A Reverse Mortgage Could be for You

April 6, 2011 · Print This Article

An older but delightful couple, Bud and Jan Lawrence, are retired grandparents with plans. The Lawrence’s are convinced that they should try to stay in their current home, because they have determined that downsizing and selling their house could cause them to unnecessarily incur thousands of dollars in selling, moving, and refurnishing costs, and then simply leave them in a smaller home or condo with lower equity. Their pension income provides sufficient current income to cover their routine monthly expenditures, but they require additional capital to fund their travel expenditures (or possibly a purchase of a foreclosure property in Arizona) without incurring undesirable and/or unsupportable debt, which could leave less income for them to enjoy the years ahead.

If you are like this couple, a Reverse Mortgage could be for you. The Canadian Home Income Plan (CHIP), offers a reverse mortgage that allows potential access to the equity in your home (up to 40% of the home’s value). This would give a couple like the Lawrence’s an opportunity to retain their current home, while allowing them to enjoy their travesl without requiring any additional debt payments. Payments (principal or interest) are not required on the Reverse Mortgage loan until both you and your spouse leave the home. That way,
you’re freed up to do what you want with the money, when you want, and don’t have to worry about paying it back until you move out and/or the home is sold.

In the Lawrence’s case, the eventual estate value attributable to their home may be equal to their net sale proceeds less the accumulated value of the Reverse Mortgage face amount plus monthly compound interest charges less any voluntary payments, or the eventual net sale price of their home, whichever is less. Also, in the Lawrence’s case, their eventual estate value will potentially be enhanced (or reduced) by any incremental returns (or losses) from their offsetting investments as well as future increases (or drops) in the value of their home. So the future estate value could actually have been enhanced (or reduced) by the Lawrence’s ability to retain their home. Clearly, the additional travel options and flexibility enjoyed by Bud and Jan Lawrence might not have been even feasible without the potential availability of a Reverse Mortgage. As Bud’s granddaughter would say, “Merry Christmas to me”.

Note: with the prospect of rising mortgage rates and the related probability that future investment yields will be rising , a current Reverse Mortgage with a fixed longer-term mortgage interest rate might possibly offer prospective gains in estate values due to the benefits of future leverage with higher future investment returns versus the long-term Reverse Mortgage mortgage rate.

Again, as Bud’s granddaughter would say, “Merry Christmas to me”.

Check out the Horizon Equity website or contact us to see if this option could be right for you.