More O/T - Reverse mortgage
03-07-2022, 06:58 PM
#16
Rennlist Member
Thanks to all for your responses. In fact a few of you DM'ed me. For our American cousins, HELOC Home Equity Line of Credit
I can't understand where a reverse mortgage actually makes sense. The interest charges on a HELOC are much lower than on a reverse mortgage. Besides making the interest payments on the HELOC, there are no further obligations. When the property is sold, the HELOC would be paid off, same as a reverse mortgage without any of the other overhead besides discharging the HELOC ($250 with a lawyer).
So, I'm not sure the reverse mortgage is really a Scam, but I don't see where as a financial product it would provide a benefit versus a HELOC.
I can't understand where a reverse mortgage actually makes sense. The interest charges on a HELOC are much lower than on a reverse mortgage. Besides making the interest payments on the HELOC, there are no further obligations. When the property is sold, the HELOC would be paid off, same as a reverse mortgage without any of the other overhead besides discharging the HELOC ($250 with a lawyer).
So, I'm not sure the reverse mortgage is really a Scam, but I don't see where as a financial product it would provide a benefit versus a HELOC.
Also, rates are low now, HELOC interest could easily double or not from here....
RM is a set rate, last time I looked
I use a HELOC for unpredictable cash flows or when the market is too low to sell shares to pay for stuff....
I am a "long past" banker, could not see ever using a RM...
Cheers!
03-07-2022, 07:20 PM
#17
Rennlist Member
this is quite funny.
most of the info stated here is incorrect.
read my post above for truth.
advantage is old person who has all money in equity in home doesn't need to move and can draw equity and doesn't need to make payments. Don't forget home prices are rising in Canada.
btw fee for a reverse mortgage is about $600.
most of the info stated here is incorrect.
read my post above for truth.
advantage is old person who has all money in equity in home doesn't need to move and can draw equity and doesn't need to make payments. Don't forget home prices are rising in Canada.
btw fee for a reverse mortgage is about $600.
1) No income requirements to get an RM as opposed to a line of credit;
2) no repayments required until the owner leaves the house (or both, if it's co-owned)
While you're generating income and can qualify for a HELOC or (unsecured) LOC, those make more sense, especially with low interest rates and interest-only payment options. When you're on CPP and OAS and pension, the RM may make more sense. That's especially true if something happens to you and your spouse can stay in the house, continue to draw or at the very least make no payments.
Further, the house may not have to be sold for your heirs to repay what's outstanding on the RM, because that depends on their circumstances (including any else in the estate) and the amount owing. They may even qualify for a small mortgage on the house to pay what's owing.
My grandparents were in one of the commercials for the CHP about 20 years ago. We recently celebrated my Grandfather's 100th birthday, and he's still in the house.
Last edited by Emefef; 03-07-2022 at 07:21 PM. Reason: typos
03-07-2022, 08:47 PM
#18
Intermediate
Join Date: Aug 2012
Location: Milton, Ontario, Canada
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I was actually listening to a program on the radio on this topic, this past weekend.
Other ponts to consider for a reverse mortgage:
- you must be 55yrs of age or older to be considered
- you receive up to 55% of the value of your home.
- the amount you get is on a sliding scale...e.g I recall at 55 yrs old you receive 25%...at 80 yrs old you receive 55% of the value of your home.
Other ponts to consider for a reverse mortgage:
- you must be 55yrs of age or older to be considered
- you receive up to 55% of the value of your home.
- the amount you get is on a sliding scale...e.g I recall at 55 yrs old you receive 25%...at 80 yrs old you receive 55% of the value of your home.
03-07-2022, 09:04 PM
#19
Rennlist Member
Good posts and discussion.
To concur with what's been posted above, the HELOC makes by far the most sense on account of the lower rates and flexibility - but with the understanding:
1. If you are at a point in life (age, retired, lower income) where you 'need' a reverse mortgage, you probably no longer qualify for a HELOC.
2. A HELOC is a demand loan and thus may be terminated.
I am actually in process of researching this - practically speaking, what are the chances/conditions under which a HELOC may be withdrawn. I would think having a good relationship with your banker would be helpful, but in the current bank business model, that's probably not even possible.
With the astronomical rise in RE values, I can envision reverse mortgages will be a major growth industry in the coming years - not inexpensive, and to the detriment of estate value, but an option for the house rich.
