For this month, we wanted to highlight another recent reverse mortgage deal.
In this story we will showcase a deal where:
1. A reverse mortgage was used to help the kids buy their first home
2. There was absolutely zero loss of equity due to the way it was setup
(Names and client information have been changed to protect confidentiality)
This deal happened in one of the prime real estate markets in Canada.
With house prices in some areas making housing tough to afford for young, first-time home buyers, we sat down with John and Julie – as well as their parents to discuss their options.
John and Julie had been living with their parents and saving up a down-payment for a home. They were also hoping that the market in their area would soften a little – however, 2016 showed no signs of this happening.
Generally speaking, if you are going to be living in any home, there is much less concern about house prices. In the long run – even if the market goes through a short-term decline – as long as you are going to live in your home, the market will eventually recover. This is the nature of inflation.
However, due to their car loan, getting a mortgage was very tough for John and Julie.
Like many in their situation today, their parents wanted to help them out with getting on the property ladder. We looked at 3 different options:
– The parents co-sign for the mortgage
– They take out a small second mortgage on their home, to lend the money John and Julie needed.
– They take out a reverse mortgage on their home to lend the money John and Julie needed.
Note that options 2-3 required them lending the money and John/Julie to repay it.
Everyone involved was adamant that this be a loan and not a gift.
After going through the pros and cons of everything, we decided that option (3) – taking out a reverse mortgage – was in fact the best.
Why Was A Reverse Mortgage The Best Option In This Case?
The main reason was that John and Julie could repay the loan to their parents – every month – and their parents could then use this money to pay off the reverse mortgage – so they would literally not lose a penny of equity due to accrued interest, as the interest would be paid off every month.
However, should John and Julie ever miss a payment, no-one would be put-out by this. The interest would simply be tacked on to the reverse mortgage principal.
This is of course taking advantage of the fact that reverse mortgage repayments are voluntary – you can choose to make them or pay nothing.
Many people do exactly this to turn their reverse mortgages into what is effectively a ‘Home Equity Line Of Credit’ – by making interest only payments each month.
The result was that missed loan payments would not impact the lifestyle of Julie’s parents (who were active travellers).
So they would have zero worries about the setup impacting them at all.
The result was that everyone was very happy.
John and Julie got their first home and their parents (finally) lost their basement tenants 🙂
Reverse Mortgages In Canada Explained
Cases like this show how flexible a reverse mortgage in Canada can be. Click here to check out our free guide and get the other information you need.
As part of Dominion Lending Centres Edge Financial, we are independent and objective mortgage agents who will assess whether or not a reverse mortgage is right for you – we don’t work for the bank.