Top 8 Questions About Reverse Mortgages

General Christopher Rooke 26 Apr

Have you ever considered a reverse mortgage?  This product is becoming more popular these days and they are being used for a number of reasons including Income support, to manage debt, renovations to remain in your home, to provide a living inheritance or to help provide funds to assist a relative with a down payment.  

 

Top 8 Questions About Reverse Mortgages.

Written by Mich Sneddon, CPA, CA – Reverse Mortgage Pros

Having completed dozens of reverse mortgage deals, there are some questions that I find I get over and over again.
So today I thought I’d write a piece on the 8 most common reverse mortgage questions that people in Canada have regarding reverse mortgages.

1. if i have an existing mortgage on the property, can i get a reverse mortgage?

Not only is this the most common question regarding reverse mortgages, it is actually one of the most common uses for a reverse mortgage – to pay off the current mortgage and eliminate that payment and help with monthly cash flow. However, it is important to realize that you would need to qualify for enough to pay that existing mortgage in full.

For example: If you have $70,000 remaining on the mortgage, you would need to qualify for at least $70,000 to be eligible for a reverse mortgage. If you owe $70,000 and qualify for $100,000 in reverse mortgage funds, the $70,000 would be paid first and you would be left with the remaining $30,000.

The good news is that the reverse mortgage funds can also be used to pay any penalties or charges for paying out your mortgage as well. However, the existing mortgage must always be paid off using the reverse mortgage funds and you get to keep whatever is left. Essentially, you are swapping your mortgage with a reverse mortgage and keeping the excess cash.

2. can i pay the interest or make payments on the amount i receive?

Yes, you can make monthly interest payment if you choose and you can also pay up to 10% of the amount borrowed (1 payment per year) if you wish.

However, you also have the option to pay nothing at all until you sell the property or until you pass away. Most people choose this option but it is nice to know that you can pay the interest every month (essentially turn the reverse mortgage into the same thing as a Home Equity Line Of Credit).

3. how do you determine how much i qualify for? i thought i could get 55% of my home value?

This is a common question that we get. It is important to note that you can qualify for up to 55% of the value of the property and not everyone will get this amount. The words ‘up to’ are very important in this statement.

To determine how much you qualify for, four different factors are used: The ages of all applicants, the property value, the property location (postal code) and the property type.

Here is a quick example for all 4 factors: Someone aged 80 will qualify for more than someone aged 60; someone in a city will qualify for more than someone in the countryside; someone with a property value of $500,000 will qualify for more than someone whose value is $200,000 and someone who lives in a detached house will usually qualify for more than someone who lives in a Condo.

4. i’m 60 but my wife is 53, can we still qualify?

Unfortunately, no. Both applicants need to be 55 or over to qualify. Even if just one of you is on the title, because it is deemed a ‘matrimonial home’ (meaning that the husband and wife both have a legal right to the home, by nature of being married) both of you need to be 55 or over.

5. what is involved in the application?

Reverse mortgages aren’t as difficult a process to go through as a traditional mortgage. However, you aren’t going to simply be given the money either – remember you are still talking about large amounts of money here and the lender is a Schedule A bank.

Your credit score and income are not usually significant factors in the application – but the lender will still check these. In addition to this, proof of identity and other such paperwork is required.

An appraisal is always required and is the first step – so the lender can identify the market value of your home and therefore how much they can lend. However, it is possible to get a ‘quote’ before this.

6. what if i want to sell my home?

You can sell your house at any time if you have a reverse mortgage. The mortgage amount (plus any accrued interest and prepayment penalties, if any) would then be paid from the proceeds of the sale. The process would be exactly the same as if you had any other kind of mortgage or HELOC on the property.

7. will i still own my home?

Yes, you will remain on the title for as long as you or your spouse live in the property and you can never be forced out of your home because of a reverse mortgage. In fact, from this point of view a reverse mortgage is ‘safer’ than a traditional mortgage. Under a traditional mortgage, you could lose your home for not paying your monthly mortgage payments. Since no such payments exist for a reverse mortgage, there is no such risk.

8. if i sell my house, can i re-apply for another reverse mortgage on my new property?

Absolutely! As long as the property is your primary residence – but just remember that you would need to qualify for enough to pay any mortgage on the new property. Reverse mortgages can be used for purchases in this way.

If you have any questions, please contact your local Dominion Lending Centres mortgage expert.

