Tuesday, 12 December 2017

The Reverse Mortgage Quiz

Written by Posted On Tuesday, 19 August 2003 00:00

When you visit a new home site or condominium showroom, do you ask whether the house or condo would qualify for a reverse mortgage? Although more and more Canadians are aware of these financial products, reverse mortgages are far from a mainstream concept in Canada. And yet the day will probably come when being able to access the accumulated value in your real estate will be an important part of your buying decisions.

Many consumers and professional advisors associate reverse mortgages with those who wish to stay in their family home. They overlook the fact that any home you live in, particularly after retiring, should provide the choice of withdrawing home equity without having to sell or move. That "home" may be a loft-style condo bought at 40, an open-concept bungalow purchased at 50 or a high-rise condominium unit acquired because it offers supportive services to preserve independence.

Reverse mortgages offer homeowners a way to have their home and money, too. The condo or house owner is able to convert the accumulated value of home equity into tax-free cash while retaining ownership and control of the property. With reverse mortgages, repayment is not made monthly, but at a specified time in the future, perhaps when the home is sold. Qualification is not based on the owner's income but on the value of the property and other factors.

Canadians now want the same access to their home equity that they have to savings in their bank accounts. As our 9.8 million Baby Boomers continue to mature, their demands for innovative financial and housing options will increase. Home equity conversion methods will become as common in tomorrow's housing picture as traditional mortgages are today.

With more than C$300 billion locked up as home equity, financial institutions and other businesses will find their way into this lucrative market. As more Canadians spend their accumulated wealth to maintain themselves in increasingly long-term, active retirement lifestyles, homeowners will look for ways to access the cash in their homes without having to move. Not everyone will arrange a reverse mortgage, but homeowners deserve the choice of using this and other home equity conversion methods to stay in their own homes as they age. As company pensions become increasingly rare, receiving a "pension" from your home will become a common asset management approach.

Considering a reverse mortgage now?

Whether you want to liberate home equity yourself or you're helping your parents decide what will work best for them, this excerpt from "The Reverse Mortgage Quiz" in Have Your Home and Money Too: The Canadian Guide to Home Equity Management, Reverse Mortgages, and Other Innovative Housing Options (John Wiley & Sons, ISBN 0-471-64400-5) will help with decision making. If you answer "no" to any 6 of the questions (there are 11 in the full quiz), a decision in favour of a reverse mortgage may be premature, impractical or ill-advised at this stage. The obvious question once you decide on a reverse mortgage as the ideal solution is "Do I qualify for available commercial products, i.e., meet minimum age requirements of 62 or more, or am I prepared to arrange one privately?"

  1. Do the benefits of home ownership clearly outweigh the burdens, now and in the foreseeable future?

  2. Can you relax and enjoy the money from the reverse mortgage, knowing that debt is compounding against the value of your home?

  3. Can you accept full responsibility for home maintenance, taxes, and insurance, given that failure to meet these obligations could authorize the lender to request full repayment of the mortgage debt?

  4. Can you manage financially if the home equity is substantially or completely used up, and/or if the need to move into alternative housing arises?

  5. Do you know precisely what your alternatives are if you do not arrange a reverse mortgage?

For background on these and other questions about reverse mortgages and other types of home equity conversion, consult Have Your Home and Money Too or revisit my earlier column: "Reverse Mortgages: Canadians Surprised by Lack of Choice" .

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