lower rate fixed mortgages will face higher payments as their mortgages come up for renewal in the next few months.

Now, more than ever, is the time to review your current debt picture, along with your budget, to see where you can cut back your cost of borrowing and potentially lower your overall monthly payments.

If you are carrying high-interest credit card debt, car loans or other personal loans, you know it can be challenging to pay off everything you owe.

If you are a homeowner and there is sufficient equity in your property, consolidating all of your debt and including it in your mortgage payment might be the right solution for you.

There are many benefits to debt consolidation including:

• A much lower monthly interest rate for all of your debts

• Lower monthly payments

• The comfort and convenience of making only one monthly payment instead of making multiple payments on your credit cards and other loans

• Improving your credit score by reducing the amount you owe and now being able to make all of your payments on time

A debt consolidation mortgage is not a quick fix and a full financial review should be completed with your mortgage broker. There could be costs to break your current mortgage to include those higher interest debts with your mortgage payment.

You may be lowering your current monthly payments but now the debt is going to be repaid over a longer period of time. Is that really going to be financially beneficial? It all comes down to the math as the overall cost of borrowing could be higher or lower than what you are currently paying. Crunching all the numbers is the only way to know for sure.

There is another real danger to consider – are you disciplined enough to stick to a budget going forward and live within your current income or will you be tempted to use those credit cards again and end up in exactly the same situation in the near future?

It can become a vicious circle unless you learn to live within your budget. You don’t want to end up in the same place a year from now.

On the other hand, if you are disciplined and can live within a budget, the benefits of the increased monthly cash flow could significantly improve your financial situation. These extra funds might be used for investing in your retirement with RRSP contributions and having an emergency financial fund in place for life’s surprises.

There are several possible options to consider for a debt consolidation mortgage including breaking your current mortgage to include the debt owed, a second mortgage for the consolidation or a home equity line of credit.

A small unsecured personal loan may be sufficient. In an extreme situation it may be necessary to sell your home to clear off all debts.

You may have heard about “interest free” debt consolidation programs, where a company will negotiate on your behalf to reduce the debt and arrange a single monthly payment.

With very careful consideration, that may be a last resort option but be aware, that type of solution will ruin your credit rating for a long time. Get all of the facts before entering into that type of arrangement.

Now, all that’s left is to figure out precisely which solution is best for you to wipe out all those high-interest payments.

If you would like a complete confidential assessment and discussion of all the possible options, please give me a call at 1-888-561-2679 or email [email protected]

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

With rising rates, which type of mortgage is best for you

Mortgage dilemmas

Last Wednesday, the Bank of Canada increased its overnight benchmark interest rate 50 basis point to 3.75% from 3.25% in September.

That was the sixth time this year the bank tightened the money supply to quell inflation, so far with limited results.

Even though the increase was slightly less than what was predicted, the increase is still causing many pain and concern, particularly if they are currently in a variable rate or adjustable rate mortgage.

Even those with a fixed rate mortgage who are facing a renewal shortly will be looking at much higher rates if they have a five-year fixed term mortgage renewing.

Some of you may have received recommendations from your mortgage broker in the last couple of years to take a variable rate mortgage. This recommendation was based on not only historical data but also the outlook from the Bank of Canada itself.

This is what Tiff Macklem, the governor of the Bank of Canada had to say in October 2020: “What we’re saying is that we are going to get through this but it’s going to be a long slog. We’re telling Canadians, and our forward guidance has been very clear, that we are going to hold our policy interest rate at the effective lower bound until slack is absorbed so that we can sustainably achieve our 2% inflation target, and we’ve indicated that’s not going to happen until sometime into 2023. What does that mean? Yes, that means if you are a household considering making a big purchase, if you’re a business considering investing, you can be confident that interest rates will be low for a long time.”

There was no way for anyone to predict the current direction taken by the Bank of Canada.

So what action if any should you take going forward? You may be wondering if you should now lock-in your variable rate mortgage. There is lots of chatter in the media about the rate increasing again in December and again into next year.

The first question you should ask yourself is why you chose a variable rate mortgage in the first place. Was it because it had a lower rate than a fixed term mortgage or did you have a plan to take advantage of that lower interest rate?

Historically, a variable rate has been a better option by just comparing rates, but those rates can change. Potentially, and depending on whether you have a variable rate mortgage or an adjustable rate mortgage, more of your payment will go toward interest rather than principal if your payment isn’t adjusted accordingly as rates increase.

