VANCOUVER BUYERS GUIDE
Saving enough for your retirement in Canada can be a challenge. As the average life expectancy continues to rise, the cost of living continues to increase, and interest on investments remain low, retirement savings are being stretched further over many more years.
Today, many Canadians are looking for ways to supplement their income as they enjoy their golden years. All too often, retirees are not fully aware of all their financial options and consider downsizing their home and leaving the community they love in order to make ends meet. Others end up using expensive LOCs and credit to sustain their lifestyle, or cashing out their investments too early to help out their loved ones.
The age of ‘55’ no longer means retirement for many Canadians, as they continue to work either out of interest or out of need. Just as their lifestyle choices, relationship and family situations, and dreams for their futures are varied, there is no ‘one solution fits all’ for every senior.
Fortunately, there are many options and solutions that will let you stay in the home and community that you love, that will help you with cash flow should you need it, and that won’t put you in a financially distressing situation in the long term. I am happy to sit down with you to discuss what your hopes and dream situations are, and make a plan to help you get there!
We will look at a variety of options together, and I will walk you through the pros and cons of each, determining which feels right for you. This will include standard financing (normal mortgages through banks, credit unions, and monolines), Home Equity Lines of Credit (HELOCs), reverse mortgages, and alternative/private lenders.
- A refinance with a traditional lender allows you to borrow up to 80% of the value of your home, and will have the lowest interest rate. This can be amortized over 25 or 30 years, and requires full principal + interest payments.
- A home equity line of credit allows you to borrow up to 65% of your home’s value in the LOC portion, with the ability to still borrow up to 80% of the value with the rest in a fixed or variable mortgage. The interest will be less than a stand alone LOC as it is secured against your home. The minimum payment required is interest only, so can be better for cash flow purposes, but interest compounds monthly like a credit card, so is more expensive in the long run over a fixed or variable mortgage. You only pay on the balance you have used, and you can pay it off at any time without penalty.
- A reverse mortgage allows you to borrow up to 55% of your home’s value, depending on your age. This mortgage requires NO monthly payment. The amount of the loan and accumulated interest is due only when you and your spouse no longer live in the home, or upon the sale of the home. You can receive a lump sum amount of money from a reverse mortgage, or receive a monthly amount that supplements your current income – this can be helpful when faced with large medical bills or if you wish to supplement your hard-earned lifestyle. The interest rate on a reverse mortgage is higher, but often well worth the peace of mind to not have a mortgage payment to worry about during your retirement, and to help with daily costs you find yourself with. There is no income qualification for a reverse mortgage, which is often an issue for seniors at the time of initial qualification for a standard mortgage, or for a surviving spouse with minimal income.
There are many myths and misunderstandings about reverse mortgages, so I will explain a bit more on this option below. I will walk you through options if this solution is right for you.
A Reverse Mortgage allows you to access up to 55% of the equity in your home as tax-free money to help cover expenses, improve your quality of life, or help family members NOW with the help of your home – instead of waiting to help them in your will! You can receive these monies in monthly advances or in a lump sum amount. Not only are you able to retain ownership and leave your financial investments alone, but there are no monthly payments for as long as you live in the home.
BENEFITS OF A REVERSE MORTGAGE
You receive the money tax-free. It is not added to your taxable income so it doesn’t affect Old Age Security (OAS) or Guaranteed Income Supplement (GIS) government benefits.
You can use the money any way you wish. Perhaps you want to enjoy your retirement or cover unexpected expenses. Maybe you want to update your home or help your family without depleting your current savings. The only condition is that any outstanding loans (e.g. existing mortgage or home equity line of credit) secured by your home must be paid out with the proceeds from your Reverse Mortgage.
No regular mortgage payments are required while you or your spouse live in your home. The full amount only becomes due when you and your spouse no longer live in the home
You maintain ownership and control of your home. You will never be asked to move or sell to repay your Reverse Mortgage. All that’s required is that you maintain your property and stay up to date with property taxes, fire insurance and condominium or maintenance fees while you live there.
You keep all the equity remaining in your home. 99 out of 100 homeowners have money left over when their Reverse Mortgage is repaid.
FREQUENTLY ASKED QUESTIONS
1. How does a Reverse Mortgage work?
A Reverse Mortgage is secured by the equity in your home. Unlike a traditional mortgage in which you make regular payments to someone else, a reverse mortgage pays you.
The big advantage with the Reverse Mortgage is that you do not have to make any regular mortgage payments for as long as you or your spouse lives in your home. That’s what has made reverse mortgages such a popular solution in Canada, the U.K., the U.S., Australia and other countries.
2. Who is it for?
The Reverse Mortgage is designed exclusively for homeowners aged 55 and older. This age qualification applies to both you and your spouse.
3. How much can I get and how is it calculated?
You can receive up to 55% of the value of your home. The specific amount is based on your age and that of your spouse, the location and type of home you have, and your home’s current appraised value. You can contact me and I can quickly give you an estimate of how much you may be approved for.
