Assist your Children with a Home Purchase using a Reverse Mortgage!
Did you know that is you are 55 years or older and own your own home you can help you children with a down payment to purchase a home?
An Example of how this works is:
- Dad is 69 years old and has a house worth $500,000. He lives comfortably and has a good monthly cash flow
- The house will be left to his 2 children when he eventually passes away, but both children are struggling financially in this expensive Lower Mainland market to buy a house
- Dad finds out he can be approved for $212,000 with a reverse mortgage and can help his children today while he is alive and able to experience the joy of giving
- He gives each child $106,000 giving them the down payment they need to afford to buy a home, and since they now have 20% down they will not have to purchase mortgage insurance, saving them money
- Dad's cash flow is not affected at all and the appreciation on his house, overtime, will likely offset the accruing interest on the reverse mortgage. His children got the money TODAY when they needed it and there should still be plenty left for their inheritance in the end.
Myths About Reverse Mortgages
Reverse mortgages have evolved from a needs-based product to an important component of a comprehensive retirement plan.
Below, the myths are separated from the facts.
Myth: The bank owns the home
Fact: The homeowner always maintains title ownership and control of their home, and they have the freedom to decide when and if they’d like to move or sell.
Myth: Those with a reverse mortgage
will owe more than their house is worth
Fact: Clients can take a maximum of 55% of the home’s appraised value. In fact, 99% of lenders' clients have equity remaining in the home when the loan is repaid.
Myth: Reverse mortgages are too
expensive because the rates are high
Fact: Lender rates are modestly higher than
regular mortgages because there are no payments required.
Myth: A reverse mortgage is a solution of
Fact: Many financial professionals recommend a reverse mortgage because it’s a great way to provide financial flexibility. Since it’s tax-free money, it allows retirement savings to last longer.
Myth: The homeowner cannot get a reverse
mortgage if they have an existing mortgage
Fact: For clients that have an existing mortgage, the first step we will take is to pay off your conventional mortgage along with any other secured debt.
Myth: A Home Equity Line of Credit
(HELOC) is a better option
Fact: HELOCs are a good short-term borrowing option for people who can pay the interest and loan in the near future. However, HELOCs are callable loans with monthly payments and there exists significant risk of non-renewal or cancellation.
In comparison, a reverse mortgage is a long-term financial solution that won’t be called based on economic changes such as interest rates increasing, property values decreasing, or a change in the homeowner’s income. Also, money from a reverse mortgage provides the ability to prolong retirement savings.
Myth: The bank can force the homeowner
to sell or foreclose at any time
Fact: A reverse mortgage is a lifetime product, and as long as property taxes and insurance are in good standing, the property remains in good condition, and the homeowner is living in the home, the loan won’t be called even if the house decreases in value. Reverse mortgages provide peace-of-mind that the homeowner can stay in their home as long as they’d like.
Myth: Surviving spouses are stuck paying
the loan after the homeowner passes away
Fact: Surviving spouses can choose to remain in the home without having to make a payment unless they choose to sell the home.