House rich and cash poor turn to reverse mortgages

This article was originally published by Canwest News Service on January 8th, 2010. To view their webpage, please Click Here

When Anne Lynch, 62, inherited the rustic family home three years ago it seemed like a good fit. Her father, who passed away at the age of 91, wanted it kept in the family and all Ms. Lynch’s friends lived near by.Moreover, the house was mortgage-free, is about a kilometer from the ocean in Sidney, BC, 20 kilometers north of Victoria, and was worth just under $400,000.

But one thing Ms. Lynch did not have was money. She had been her father’s caregiver for many years and worked as a cashier in the local supermarket.The house needed immediate repairs and regular upkeep.

“He really did want me to hang onto it.I’m the last one left standing. There’s nobody but me.It was more or less up to me. I was the executor of the estate. I did think of selling it but my problem is this.Where am I happiest?Would I rather stay here with the people or move somewhere else? Because of the cost of the housing if I ever left the coast I’d never get back, ” says Ms. Lynch.

So Ms. Lynch needed a financial battle plan and by way of an advertisement by CHIP, Home Income Plan ( provided by HomEquity Bank, she moved forward with a “reverse mortgage,” a lending vehicle that taps the equity in one’s home. Ms. Lynch “borrowed” $185,000 from the equity in the home using $35, 000 for immediate repairs and investing the other $150,000. It is only paid back if the house is sold or upon he death.

Ms. Lynch is part of the growing number of aging Canadians who by choice or necessity are opting to access the equity of their home without moving or ever having to pay back the loan while living in the home.The funds are returned to the lender upon the death of the borrower or if the house is sold.

Between 2004 and 2008 compound annual growth at Toronto-based HomEquity Bank (CHIP), Canada’s leader in reverse mortgages was 12%.”Canada’s seniors market is the fastest growing segment of the population and we have a proven track record of providing innovative solutions to meet seniors’ financial needs,” said Greg Bandler, Senior Vice President, HomEquity Bank.

Greg Bandler says that reverse mortgage enables clients to preserve their investment assets without having to draw down on Registered Retired Income Funds beyond the annual minimum or selling non-registered investments to cover expenses.The borrowing tool is also for those seeking a comfortable standard of living during retirement, and still be able to afford home improvements, invest in a hobby or new business, assist children or grandchildren as a form of estate planning, pay for in-home help or medical care or travel more often. The funds advanced are not counted as income for tax purposes and CHIP interest expense may be used to minimize taxes on income generated from investments.

The home owners have to be 60 years of age or older and the mortgage is not more than 40% of the appraised value of the home. Any existing mortgage on the property has to be cleared with the “reverse mortgage.”