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Thread: Writing a reverse mortage

  1. #11
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    Quote Originally Posted by OptsyEagle View Post
    O
    That being said, the benefits of a line of credit as opposed to a reverse mortgage, for someone requiring income, is that with a reverse mortgage they actually lend you a lump sum and then buy an annuity to provide the income. Y That would not bother me except that the borrower is accruing interest on a large lump sum when in fact they only received small amounts of income. Thought of another way, if the RM lender and the annuity provider were the same company, they go to their vault, give you a large lump sum. You then give back the lump sum and they put it right back into the same vault.
    The way I understand it and I briefly inquired to see how it works; the RM as CHIP implements it is a lump sum given to the owner of the house at the time the RM is taken out.

    It is a ONE TIME LUMP sum and no payments are required..PROVIDED the owner continues paying property taxes and has fire insurance in place...BUT if the owner blows it all on this and that, vacations etc in the last
    few years of their lives..
    the RM money is GONE, and although the person still doesn't have to pay a cent, the interest at 5.33% per annum on the FULL AMOUNT BORROWED on this REVERSE MORTGAGE keeps accumulating. This can
    be very significant, almost as much as was borrowed in the first place..depending on the number of years
    the RM is valid.

    Once the owner is too old to live in their home and needs assisted care, as has to sell/move..the MONEY BORROWED INITIALLY PLUS THE INTEREST accumulated over the years is due and payable.

    If the senior does not have that kind of money..they take your home!

    This scheme is only for those that have no children and would leave their estate to the government in any case.

    They are in no different position after you came in to their office as they were before you came in, but you are now acruing a very large interest spread on this transaction. Doesn't sound like something I would ever do, but I am the type of person who does not like paying for nothing, and can usually figure out where the pebble is in these types of shell games.
    As they explain it in the CHIP brochure..its tax free spending money in the last say.,15 to 20 years of your life using UP TO 55% of the equity in your home..... and assuming you are living in a paid off mortgage free home that has grown consideral value in todays real estate markets.

    In Toronto for instance..that $1,000,000 appraised home could fetch you as much as $500k in a RM scheme.
    But be sure you are ready to give it up in 15-20 years time, when you are no longer capable of living in it due to health issues..or death as the case may be. The reason they can only give you up to 55% of the current
    appraised value is that IF the owner can't repay the RM when it is due and payable, the other 45 to 50% is
    used as collateral for their RM and they can use that to sell your home from under you as mortgage default.

    Now obviously over time this $500 per month draw, plus the interest will start to add up, but in most cases you will need to live a very long time before it becomes the same level as the reverse mortgage a person would take on their very first day.
    But the difference is that you have to pay back what you borrowed on the HELOC on a regular basis, not so the CHIP RM scheme.

    Reverse mortgages are only for people who need lump sum capital (not income) and don't mind spending a very large amount of their heir's inheritance to provide a fairly small amount of financial benefit for themselves. Here I am talking about people without children as well as people who have no intention of providing any estate for the children they have.
    Yes, these RMs are only for those that want to spend their children's inheritances while they are living. The other side bonus, (not sure about this though), is that the estate can be spent down to nothing..reducing or even eliminating the probate taxes.

    Last edited by carverman; 2017-01-08 at 03:14 PM.

  2. #12
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    $1500 a month isn't going to be enough income to support even a modest lifestyle, taxes, maintenance, utilities, and a mortgage payment.

    In any scenario, without selling the home to the OP or someone else, the home owner will not be able to make the mortgage payments.

    One option would be for the home owner to sell the home to the OP and rent it using the proceeds from the sale.

    The sale proceeds would decline until the retirement benefits begin, when the decline would be slowed or halted.

    My sister was in the same situation and her son purchased her home with a mortgage.

    She rents the home from him and he has to claim the income, but has the mortgage costs to offset the income.

    From what I understand, they have come to some agreement if the home is sold on a fair split of any equity gains in the home.
    Last edited by sags; 2017-01-08 at 04:05 PM.
    Someone planted a tree a long time ago so I can sit in the shade.

