A reverse what? A reverse who? A reverse mortgage

Afternoon #mortgageland, it's a drizzly day in Montreal but still a great day regardless. On 3 June 2014, Montreal's CJAD 800 AM hosted an interview about reserve mortgages with Kelley Keehn (personal finance expert and speaker). At the time, I tweeted through @cdnmortgages, that I would write an article about that conversation hence voila!

A reverse mortgage is designed for seniors. To qualify you must be 55 and older. Ideally by 55, you have little or no mortgage on your home. Everyone's desire is to have decent quality of life especially in the later stages of life and sometimes that is challenging with shrinking pensions. A reverse mortgage can unlock up to 40% (depending where you home is located) of the value of your home. These funds can be used at your discretion for: travel, pay debts, help others, renovate your home. I agree with Kelley that a reverse mortgage should be a last resort option as it is an expensive option. 

A reverse mortgage is payment free because the interest is accrued and added to your mortgage balance over time. When you pass away or should sell your home then your mortgage shall be repaid back to Chip (the sole reserve mortgage company in Canada). Be aware this option does chew through the equity in your home. There are alternative options to a reverse mortgage. For instance, it can make more sense to take on a mortgage or line of credit up and put aside some proceeds to cover your payments over next few years. It's all depends on your needs, the costs and comfort level. 

Mortgage Minute commentary: "If you want to have a mortgage in retirement, be prepared to make some big sacrifices"

Garry Marr from the Financial Post wrote an article on 5 April 2014 entitled, "If you want to have a mortgage in retirement, be prepared to make some big sacrifices." In the article, Garry quotes Will Dunning, Chief Economist with the Canadian Association of Accredited Mortgage Professionals, stating "..among homeowners 65 years or older, 35% have a mortgage," and fortunately "Among those with a mortgage, the average loan-to-value is 33%."

As a public policy nut and a mortgage broker I am pleased to see seniors have strong equity (one hopes they would by that age) in their properties but the question is why are seniors even having mortgages past 65 years? Simple! It seems that seniors are refinancing lately to help to bail out their "kids," now adults, that are carrying a high debt burden. Is life harder now versus then? Was credit just not as available as it is now? Quite probable. Garry states "Most [financial] planners seem to think it is a disaster waiting to happen because seniors don't usually have the income in retirement to support debt repayment and that means major lifestyle changes."

I've personally witnessed several situations like this where a client needs money to pay debt, owes money to revenue Quebec, or has an active consumer proposal and we look to leverage a parent or family member's property. In such circumstances, I usually sit the entire family down to discuss options including pros and cons. If we remortgage the parent's house to pay off their kids debts I make sure:

1. that we have pre-planned exit strategy before doing anything. Sometimes it can take 6 months to 3 years to fix the problem and then we refinance again to pay back the parents.
2. that the kids in turn pay the new mortgage because the new mortgages payments are generally lower than paying for a full unsecured debt load