M
To concur with what's been posted above, the HELOC makes by far the most sense on account of the lower rates and flexibility - but with the understanding:
1. If you are at a point in life (age, retired, lower income) where you 'need' a reverse mortgage, you probably no longer qualify for a HELOC.
2. A HELOC is a demand loan and thus may be terminated.
I am actually in process of researching this - practically speaking, what are the chances/conditions under which a HELOC may be withdrawn. I would think having a good relationship with your banker would be helpful, but in the current bank business model, that's probably not even possible.
With the astronomical rise in RE values, I can envision reverse mortgages will be a major growth industry in the coming years - not inexpensive, and to the detriment of estate value, but an option for the house rich.
M
03-08-2022, 11:29 AM
#20
Team Owner
Good posts and discussion.
To concur with what's been posted above, the HELOC makes by far the most sense on account of the lower rates and flexibility - but with the understanding:
1. If you are at a point in life (age, retired, lower income) where you 'need' a reverse mortgage, you probably no longer qualify for a HELOC.
2. A HELOC is a demand loan and thus may be terminated.
I am actually in process of researching this - practically speaking, what are the chances/conditions under which a HELOC may be withdrawn. I would think having a good relationship with your banker would be helpful, but in the current bank business model, that's probably not even possible.
With the astronomical rise in RE values, I can envision reverse mortgages will be a major growth industry in the coming years - not inexpensive, and to the detriment of estate value, but an option for the house rich.
M
To concur with what's been posted above, the HELOC makes by far the most sense on account of the lower rates and flexibility - but with the understanding:
1. If you are at a point in life (age, retired, lower income) where you 'need' a reverse mortgage, you probably no longer qualify for a HELOC.
2. A HELOC is a demand loan and thus may be terminated.
I am actually in process of researching this - practically speaking, what are the chances/conditions under which a HELOC may be withdrawn. I would think having a good relationship with your banker would be helpful, but in the current bank business model, that's probably not even possible.
With the astronomical rise in RE values, I can envision reverse mortgages will be a major growth industry in the coming years - not inexpensive, and to the detriment of estate value, but an option for the house rich.
M
03-08-2022, 12:21 PM
#22
Drifting
Move out of the city?
Buy a smaller home?
Buy a smaller home?
03-08-2022, 01:23 PM
#23
Rennlist Member
Cannot comment on todays practices...
Cheers!
03-08-2022, 02:23 PM
#24
Burning Brakes
Thread Starter
Good posts and discussion.
To concur with what's been posted above, the HELOC makes by far the most sense on account of the lower rates and flexibility - but with the understanding:
1. If you are at a point in life (age, retired, lower income) where you 'need' a reverse mortgage, you probably no longer qualify for a HELOC.
2. A HELOC is a demand loan and thus may be terminated.
I am actually in process of researching this - practically speaking, what are the chances/conditions under which a HELOC may be withdrawn. I would think having a good relationship with your banker would be helpful, but in the current bank business model, that's probably not even possible.
With the astronomical rise in RE values, I can envision reverse mortgages will be a major growth industry in the coming years - not inexpensive, and to the detriment of estate value, but an option for the house rich.
M
To concur with what's been posted above, the HELOC makes by far the most sense on account of the lower rates and flexibility - but with the understanding:
1. If you are at a point in life (age, retired, lower income) where you 'need' a reverse mortgage, you probably no longer qualify for a HELOC.
2. A HELOC is a demand loan and thus may be terminated.
I am actually in process of researching this - practically speaking, what are the chances/conditions under which a HELOC may be withdrawn. I would think having a good relationship with your banker would be helpful, but in the current bank business model, that's probably not even possible.
With the astronomical rise in RE values, I can envision reverse mortgages will be a major growth industry in the coming years - not inexpensive, and to the detriment of estate value, but an option for the house rich.
M
03-08-2022, 09:15 PM
#25
Rennlist Member
Yes, to the extent that estate value is important. That's a personal call - some people don't have kids. Some people have small extended families. Some have kids and want them to make their own way (helping along the way, as warranted). Some have kids and love them, but don't like them. Lots of places you might fall on the scale of valuing EV.
That's what I want to believe, as mentioned, I am digging in. Firm believer in securing cash, valuations and credit while you qualify - but I am sure that has limits.
Thus my interest.
And to be fair, expensive is relative. If you are say 75, and want to stay in a home for 5 years or so, how expensive is it really, does it matter, and who cares? I wouldn't call it a retirement plan, but with the insanity of house prices, it's not as nuts as it seemed...