4. How do I receive the money?
You can choose how you want to receive the money. A Reverse Mortgage gives you the option of: 1) receiving all the money you’re eligible for in one lump sum advance 2) limiting the amount of your initial advance and taking out additional funds only as needed 3) receiving planned advances over a set period of time.
5. Will the homeowner owe more than the house is worth?
The homeowner keeps all the equity remaining in the home. The equity remaining depends on the amount borrowed, the value of the home, and the amount of time that’s passed since the reverse mortgage was taken out.
6. Will the bank own the home?
No. The homeowner retains title and maintains ownership of the home. It’s required for the homeowner to live in the home, pay taxes on time, have property insurance, and maintain the property in good condition.
7. Would I need to sell my house if my spouse passes away?
If both spouses are registered as joint tenants, the surviving spouse can continue to be a borrower and is entitled to all the benefits a reverse mortgage has to offer. This is very important in cases where the surviving spouse does not have the income to support a standard mortgage or LOC. There is no re-qualification for the surviving spouse with a reverse mortgage, which can be of great importance. With a standard mortgage or LOC, the surviving spouse may find they no longer qualify for their existing mortgage or LOC, which can add more worry at an already stressful time.
8. What if the homeowner has an existing mortgage?
The reverse mortgage would pay off any existing mortgage and if desired, any additional debts.
9. Should reverse mortgages only be considered as a loan of last resort?
No. Many financial professionals recommend a reverse mortgage to supplement monthly income instead of selling and downsizing, or taking out a conventional mortgage or a line of credit.
10. What fees are associated with a reverse mortgage?
There are one-time fees to arrange a reverse mortgage such as an appraisal fee, fee for independent legal advice as well as a fee for administration, title insurance, and registration. With the exception of the appraisal fee, these fees are paid for with the funding dollars and are not required out of pocket.
11. What if the homeowner can’t afford payments?
There are no monthly payments required as long as the homeowner is living in the home.
12. Are reverse mortgage rates higher than standard mortgages?
As no payments are required until the mortgage is due, reverse mortgage rates are higher than standard mortgages. There are a range of fixed and adjustable interest rates so you can choose the product that works best for you.
Contact Patricia today at 604-996-7701 if you have any questions or if you’d like to see how much you can receive!
Qualification is not based on income, as these products are designed specifically for seniors! Once you have your mortgage, you will never need to qualify again, as long as the home is your primary residence. This product gives peace of mind in planning for your future.
Helpful Resources for Senior Homeowners
Home Owner Grant for Seniors
The home owner grant for seniors reduces the amount of property taxes you pay each year on your principal residence by up to $845, or if your property is in a northern and rural area, up to $1,045.
Home Owner Grant Low Income Supplement
If the grant amount you qualified for was reduced because of the high assessed value of your principal residence and you have a qualifying low income, you can apply to receive a supplement for all or part of the amount your grant was decreased.
For information on either of these programs, please go to: http://www.gov.bc.ca/homeownergrant
Property Tax Deferment
The tax deferment program is a low interest loan program that allows you to defer paying all or part of your property taxes on your principal residence if you are 55 or older, a surviving spouse of any age, or a person with a disability. If your application is approved, the Province pays your municipal or provincial property taxes directly to the taxing authority on your behalf. The deferred taxes, with interest and an administration fee (if applicable), must be repaid to the Province, either:
- Before the property can be transferred to a new owner other than to a surviving spouse; or
- Upon the home owner’s death, with repayment through their estate.
Please keep in mind that deferred property taxes need to be paid prior to receiving a new mortgage.
For more information on the property tax deferment program, including the eligibility criteria and how to apply, visit: http://www.gov.bc.ca/propertytaxdeferment
B.C. Seniors’ Home Renovation Tax Credit
The B.C. Seniors’ Home Renovation Tax Credit is a refundable personal income tax credit to assist with the cost of permanent home modifications that improve accessibility or help a senior be more functional or mobile at home. The maximum credit is $1,000 annually calculated as 10% of eligible expenses. The credit can be claimed by seniors, whether they own their home or rent, and by individuals who share a home with a senior relative. The credit is a refundable tax credit, which means if the credit is higher than the taxes you owe, you’ll receive the difference as a refund.
For more information, please visit: Website: www.health.gov.bc.ca and enter ‘seniors renovation credit’ in the Search field.
Home Adaptations for Independence Program
The Home Adaptations for Independence program helps low-income seniors and people with disabilities finance home modifications for accessible, safe and independent living. Eligible home owners and landlords with eligible tenants can receive up to $20,000 per home in the form of a forgivable loan. The exact amount is based on the cost of materials and labour necessary for the required adaptations.
For full details about the program, including eligibility requirements and an application form, visit www.bchousing.org/HAFI or contact BC Housing using the contact information below.
Phone (toll-free): 1 800 257-7756 Phone (Metro Vancouver): 604 433-2218 Email: email@example.com
Contact Patricia today with any questions on the above or to see what solution is right for you!