Want to increase monthly income AND Net Worth in retirement?

The most frequent comment I hear from people regarding a Reverse Mortgage is that it is an "I hate my kids mortgage" People assume that home equity will be whittled away and nothing will be left as a legacy for their children. Let me dispel some of those rumors that are based on misinformation.

For homeowners age 55 or older who want to access the value in their home, the new Income Advantage plan from CHIP reverse mortgage offers a number of benefits:

Cash Flow Freedom. Clients may use the money any way they wish, and no payments (interest or principal) are required until the home is sold or both homeowners move out.

Ownership protection. Title remains in the homeowners’ names and they will never be asked to move or sell to repay their CHIP Home Income Plan.

Estate protection. The amount to be repaid is guaranteed not to exceed the fair market value of the home at the time it is sold, protecting the homeowners and their estate. In our experience, more than 99% of homeowners have equity remaining after repayment.

Tax benefits. CHIP Funds are tax-free and will not affect eligibility for government benefits such as Old Age Security.

Preserve assets. Using CHIP funds enables your clients to avoid RRIF withdrawals above the annual minimum or the sale of non-registered investments.

How does it work?

The new Income Advantage from HomEquity Bank, the originator of the CHIP Reverse Mortgage, allows homeowners to receive lump sum payments, monthly payments or a combination of both. The flexibility of this new program allows people to plan carefully, reduce overall interest and maximize the preservation of home equity. Qualification is as simple and straightforward as a traditional Reverse Mortgage, homeowners over 55 can access up to 40% of the equity in their homes but have total control over how they receive funds. Since interest only accumulates on the amounts withdrawn (like a HELOC), annual interest is minimized vs accrual and compounding on a larger lump sum. Clients also have the option to make a 10% prepayment towards principal and interest once a year, on the anniversary date of the mortgage.

Example: A retired couple has a $500,000 house with a $250,000 investment portfolio for an overall net worth of $750,000. They need additional funds to pay for home repairs and income to cover Home Care expenses, should they tap into their portfolio or leave it alone to grow and look for other solutions? They are not ready to downsize yet and do not want to rely on the help of their children who are working to save for their own retirement.

Solution: Income Advantage arranges to give the couple an initial lump sum of $10,000 to cover home repair costs and a monthly advance of $750. After ten years this is where they are at:

Money advanced over ten years is $100,000 plus interest for a total of $126,900.
Investment portfolio saw an overall return of 6% per annum and has grown to $447,711.92
Home has seen an average increase of 2% per year and has grown to $609,497.21

After ten years overall net worth has grown to $930,309.13

This is a general overview of what the Income Advantage can do and every situation is unique. In the end it is best to get qualified, professional advice and put together a plan that takes into account the whole picture.

THE SHOCKING IMPACT OF CONSUMER DEBT PAYMENTS AND HOW TO OVERCOME THIS SIGNIFICANT HOME OWNERSHIP BARRIER

 

Savings, market value and government guidelines are obvious obstacles but in my opinion, one topic that doesn’t get discussed in enough detail is consumer debt payments.

First a quick definition: Disposable income, is described as total personal income minus current income taxes. Essentially, your take-home-pay.

Here’s a “live” case study.

This consumer has $62,601 in non-mortgage debt or $0.86 for every dollar of disposable income. A model citizen by Canadian standards given StatCan’s most recent report reflected Canadians have $1.64 in debt for every dollar of disposable income.

The minimum payments currently required on this $62,000 debt is $1,878.03 per month. If this consumer chose to pay only the minimum payment requested on each monthly statement toward the repayment of this debt, it would take between 73 and 98 years to pay it all off. What will AMAZE you is by keeping unchanged the exact minimum payments required today, these debts could be totally paid in full between 39 and 50 months from now. Therefore, keeping the same payment every month from this point forward rather than paying the declining payment being requested on each statement is the key to paying the debt off faster. It’s remarkable to think you could pay it off this quickly given the average annual cost of borrowing of 16.794% which is actually even worse when annual credit card fees are added, making the effective annual cost of borrowing 21.054%. By the way, anybody getting this kind of return on your market investments at the moment? Hmmmm?

Now, watch this and take a deep breath. This same $1,878 per month would carry a mortgage principal of $410,513. Amazing buying capacity eh?…all tied up in a mere $62,600 in debt.