Another important consideration with variable rate mortgages is they have lower prepayment penalties generally than a fixed rate mortgage should you decide to break your mortgage early. Statistics support that this happens more often than not.

Consumers should evaluate their personal balance sheets and risk tolerance. The decision of whether to go short (variable) or long (fixed) will depend on the consumers’ tolerance for risk as well as their ability to withstand increases in mortgage payments.

You need a plan with a variable rate mortgage. The best thing is to do a review with a mortgage broker to determine your personal tolerance to rate increases and determine a strategy for managing your mortgage to reduce your overall cost of borrowing.

Something to consider about locking in your mortgage is that not all lenders are going to offer you the very best fixed rates. You are also hedging your bet that at some point your fixed rate is going to be lower than a variable rate mortgage.

Perhaps switching to a fixed payment variable might be an option rather than locking into a fixed term mortgage. The best decision is based on your risk tolerance.

No one can predict where rates are headed – even the experts got it wrong! You decision to lock-in to a fixed rate mortgage should not be based on what you read in the media.

If you would like a no obligation review and financial analysis for your personal situation please let me know. We can compare your current adjustable rate mortgage to a fixed term option and even compare it to a variable rate mortgage with fixed payments. That way you can make an informed decision as to whether locking in is the best option for you.

I will do my best to ensure you make the best decision based on today. Please book a time here on my calendar for a chat at www.calendly.com/april-dunn and I’ll do my best to assist.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.


What you need to know about co-signing a mortgage

Co-signing a mortgage

With our high mortgage qualifying rates at the contract rate plus 2% (approximately 7.5% today), and today’s high-priced real estate, it can be very difficult to qualify for a mortgage.

Even with good income and some funds saved for a downpayment, you may not qualify for the mortgage amount you require to get into the type of property you want to own. As a result, you may require a co-signer.

Here’s what you and your co-signer need to know about them signing onto your mortgage.

• If you are unable to make the payments for any reason, your co-signer will be expected to make them on your behalf. By signing the mortgage documents, they assume full responsibility for the payments.

• Whether someone is the principal borrower, co-borrower, guarantor or co-signor, if you’re on the mortgage, you’re 100% responsible for the debt of the mortgage and everything that goes along with that. A co-signer has all the same legal obligations as everyone else on the mortgage.

• If payments aren’t being made, there is a chance the lender will take legal action against the co-signer. That includes all available collection methods, such as obtaining a judgement in court or garnisheeing wages or bank accounts. They could even go after the co-signer’s property or assets in order to cover the losses.

• When you co-sign for a mortgage, all of the debt of the co-signed mortgage is counted against you. That means that if you’re looking to buy another property in the future, you will have to include the payments of the co-signed mortgage in your debt service ratios, even though you aren’t the one making the payments. That could significantly impact the amount you can borrow in the future.

• Once the initial term has been completed, the co-signer will not automatically be removed from the mortgage. The person who was co-signed for will have to make a new application for the mortgage in their own name and qualify on their own merit. If they don’t qualify at that time, the co-signer will be kept on the mortgage for the next term.

There are also other potential issues to take into consideration before signing on to someone’s mortgage and it’s prudent to seek both tax and legal advice from professionals.

• There can be implications with respect to your personal income taxes. You may accumulate an obligation to pay capital gains taxes down the road. This should be discussed this with your tax accountant.

• Co-signing may impact Land Transfer Tax Rebates for first-time homebuyers.

• You are entrusting your credit history to another party.

Before co-signing for any debt, ensure you fully understand all of the potential implications and how it could affect you personally.

I am happy to have a conversation if you are considering co-signing on a mortgage, so please give me a call at 1-888-561-2679.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

More Mortgage Matters articles

About the Author

April Dunn is the owner and a Mortgage Broker with The Red Door Mortgage Group – Mortgage Architects. She has been assisting clients to purchase, refinance or renew their mortgages for over 20 years.

April has experience as a Credit Union manager, a Residential Mortgage Manager with a large financial institution and as a licensed Mortgage Broker. By specializing in Strategic Mortgage Planning she has the tools available to build a customized mortgage plan, with the features and options that meet your needs.

April provides a full range of residential and commercial mortgage financing options for clients all over the province of British Columbia and across Canada through the Mortgage Architects network.

Contact e-mail address: [email protected] or by phone at: 888-561-2679.

Website:  www.reddoormortgage.com

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

Previous Stories