Noteworthy reverse mortgage stats from the Globe’s Rob Carrick:
- 36% — Average amount of home equity borrowed with a reverse mortgage
- 50% — Average equity remaining when a reverse mortgage holder sells his/her home
- 72 — Average age of a reverse mortgage customer
- 55 — Minimum age to get a reverse mortgage
- 12 — Average number of years people remain in their homes after getting a reverse mortgage
funny … first pay twice the price of the house on interest, then give the house back for money to live.
so live in your house, take money back and loose the house slowly. So you don’t leave anything to your kids and they must take a new mortgage to pay interest at their turn :).
So everyone pays interest to the bank and old people spend their houses so economy rolls fine. More retired people doing this, more money in the economy. and more young people paying interest on mortgages.
I think your forgetting about appreciation. Canadian house prices have increase by a factor of 6 since 1980. If you go back to 1960 that factor increases to 10.
PS: I think a reverse mortgages is the worse quasi-investment scheme out there. A person should sell and invest the profits instead, but I would guess most of those taking out a reverse mortgage don’t know anything about investing, that’s why they need a reverse mortgage. On the bright side, if you have no other choice at least they are available.
HELOC is a better alternative in my opinion =)
Unfortunately a lot of seniors take these mortgages out without discussing with family members and do not read/understand the fine print about high penalties to get out should their circumstances change. They should discuss with financial planner and their own lawyer if possible before entering into this type of mortgage. Definitely a last resort and a secured credit line would be the best alternative if they qualify. They do receive ILA but still may not understand the consequences or cost. The decrease in the CHIP rates and products available is a positive move but still a last resort solution. This is a good touchpoint for data base as we all have aging parents. Give them the knowledge to share with parents before they enter into this type of product.
Interesting comments. I have had two clients in the last year ( she 84 and he 92) both in “great” health,choose this product. Both had families, none of whom came to visit them, or offered assistance. The one has 3 kids and 8 grands who visit at christmas once per year to pick up cheques. ( i suggested to her she should at least provide the cheques bi weekly , non cummulative and based upon a visit!!) Both also lived in neighbourhoods where the neighbours were extended families, dropping in to chat, doing small maintenance and letting them “babysit their kids, and involving them in birthdays throughout the neighbourhood. Despite huge equities, the lenders turned them down for lines of credit, yet with the reverse product they are now able to live in a home they love surrounded by friends and where they were previously suffering from breakdowns in old fridge and stoves, they now have some simple comforts never available to them, and are able to reside in their home as long as their health permits. Obviously their kids” response was negative; they wanted them to sell and move in to a basement apartment or other low price rental housing. The older fellow suggested, if he had to, he might move to a retirement home that was over $ 7500 per month ( to allow him to stay closer to where he now resides) but the daughter thought that was too rich ! Yes there are some expenses with this product that ultimately will result on the kids getting less down the road, but allowing these fine people, who worked their whole lives, the opportunity to extend a few years in a quality setting sure made this product attractive
Interesting post!
I have always wondered why someone with a mortgage free home gets turned down for a HELOC. No or low income?
It’s sad that they have to rely on the equity on their home to have some comfort as you say in their late years.
A will will do a good job about those type of kids ;).
This product will help some to live better, but I feel most will loose (if at their age that matters at all).
It’s sad for a retiree that have worked all their life and paid taxes, not to have enough income to live normally in their paid off house.
I think the real risk with reverse mortgages is people getting into arrangements they don’t understand. Particularly when alternative options or products are available.
That being said, I don’t see anything wrong with using the equity in your home as long as you’re aware of the alternatives and the consequences.
The idea that adult children are automatically entitled to an inheritance is obnoxious.
Well I cringe when I see people in circumstances of poverty. I cringe even more when the elderly need to live in poverty. It’s embarrassing in such a wealthy country; let’s do something about this.
Great points Jeff
wealth goes somewhere else (in the 1%) … not for poor or socially responsible causes, like free university education, etc …
sad reality …
FSCO’s Annual Information Return has a category specifically for Reverse mtgs. as they do for 1st and 2nd mtgs, Commercial mtgs etc. Obviously taking a Reverse Mtg. has some significant implications and Reverse Mtgs are obviously not the ‘all encompasing’ mtg product as the CHIP commercials make them out to be… If they weren’t, they would not be singled out!
‘Non-Tradional down payment’ (100% financed) 1st mtgs, or ‘Cash Back mtgs’ (on or after closing) are not segregated on our AIR’s and I would guess that a person with no skin in their investment is a whole lot more shakey than a Senior having to resort to re-mortgaging their home to make ends meet and live out their retirement in relatvie comfort.
Rob,
The thing missing is cash flow. I assume that people take a reverse mortgage because of cash flow.
Here is the problem. Property taxes go up every year utilities go up over time, and of course repairs need to be made.
Also, what happens when one of the partners needs home care? How pays for that.
I really don’t see any holistic financial planning suggested or offered.
Since they don’t talk about raising costs to live in the home up front, there will be a problem when they have cash flow problems again.
cheers,
Brian
Hi Brian,
Thanks for the post.
Inadequate financial planning is a key reason why many end up with a reverse mortgage. Another common cause is an unforeseen life event (health problems, financial losses, etc.).
Whatever the cause and whatever a person’s bills may be, it does not negate the need that some people have for reverse mortgages. They are not the best choice for many, but they are the only choice for some.
Your implication is correct, however. People tapping their last significant asset are well advised to seek financial advice to make sure that money lasts.
Cheers,
Rob
50% equity remaining is actually pretty good.
Seniors should be aware of the $2500 in costs they have to bear to get one of these mortgages.