That’s right. If this consumer were debt free, it would be possible to save for a down payment with some simple strategies and a starter home (or condo more likely) is well within reach.

Now here’s a comparison for you.

Annual interest cost on this consumer’s debt is estimated at $8,975. Meanwhile the annual interest cost in the first year on a mortgage principal of $410,513 is $10,839. The difference is a mere $1,864 for the entire year. Wouldn’t you rather be a home owner paying interest on an appreciating asset?

Here’s my formula for eliminating the debt in this case study. My recommendations:

Stop using all cards, switch to cash only. Close all credit card accounts except two primary credit cards like a Visa or MasterCard. Write letters to all the other creditors requesting the accounts be closed and be sure to follow it up. Call the two credit card companies whose cards you are keeping and get them to give you their lowest rate available with no annual fee and no loyalty points. Nothing is for free! Use any savings remaining at the end of each month and apply it to the smallest debt owing until the debt is paid in full then use the freed up payment and apply it to the next smallest debt and so on.

There are a multitude of strategies that you can take here including paying highest interest debt off first, but I often find the former approach is usually more successful and you see the results faster. Every debt reduction plan should be designed specifically for the finances of the household and this is a good place to start.

The bottom line: don’t get distracted by the destructive effect of non-mortgage debt, get help to establish a plan with your mortgage broker and, as always…experience a strategy…not just a mortgage. We here at Dominion Lending Centres can help!

MARK ALLTREE

Dominion Lending Centres - Accredited Mortgage Professional
Mark is part of DLC Innovation Group based in Vancouver, BC.

SHOULD YOU BE CONCERNED ABOUT CANADIAN HOUSEHOLD DEBT LEVELS?

Despite what you may see on TV, hear on the radio, or read online, there is strong evidence that although Canadian household debt is at an all-time record high, Canadians are doing just fine financially.

How can that be? Canadians are a whopping 1.8 TRILLION DOLLARS in debt – and that is exactly what the media focuses on. What they fail to disclose is that according to a recent report published by the Fraser Institute, Canadians also have $10 TRILLION DOLLARS in assets.

SO FOR EVERY $10.00 THAT CANADIANS HAVE… THEY OWE JUST $1.80. NOW THAT DOESN’T SOUND ALL THAT BAD… IT’S REALLY A MATTER OF PERSPECTIVE AND HAVING ALL THE FACTS.

So the next time you hear some doomsday report indicating that our economy is ready to implode in the next 38 minutes, remember that media outlets are more concerned about getting your attention than anything else. It’s not about the facts, it’s about the spin on the story. And seeing as though debt levels have hit new record highs every year since 1961, how can this still be news? Of course there is more debt… there are more people. Those people are buying houses!

Actually, right now, borrowing money in Canada has never been cheaper. We are experiencing all-time lows on some fixed rate mortgage terms and variable rate mortgages. So to answer the question, “Should you be concerned about Canadian household debt levels”… no, you should be concerned about your own personal debt level. Because that is what matters.

What is your financial situation like? Just as the economy changes, and life changes… your financial situation changes as well. It is good to periodically review your mortgage or financial situation to make sure that you are paying as little interest as possible.  That’s where Dominion Lending Centres comes in. If you currently have a mortgage and want to know if it is the best fit for you, or if you are working towards buying your first home, we would love to assist you.

Please contact us anytime!

As far as the report from the Fraser Institute goes, it is filled with great points and interesting stats! It is very well done and is certainly worth a look if you are interested in stuff like this!

I have included the report in its entirety for you below!

JOE TOMKINS

Dominion Lending Centres - Accredited Mortgage Professional
Joe is part of DLC Canadian Mortgage Experts based in Nanaimo, BC

YOU CAN PAY YOUR MORTGAGE FASTER WITH “THE JAVA FACTOR”

When you are searching for a mortgage, you shouldn’t only base your decision on rate. It is important to search for the “best mortgage”. A mortgage that not only provides the best interest rate, but also the one with the best terms and conditions. By understanding mortgage terms and what they mean in dollars and sense, you can save the most money and choose the term that is best suited to your specific needs.

With a closed term mortgage, you can’t pay off your mortgage before the end of the term without having to pay a penalty.

