As an increasing number of parents help their children attain homeownership, reverse mortgages are being touted as a way to do just that but with fewer encumbrances
As an increasing number of parents help their children attain homeownership, reverse mortgages are being touted as a way to do just that but with fewer encumbrances.
“It makes sense because these people are in their mid- and late-30s and have older parents,” said Anne Brill, owner of Centum Metrocapp Wealth Solutions. “We have a few seminars coming out where we’re inviting first-time homebuyers with their parents and explaining to them that because of the B-20 rules, the interest rate increases and the benchmark being higher, their kids today won’t qualify for as much money as they did yesterday. Plus, insurance premiums are higher.”
While most parents plan on bequeathing their homes to children, reverse mortgages could help the latter contend with the immediate problem of rapidly rising housing prices.
“Why don’t we help them out faster so that they can get into a home today rather than 10, or however many, years down the road?” asks Brill. “They can potentially take out $100,000 on a reverse mortgage and this way it doesn’t cost them any cash. The cash flow stays in line and the reverse mortgage doesn’t cost payments, and while the kids get a smaller inheritance, at the end of the day they get some money up front to get into a home today.”
Brill and her Centum team are educating first-time homebuyers about saving money and ensuring their credit ratings are good, but, in partnership with investment advisors, they’re also teaching parents the many things reverse mortgages can do for them.
“A lot of times parents want to cash in investments, which affects the investment advisor as well, but we show them how, with reverse mortgages, they can keep their liquid assets, like mutual funds or investments, in place. The biggest concern is usually cash flow, where they’re living paycheque to paycheque on a pension income. This will keep their investments intact and they can use their homes for other things.”
Reverse mortgages don’t just sustain investments, they can also be used to acquire new ones.
“The younger you are, the less loan-to-value they would do, but a lot of times there are some situations where they pull out enough money to buy a small home,” said Brill. “You can get about $2,000 a month in rental income while you’d pay around $350 a month in property taxes, and maybe $150 in maintenance, and now they can net out $1,500 in extra cash flow to substantiate their lifestyle.”
According to HomEquity Bank, which offers reverse mortgages, they can be used to purchase vacation properties, too.
“You can only get our reverse mortgage on a principal residence,” said Yvonne Ziomecki, executive vice president of marking and sales, “however, some people use the proceeds from their reverse mortgage to buy, for example, a vacation property down south, which they could rent out full-time or when they aren’t using it themselves.”