Mortgage Bytes

  • Reverse-Mortgage Gordon Pape points out two big disadvantages to reverse mortgages: 
    1. They have a notably higher interest rate than home equity loans.
    2. You can only get up to 40% of your home’s value in cash instead of up to 80%+ with a home equity loan. 

Of course, you make no payments with a reverse mortgage.

  • Landlord can raise rents up to 1.4% in 2008 according to the new Residential Tenancies Act guidelines.  Source:  Toronto Real Estate Blog
  • Lawmakers in the U.S. are pushing a new bill called the Fair Mortgage Practices Act.  It would create a national registry for mortgage originators and require them to have criminal background checks.  Borrowers would also have to be “fully evaluated” on their ability to repay their loans. One big plus for consumers would be the elimination of penalties for refinancing out of high-interest mortgages.
  • ING has captured 3.4% market share in Canadian mortgages in its 5 years in the industry.  It doesn’t seem like much but ING is investing heavily in its mortgage “infrastructure” and growing by 26% a year.
  1. That’s a good point Alex. I was wondering the same thing.
    Here’s some quotes I found to this effect on:
    http://www.thecareguide.com/Resources/ResourceDetails.aspx?section=FinancialMatters&itemid=465
    Gordon Pape is one of Canada’s best-known financial commentators. He’s representing CHIP to help communicate information about reverse mortgages to Canadians. He says reverse mortgage money has several tax advantages if used properly.
    Pape says the interest that accrues on a reverse mortgage becomes tax deductible if the loan is used to invest.
    “My advice is that people don’t use the money for speculative purposes, such as the stock market. Use the money conservatively to generate tax-sheltered income.”
    Pape says investing in bonds, preferred shares or other conservative types of securities can do that.
    “If you invest in something that pays dividends, you’ll get the benefit of the dividend tax credit plus the deductibility of the mortgage interest,” he says.
    Sounds like wise advice. Many people, however, like to use the money for material purchases. And that, says Pape, is just fine.
    “Maybe you’ll take out a reverse mortgage on your home to buy retirement property somewhere. You could take that money and buy your condo or RV or whatever you want, and not have to make mortgage payments to anybody.”
    Another attractive benefit of a reverse mortgage is that the home itself is the maximum indebtedness. In other words, should the amount owing exceed the market value of the home, there’s no other charge against the estate. The reverse mortgage total cannot exceed the fair market value of the home.
    Once the house is sold, the mortgage is due. But that doesn’t mean a sale is necessarily required, says Pape.
    “The house doesn’t have to be sold. If the last surviving spouse dies and one of the kids takes over the family home, they could take out a conventional mortgage to repay the reverse mortgage.”

  2. Hi – I no longer have any involvement with CHIP and have not done any TV commercials for them for two years. However, my view continues to be that reverse mortgages are worth considering in certain situations, as long as people understand the terms and assess the alternatives as well. GP
    Gordon Pape
    Publisher: Internet Wealth Builder, Income Investor, Mutual Funds Update
    http://www.buildingwealth.ca
    Read my book The Retirement Time Bomb – now available at http://astore.amazon.ca/buildicaquizm-20/702-1424087-5163209

  3. Hi Gordon,
    I was wondering why you stopped doing the “reverse mortgages” and what situations do you think this good for people?
    The new spokesman talks about advisors and bankers who talk about this “mortgage” like it is a good thing! It drives me nuts!
    Regards,
    Brian Poncelet, CFP

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