The pre-payments without penalty clause is one of the conditions that can save you a considerable amount of money in the long run. This clause allows you to make payments on the principal of your loan, or increase the amount of your periodic payments (monthly, bi-monthly, etc.) without a penalty. Each lender has different programs for pre-payments, they usually vary from 10% to 20%, i.e., you can pay any amount within the approved percentage of the original value of your mortgage or increase your periodic payments once a year without paying a penalty.

Many people don’t take advantage of this clause because it is generally difficult to save the extra money to make additional payments.

Here is an easy way to take advantage of this benefit – “The Java Factor”. This is something that is very easy to follow and can save you thousands of dollars by paying down your mortgage.

Usually everyone buys a cup of jo (coffee) or two during their work day. When you see the cost of a cup of coffee at Starbucks or any other establishment, you realize that maintaining this habit can be very costly.

Suppose that you spend at least $5 per day, 5 days a week in “coffee, donuts, chocolates, snacks, etc.”, this would amount to approximately $108 per month; if you apply them to your monthly mortgage payments, the savings can be considerable.

For example:

In a $100,000 mortgage at a rate of 3.39% and 25 years amortization, you would reduce the total payment of your mortgage by 5 years and 4 months with savings of $13,185 in interest. For this calculation, we considered that the interest rate did not change during the life of the mortgage.

This calculation would vary case by case but depending whether you have a pre-payment clause with your mortgage or not, it is important to emphasize that by making a small sacrifice you can have significant long-term savings.

So remember “The Java Factor” next time you are thinking of stopping by for a coffee on your way to work and take a cup of coffee brewed at home.

JORGE ARAGON

Dominion Lending Centres - Accredited Mortgage Professional
Jorge is part of DLC Mountain View based in Maple Ridge, BC.

REVERSE MORTGAGE VS. HOME EQUITY LOAN

More and more Canadians are going into their retirement years without a lot of money saved in the bank. It is suggested that in order to live a financially comfortable retirement, couples should have saved 50-60% of their peak pre-retirement income, which equates to roughly $42,000 to $72,000 a year or $275,000 to $1,025,000. Singles should have saved 60-70% of their peak pre-retirement income, roughly $30,000 to $50,000 per year or $350,000 to $850,000. (Assuming mortgage is paid off and children are financially independent. All amounts based on 2014 dollars).

In a 2013 survey of 1,500 Canadians over the age of 50, only 2 out of ten households said they would have more than $250,000 saved for retirement. 50% of the households surveyed felt that they would consume their retirement savings within the first 10 years of retirement.

Because of these financial woes, many Canadian homeowners in their later years have considered taking out a home-equity loan or the option of a reverse mortgage to access the equity in their home.

Home-Equity Loan

Like a primary mortgage, a home equity loan lets you convert your home equity into cash. In fact, many refer to a home equity loan as a second mortgage, where you would receive the loan as a single lump-sum payment, and then you would make regular payments to pay off the principal and interest.

Another form of home-equity loan is the home equity line of credit (HELOC). A HELOC gives you the option to borrow up to a pre-approved credit limit, on an as needed basis. Therefore, with a home-equity loan, you would pay interest on the entire loan amount, whereas with a HELOC, you pay interest only on the money you withdraw. Since a HELOC is an adjustable loan, the payment changes as the interest rates fluctuate.

It is important to keep in mind that your home acts as collateral in a home-equity loan. So if you default on the loan, you risk losing your home to foreclosure.

Reverse Mortgage

With a reverse mortgage, instead of making payments to a lender, the lender will pay you, based on a percentage of the appraised value of the home, as well as factors such as your age and the age and the condition of the house.

You will continue to hold title to your home, but as soon as you become delinquent on the property taxes and/or insurance, the condition of the home is in disrepair, you move/sell the home or you pass away, the loan is then due for repayment.

Home Equity Loans, HELOCs and Reverse Mortgages are all options, which allow you to convert the home equity into cash, however, they differ in terms of credit, income, repayment, disbursement, age and equity requirements. Before you make any decisions, find out how to tailor your needs and requirements with the best product for your situation.

