By: Marion Goard, Sales Representative, Master Accredited Senior Agent, Senior Real Estate Specialist
This article was originally published in Silver Links News' spring issue.
Understanding later-in-life housing options or discovering what is best for yourself or an aging relative can be a daunting task. Often, seniors find that just thinking about a move is overwhelming so they simply avoid the matter completely. As a Master Accredited Senior Agent and Senior Real Estate Specialist, my goal is to help seniors and their families become familiar with all their housing options and to encourage that important conversations take place sooner rather than later to help circumvent crisis situations. In this article, I demonstrate the difference between reverse mortgages and a unique program called Sell ’n STAYTM.
We know that living costs are continuing to increase and we also know that many seniors fear they’ll outlive their money. As a result, Reverse Mortgages are currently capturing seniors’ interest. A reverse mortgage is a way for homeowners to access up to 55% of the current value of their home as a tax-free cash loan. The amount of the loan is based on the age of the homeowner(s) (who must be 55 or older), the appraised value of the property, it’s sale-ability and the amount of equity the owner has in the property. In general, the older you are and the more home equity you have when you apply for a reverse mortgage, the bigger your loan will be. Funds from a reverse mortgage can be made available to you in a lump sum, in planned advances, or a combination of the two. Money from the loan can be used for anything you choose. Although with some exceptions, you have the option to repay the principal and interest in full at any time; with a reverse mortgage regular mortgage payments are not required. Instead, interest will be added to the original loan amount, which over time, increases the loan amount. When you or your estate sells your house or if you move out the loan will need to be paid out.
A reverse mortgage may be an appealing option, however, it’s important to note that the interest rate charged for this type of mortgage is notably higher than for other types of mortgages; the equity you hold in your home may go down as the interest on your loan adds up over the years; there are prepayment penalties if you sell your house or move out within 3 years of getting a reverse mortgage; your estate will need to repay the loan and interest in full within a set period of time when you die; given the probate process, the time to settle an estate can be longer than the time allowed to repay a reverse mortgage and, the costs associated with a reverse mortgage are usually higher than for other mortgages. The senior continues to own the home and remains responsible for property maintenance and repairs, utilities, insurance, municipal taxes as well as condo fees if the property is a condominium.
Sell ’n STAYTM is an option where seniors sell their home to a qualified investor buyer at its fair market value or the price negotiated between the seller and the buyer. Together with the sale, the senior enters into a lease agreement with the new owner. The terms of the lease vary with each transaction. As a tenant, the Residential Tenancies Act (RTA) protects the senior. Among other things, the RTA outlines tenant rights, clearly states landlord responsibilities and protects the senior against unlawful eviction and rent increases. An added benefit is that home maintenance, repairs and taxes etc. are now the responsibility of the new landlord allowing the senior to remain in a home they love and are familiar with, without the costs associated with home ownership. It’s also a way of leveraging the property’s equity without having to move and/or search out alternative housing or face a market with low vacancy rates for rental properties.
Sell ’n STAYTM provides the senior with 100% of the equity established in the home (minus closing costs). Other than making rent and utility payments, the senior is no longer responsible for house related expenses. In contrast to a reverse mortgage where interest is accumulating, by opting to Sell ’n STAYTM seniors can invest the funds realized from the sale to earn interest income. Depending on how the funds are invested, the interest earned can go a long way to covering the rent payments. The funds from the sale of the property could be used for other ‘bucket list’ items and/or to be able to afford homecare or other services an older adult may find necessary or beneficial as time passes. Lastly, the senior’s estate is not affected in the same way it would be with a reverse mortgage. In a nutshell, you do not pack, you do not move, you do not change your address - you simply change the ownership status.
In Canada, reverse mortgages are available from HomEquity Bank as the Canadian Home Income Plan (CHIP) and can be accessed from HomEquity Bank directly or through mortgage brokers. Equitable Bank offers reverse mortgages as well, as the PATH Home Plan, also available through mortgage brokers in Ontario, Alberta and British Columbia. As noted above, age is a primary qualifying factor.
Sell ‘n Stay Inc. is a Mississauga based company that is federally incorporated and has been vetted by lawyers, financial advisors and mortgage brokers. The company trains and certifies real estate sales representatives across the country to offer this unique program. As Sell ‘n STAYTM is not age dependent, it is not limited to seniors and can be valuable in various other scenarios.
Should you choose to pursue either of these options, please be sure to consult with your own professional advisors, primarily your financial planner and lawyer. For more information on Sell ’n STAYTM or other housing options for seniors you can trust that I will competently help you consider all your options so the best possible decision and plans can be made.