 

Written by: Mich Sneddon, CPA, CA (Published by my DLC Marketing Team)

New First Home Savings Account launches April 1, but won’t be available until later this year

General Christopher Rooke 3 Apr

In the latest budget the government announced a great new savings vehicle to help Canadians save for home ownership.  Its called teh First Home Savings Account (FHSA) and operates much like a TFSA.  The government timetable for this launch to be on  April 1st but unfortunately none of the big banks can offer this product yet.

Prospective homebuyers wanting to take advantage of the federal government’s new Tax-Free Savings Account will have to wait longer, despite the program’s official launch date of April 1.

All of the Big 6 banks confirmed to CMT that they won’t be in a position to offer the new account to clients until later in the year.

The new registered plan allows first-time homebuyers to save up to $40,000 for the down payment on their home on a tax-free basis. Similar to the Tax-Free Savings Account (TFSA), funds in the account can be placed in a variety of investment vehicles, and can then be withdrawn tax-free as long as the funds are used for a qualifying first-home purchase.

The account was first announced in the federal government’s 2022 budget and was promoted as being available to first-time buyers starting on April 1, 2023.

However, the country’s largest banks say they are still working to finalize the logistics of offering the account to clients, including obtaining the required government authorizations and awaiting tax reporting guidelines from the Canada Revenue Agency.

Most expect to offer the account later in the 2023 tax year.

Here are the official responses from each of the six banks, along with their FHSA pages where they will share more information once the accounts become available:

BMO

  • Tax-Free First Home Savings Accounts (FHSA) will be available to BMO customers including BMO Wealth clients, starting with an offer through our retail bank and wealth advisory channels for the 2023 tax year. We’ll be expanding the offer to other channels in the future and updates will be posted to BMO’s FHSA website.
  • BMO’s FHSA webpage

CIBC

  • “We are excited to bring another savings opportunity to our clients later this year and, as information becomes available, plan to share an update regarding timing in the coming months.”
  • CIBC’s FHSA webpage

National Bank of Canada

  • “We’re working to make the FHSA available to our clients as quickly as possible after the legislation comes into effect on April 1. At this time our team is making every effort to complete the necessary technological development.”
  • NBC’s FHSA webpage

Scotiabank

  • “In addition to the wide variety of savings products we offer our customers today, we’re targeting to offer the new first-time homebuyer’s savings account to customers in the 2023 tax year.”
  • Scotiabank’s FHSA webpage

Royal Bank of Canada

  • “We expect to launch FHSA this spring, but we don’t have further details to share at this time.”
  • RBC’s FHSA webpage

TD

  • “TD understands that saving for your first home is one of the most important financial journeys for Canadians, so we are working to ensure the FHSA has the features and benefits that Canadians need when we launch it later in 2023.”
  • “In the meantime, customers can visit our public webpage to learn more about it, and once the FHSA becomes available, we encourage those interested to book an appointment with a TD Personal Banker at any of our branches across the country.”
  • TD’s FHSA webpage

Details of the new First-Home Savings Account

Do you have more questions about the account and how it can be used to assist with a first-time home purchase? The following are some of the key details of the program as well as its restrictions.

Who is eligible for the FHSA?

  • Any resident of Canada who is at least 18 years old.
  • Anyone who hasn’t owned a home or lived in a home owned by their spouse or common-law partner in the calendar year or four preceding calendar years.

How much can you contribute to your FHSA?

  • You can contribute up to $8,000 per calendar year, up to a lifetime limit of $40,000.
  • You can carry forward up to $8,000 in unused contributions in a calendar year to use in a later year.

What qualifies as a first home purchase?

  • Funds withdrawn from the account are only tax-free if they are used for a qualifying first-home purchase. To qualify, the purchase must meet the following criteria:
    • Be a first-time homebuyer and a resident of Canada at the time of the withdrawal and during the purchase of the qualifying home,
    • Have a written agreement to buy or build a qualifying home located in Canada before October 1 of the year following the year of withdrawal,
    • Intend to occupy the qualifying home as your principal place of residence within one year of buying or building it.

What investments are eligible within an FHSA?

  • The rules governing the FHSA are identical to those for Tax-Free Savings Accounts, meaning account-holders can invest in mutual funds, publicly traded securities, government and corporate bonds and guaranteed investment certificates (GICs) within the account.

What if you don’t use the funds to purchase a home?

  • The funds in the FHSA account must be used to purchase a first home by either the end of the 15th year after the plan was opened or by the end of the year you turn 71 years old.
  • At either of those points, or if you choose to use the funds for a purpose other than a first-home purchase, the unused balance can then be transferred to a Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) or withdrawn on a taxable basis.

Full details of the First Home Savings Account are available from the Department of Finance here

Written by: Steve Huebl, Canadian Mortgage Trends, March 31, 2023