For more information on a reverse mortgage loan, contact a mortgage professional at Dominion Lending Centres.

 https://dominionlending.ca/news

YVONNE ZIOMECKI

HomEquity Bank - Senior Vice President, Marketing and Sales

Why I believe in Reverse Mortgages

There was a 62-year-old husband and his 61-year-old wife living in Kelowna, BC.  One day the husband had a massive heart attack and died instantly.  Insurance paid off all the debts.  The husband had always looked after the financial affairs.  The widow knew nothing about financial matters and couldn’t even balance a cheque book. She started receiving credit offers in the mail and responded to them.  A son, living elsewhere, visited his mother one day and found out that she had accumulated new debt in the amount of $40,000.  The widow could not keep up with all the payments with the reduced pension income so the son took her to her local financial institution that the couple had dealt with for many years. They met with the branch manager and arranged a term mortgage to pay off the debts and give the mother a $5,000 limit credit card.  The son again visited the mother one winter day two years later and found that her gas had been turned off due to nonpayment.  She was using a space heater to keep warm.  He couldn’t understand why there was a problem. He did some investigating and discovered that the branch manager had given his mother a secured line of credit with a limit of $90,000 and a $15,000 credit card.  The widow had maxed out the line of credit and the credit card.  Because of a poor market and deferred maintenance of the property, the home could not be sold even after it was listed for six months. The son arranged for his mother to live with her daughter in Alberta.  He cleaned out the home and took the keys and gave them to the branch manager telling her that he didn’t know what else to do.  Maybe the widow would have been best served if she had been presented with either the option of a term mortgage or a reverse mortgage; and then the widow might have been able to stay in her home for the rest of her life.  Unfortunately, she wasn’t presented with the option. Why is this story important?  Because the widow was my mother. Bob Urbanovich BDM for HomEquity Bank

THE REAL VALUE OF TITLE INSURANCE

I am often asked by clients about the real value of title insurance, why they need to have and pay for it.  Whether you are a home buyer or a home owner simply refinancing the mortgage on your home, you will need title insurance.  Once I explain the reason and need for title insurance, the majority of home owners accept the cost and see the real value of title insurance.

Title insurance includes a lender portion policy and the homeowner has the option to add a Homeowner Policy portion.

Lenders request the insurance to protect against title fraud and the high costs associated with this growing crime. However, there are more benefits to this insurance for the homeowner.

1. The policy transfers risks related to title of the property from the home buyer to title insurance provider. So if any delays or issues occur on title during the purchase, the insurance provider will resolve it and the associated costs.

2. The Homeowner Policy also covers losses associated with survey issues and title defects that existed prior to the home purchase as well as title fraud occurring after the policy is issued. Coverage continues after the purchase for as long as the owners own the home. Title insurance covers losses resulting from many risks not directly related to title, such as: structures or renovations previously completed without required permits, unknown work orders, encroachments, liens, zoning and by-law violations.

3. The policy protects the homeowner against any future title fraud on the property. For properties that are clear title with no mortgage, there is a risk that a criminal can assign a mortgage against that property without the owner’s knowledge. They take the money and run leaving the homeowner with a mortgage and payments.

Who is at risk?

The easiest target is the homeowner with no existing mortgage. However, even a property owner with a mortgage can become a victim. In both cases, mortgage funds are usually sent to a third party and are often unrecoverable. For this reason, lenders want homeowners to acquire title insurance to transfer the cost to fight the case and cover the costs to the title insurance provider.

What can the homeowner expect if they are a victim of title fraud?

The immediate issue for homeowners in a real estate title fraud situation is the homeowner is responsible to prove the crime occurred. During that time they could be responsible for a mortgage and the payments. If unpaid, this can result in foreclosure by the lender and a record of the late payments on the owner’s credit report.

If you become a victim in a real estate title fraud, it can take considerable time and money such as:

* Costs for legal fees to show proof you are the victim
* Lost opportunities to sell or buy another property
* Mental distress
* Possibility of losing your home to foreclosure by the lender
Title insurance covers the legal expenses and many other costs related to restoring title in cases of real estate title fraud.

For homeowners who did not obtain title insurance when they bought their home, the protection title insurance can be purchased any time.

If you are buying a home, your Dominion Lending Centres mortgage professional and your lawyer will discuss title insurance with you. If you are a current homeowner who wishes to obtain title insurance, contact your lawyer or a title insurance company. I have provided some links below for your reference. Fees range depending on the value of the property.

The first link below outlines costs.
http://www.bcrealestatelawyers.com/real-estate-fraud-and-title-insurance/
www.fct.ca

Have a great day!

For more DLC blog posts click here 

By: Pauline Tonkin Dominion Lending Centres - Accredited Mortgage Professional Pauline is part of DLC Innovative Mortgage Solutions based in Coquitlam, BC