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'Lifestyle mortgages' for savvy seniors

by Neil Sharma 26 Jul 2018 MBN

There exists a propensity to look at reverse mortgages as only necessary for indebted seniors, but they are also a great way for savvy, well-heeled seniors to buoy their investment portfolios.

“The one thing I disagree with is it’s not only a mortgage designed for people to pay off debt,” said Darlene Vilas, a mortgage broker with MOS MortgageOne Solutions, who specializes in reverse mortgages.

“Very savvy high-net-worth people use it to make investment decision to purchase real estate when other investments are liquid. It’s tax-free and they pull this money out to make investment decisions. It’s for other people, too, who have done very well. They see this as an effective financial tool for them without the hoops of B-20 and the stress test. It’s an amazing product.”

From a broker point of view, Vilas says reverse mortgages are a great way to build relationships with realtors because there’s a dearth of information about the many ways in which they can be used.

“That’s where you can network with realtors as well,” she said. “A lot of people don’t know reverse mortgages for seniors can be used to buy another home.”

In fact, investment-minded seniors have been using reverse mortgages to augment their lifestyles for some time. Vilas, who has been working with the specialized product for about a decade, coined a term she feels is more appropriate.

“It’s a lifestyle mortgage; that’s a term I came up with a few years back because I saw seniors take on a different lifestyle because they’re not burdened with interest payments.”

The bank of mom and dad has been well-documented, but little known is that reverse mortgages are often how parents help their adult children attain homeownership in overpriced markets like Toronto’s and Vancouver’s.

“It makes sense because these people are in their mid- and late-30s and have older parents,” said Anne Brill, owner of Centum Metrocapp Wealth Solutions. “We have a few seminars coming out where we’re inviting first-time homebuyers with their parents and explaining to them that because of the B-20 rules, the interest rate increases and the benchmark being higher, their kids today won’t qualify for as much money as they did yesterday. Plus, insurance premiums are higher.”

Brill added that inheritances might be smaller, but it’s a small price to pay for homeownership.

“Why don’t we help them out faster so that they can get into a home today rather than 10, or however many, years down the road?” asks Brill. “They can potentially take out $100,000 on a reverse mortgage and this way it doesn’t cost them any cash. The cash flow stays in line and the reverse mortgage doesn’t cost payments, and while the kids get a smaller inheritance, at the end of the day they get some money up front to get into a home today.”

Related stories: CMHC enhances qualification for self-employed borrowers

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