Today I am posting a story that I’m sure that most of us can relate to. Last week we at Ingram Mortgage Team were contacted by a Realtor partner. They had been contacted by a previous client who was concerned about her Mom and needed advice.
Mom and Dad have rented the same condo for 23 years. Their reward for being long term tenants was below market rent. Their landlord passed away a few months ago and his family has decided to sell the property. Compounding things, Dad had passed away not long before the landlord.
Mom, at age 71, needs to find a new place to live, so her daughter reached out to her Realtor to see if he could help.
Our Realtor partner knew the price point of a 1 bedroom condo in the Fraser Valley and figured Mom would need a mortgage of roughly $150,000. Mom and Dad had been careful with their finances and had a small nest egg for retirement which was enough to supplement their meager pensions. But, if used as a down payment, she would have to make payments and any additional living expenses from a pension that was less than $2,000 per month! Realizing she would never pass a stress test and concerned about her cash flow if she bought, our partner called to see if there were any options for Mom.
Our concern was for Mom’s cash flow. Like many older Canadians, she was very concerned about having enough money to last as long as she lived. If she invested her money in a down payment, the mortgage payment, strata fees, and property taxes would eat up most of her pension income. At 71, she still had many years to enjoy life. Renting another condo at market pricing would require that she use some of her savings every month. No matter how frugal she lived, the money would likely run out. The thought of running out of money and not having anything to live off of was causing Mom a great deal of stress. Nobody wants their parents to go into their “Golden Years” worrying about their finances. Unfortunately, for most older Canadians, cash flow is ongoing stress.
We sat down, discussed the situation and looked at a number of different possible solutions to help Mom find a home that she could afford. However, most solutions were faced with hurdles that Mom would not be able to overcome:
Traditional Mortgage? Issues – Need to pass a stress test. Requires monthly payments. Add strata fees and property taxes and it becomes unaffordable.
Home Equity Line of Credit? Issues – Still needed to pass a stress test. Required monthly payments. (see above)
Private Investor? Issues – Higher interest rate. Requires monthly payments (see above)
Rent? Issues – Market rent will consume 75% of her pension income. Not much to live off of after that and savings would continually dwindle.
Then we discussed a Reverse Mortgage…
Mom initially thought a reverse mortgage was only possible if she already owned a home, and did not realize that it could be utilized to purchase a home! We showed her that she was able to use part of her savings as a down payment on a 1-bedroom condo and take out a reverse mortgage that would require NO PAYMENTS. Her only expenses will be strata fees and property taxes, so we have completely solved her cash flow concerns. Her savings, as opposed to being drawn on each month, are now invested in real estate. The equity gains in her condo will more than likely exceed the interest accrued on the reverse mortgage so when it comes time to sell the condo, the mortgage will be paid off and the proceeds will go directly to her, or her estate.
Mom and daughter were absolutely thrilled with this solution and our Realtor partner was able to turn a conversation that Mom initially thought was a waste of our time, into a firm sale.
If you know someone who is in a similar situation and you think that a Reverse Mortgage can help with downsizing or protecting the assets they have accumulated, we would be happy to arrange a meeting to have a similar discussion and see if a Reverse Mortgage could be a solution for them, too. Or check out www.ingramreversemortgage.com to answer most questions.
By Jeff Ingram – 604-763-4647 – Jeff@IngramMortgageTeam.com