M
I hadn't taken into account a HELOC being withdrawn....That's interesting and a very good point. Based on my research and some of the important points brought up here, I think the reverse mortgage would make sense for someone with limited income combined with a higher value home. So, back to my first post, not a scam but a fairly expensive proposition from an estate view.
M
03-09-2022, 10:57 AM
#26
A 74 year old Rennlister perspective
As pointed out, you must pay HELOC interest charges monthly. Having been around for some time, I vividly recall interest charges in 1981 when the prime rate reached an all time high of 20.03% in August of that year. Can't happen you say? Think about the "too big to fail" crash of 2008 and the pandemic of 2020/22....unforeseen circumstances can bite. If we ever required additional funds, RM would make make much more sense rather than withdrawing $$ from our RRIFs and being subject to additional income taxes..
As pointed out, you must pay HELOC interest charges monthly. Having been around for some time, I vividly recall interest charges in 1981 when the prime rate reached an all time high of 20.03% in August of that year. Can't happen you say? Think about the "too big to fail" crash of 2008 and the pandemic of 2020/22....unforeseen circumstances can bite. If we ever required additional funds, RM would make make much more sense rather than withdrawing $$ from our RRIFs and being subject to additional income taxes..
03-09-2022, 06:55 PM
#27
Rennlist Member
Good historical perspective - we are all 'aware' of it, but unless you've personally been through it, it's easy to discount (pardon the pun) what heavy inflation or high rates can wreak on a plan.
Cheers
Matt
Cheers
Matt
03-09-2022, 11:01 PM
#28
Rennlist Member
the too big to fail banks were bailed out and didn't fail.
Pandemic has been predicted for years. Many movies etc plus we had one 100 years ago.
For many reasons I don't think we will ever see double digit interest rates in Canada.
Pandemic has been predicted for years. Many movies etc plus we had one 100 years ago.
For many reasons I don't think we will ever see double digit interest rates in Canada.
Last edited by Turbodan; 03-10-2022 at 10:55 AM. Reason: typo from never to ever
03-10-2022, 10:52 AM
#30
As far as bank failures, perhaps a small history lesson?The bankruptcy of Lehman Brothers on September 15, 2008 was the climax of the subprime mortgage crisis. After the financial services firm was notified of a pending credit downgrade due to its heavy position in subprime mortgages, the Federal Reserve summoned several banks to negotiate financing for its reorganization. These discussions failed, and Lehman filed a Chapter 11 petition that remains the largest bankruptcy filing in U.S. history, involving more than US$600 billion in assets.
The bankruptcy triggered a 4.5% one-day drop in the Dow Jones Industrial Average, then the largest decline since the September 11, 2001 attacks. It signaled a limit to the government's ability to manage the crisis and prompted a general financial panic. Money market mutual funds, a key source of credit, saw mass withdrawal demands to avoid losses, and the interbank lending market tightened, threatening banks with imminent failure. The government and the Federal Reserve system responded with several emergency measures to contain the panic.
I did not mean to stray too far off topic. I believe an RM may be suitable for older people (like me) versus a HELOC. I am risk averse so the possibility of interest rate increases causing monthly HELOC interest payments to rise does not appeal to me. Another option, if additional funds are required, is increasing RRIF withdrawals over the minimum which will attract additional income tax. It would be interesting to compare the RM interest cost vs the additional income tax for the same amount of $. Fortunately, I do not need additional funds but I certainly would consider an RM if family support was required (private school tuition for two young granddaughters for example).
The bankruptcy triggered a 4.5% one-day drop in the Dow Jones Industrial Average, then the largest decline since the September 11, 2001 attacks. It signaled a limit to the government's ability to manage the crisis and prompted a general financial panic. Money market mutual funds, a key source of credit, saw mass withdrawal demands to avoid losses, and the interbank lending market tightened, threatening banks with imminent failure. The government and the Federal Reserve system responded with several emergency measures to contain the panic.
I did not mean to stray too far off topic. I believe an RM may be suitable for older people (like me) versus a HELOC. I am risk averse so the possibility of interest rate increases causing monthly HELOC interest payments to rise does not appeal to me. Another option, if additional funds are required, is increasing RRIF withdrawals over the minimum which will attract additional income tax. It would be interesting to compare the RM interest cost vs the additional income tax for the same amount of $. Fortunately, I do not need additional funds but I certainly would consider an RM if family support was required (private school tuition for two young granddaughters for example).