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(April 28, 2021)

Intro (pre-amble): up to 7:18 mark of podcast

Wouldn’t it be great if there was a mortgage that didn’t require an income to qualify for it? And better yet, absolutely no obligation to make a single payment on the principal debt throughout the life of the mortgage?

Well there is! It’s called a Reverse Mortgage.

Whether you’re a fan of them or not, these mortgages are becoming increasingly popular every year and its likely to continue on the same trajectory as the baby boomer generation (1946-1965) continues to gracefully age.

What is a Reverse Mortgage?

A reverse mortgage is specifically designed for those that are 55 and above and the main feature of product is that the main qualification criteria is your age (rather than your income). And the other main feature is that there is absolutely no obligation to make a payment on the mortgage.

Here are the key qualification criteria for Reverse Mortgages:

must be at least 55 years of age
must remain in Canada for at least 6 months plus a day, each year
the property that the mortgage is registered on must be your principle residence
virtually no income verification is required

The obvious and more promoted application of a Reverse Mortgage revolves around the concept of funding the retirement of the home owner. Whether it’s a top up to an existing retirement plan, or the primary funding vehicle, many Canadian boomers are hopping on the Reverse Mortgage train and living off the equity while still residing/owning the property.

But lately, it’s also becoming a method of providing early inheritance packages to extended family members…especially in todays sky high real estate market where the children and grand children of the boomer generation are active participants. Some believe that Reverse Mortgages could become a significant driver of intergenerational wealth transfer. In Canada, 43% of households are 55 and over, and the portion of this demographic that carry a mortgage balance is ~14%.

On the other hand, the Reverse Mortgage also opens up another spectrum of possibilities that the Boomer otherwise thought would never be possible.

Here are some real life applications of the Reverse Mortgage:

can be used to purchase a new property
can be registered on a current property via refinance
can be set up to pay the home owner a monthly tax-free retirement income (or lump sum, or combination of both)
proceeds can also be used to purchase more real estate (Second Home, Vacation property, investment property, etc)
the proceeds of a Reverse Mortgage can essentially be used for anything that the home owner desires

Other characteristics of a Reverse Mortgage:

a financial illustration is provided for all applicants of a Reverse Mortgage that clearly explains how the carrying costs of the mortgage are offset with the appreciation trajectory of your property
Reverse Mortgages incorporate a “No Negative Equity Guarantee”
100% ownership of the property is maintained by the homeowner
the overall closing costs to secure a Reverse Mortgage on a property are ~$2,000-$3,000 (depending on where you live)
Currently there are only 2 lenders in Canada that offer Reverse Mortgages
homeowners who have an existing mortgage are still eligible for a Reverse Mortgage
income from a Reverse Mortgage will not affect/impact any existing retirement benefit that is currently in place (or any that are forthcoming)
common qualification deterrents like low income and damaged credit are NOT factors when it comes to qualifying for a Reverse Mortgage