  3. #13
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    Quote Originally Posted by carverman View Post
    There has to be a registered mortgage, if the lender wants security on the property.otherwise a "promissory note" that the receiver of the funds will pay back so much, after so much time is meaningless, if the receiver defaults.
    It looks like YMMV as there are references to promissory notes that require security for the loan by registering a lien or mortgage against the property as part of the note.

    There are also notes that loans and promissory notes are active contracts versus the IOU that simply documents the debt.


    Of course where someone is "helping a friend" then it opens up the question as to when it would be worth their while to go after the non-paying friend.


    Quote Originally Posted by carverman View Post
    The lender must be on a mortgage title with the owner of the property, or have a registered mortage that must be paid off in full, if the owner dies, or unable to pay.
    I can find references to setting up a mortgage as part of the promissory note or the alternatively, recognition of the loan on the property title.


    Cheers

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  5. #14
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    Quote Originally Posted by gardner View Post
    ...The real underlying question should probably have been: what are the options to help out someone in XYZ position, while securing at some level against the real-estate?
    Why not keep it simple with a loan that is secured against the house?

    The legal terms should be relatively simple, the ways of securing it should be relatively simple ... not sure what the legal fees would be.


    Cheers

  6. #15
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    Quote Originally Posted by carverman View Post
    ... But the difference is that you have to pay back what you borrowed on the HELOC on a regular basis, not so the CHIP RM scheme.
    I believe it depends on the HELOC ... some will happily chug along with only the interest being paid.

    Different than paying nothing but with what looks like 2.3% higher interest rate for the CHIP versus what has been posted by those posting the HELOC rate for what they obtained, it may be easier.


    Regardless, as the friend is in a low income situation - a run of the mill HELOC does not sound like it would be approved by a financial institution.


    Cheers



    Yes, these RMs are only for those that want to spend their children's inheritances while they are living. The other side bonus, (not sure about this though), is that the estate can be spent down to nothing..reducing or even eliminating the probate taxes.[/QUOTE]

  7. #16
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    Quote Originally Posted by sags View Post
    $1500 a month isn't going to be enough income to support even a modest lifestyle, taxes, maintenance, utilities, and a mortgage payment.
    Not sure where the $1500 a month comes from ... the OP is talking about loaning the home owner $150K at 1.5% ... that should work out to $2250 of interest *for the year*.
    Unless I am missing something, the home owner gets to use the OP's $150K where only about interest of about $187.50 to pay a month.

    An important question is what is the homeowner's spending rate that the $150K would need to fill the gap for and how quickly it would be used up in the 10 to 15 years.


    Quote Originally Posted by sags View Post
    One option would be for the home owner to sell the home to the OP and rent it using the proceeds from the sale.
    The sale proceeds would decline until the retirement benefits begin, when the decline would be slowed or halted.
    Assuming the full house is sold, then the full proceeds sounds like it doubles to something like $300K.


    Quote Originally Posted by sags View Post
    She rents the home from him and he has to claim the income, but has the mortgage costs to offset the income.
    Note sure how this would work for the OP ... to maximise the mortgage costs, the OP would have to take out their own mortgage on the house, as the house is currently mortgage free.


    Quote Originally Posted by sags View Post
    From what I understand, they have come to some agreement if the home is sold on a fair split of any equity gains in the home.
    While the son can redistribute proceeds as a gift as he sees fit ... he will have to pay the capital gains on the increase in value.


    Cheers

  8. #17
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    You can get a CHIP reverse mortgage at 55 and it does not have to be a lump sum payment.You can get monthly payments which is a much better way to do it than a lump sum if you are just trying to get some income.

  9. #18
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    What about deferring property tax as part of a plan to retain some of the cash you need to free up.

    http://www2.gov.bc.ca/gov/content/ta...egular-program

    I am not sure if this is done across Canada or how many years you can do it.

  10. #19
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    Quote Originally Posted by yyz View Post
    You can get a CHIP reverse mortgage at 55 and it does not have to be a lump sum payment.You can get monthly payments which is a much better way to do it than a lump sum if you are just trying to get some income.
    This is one CHIP offering from HomEquity Bank, however, depending on appraisal and your age (especially at age 55),
    you may not get the 55% of the appraised value.

    Depending upon you and your spouse’s ages, and the location and type of your home, you can access up to 55%[/B] of your home’s value. This limit is set because CHIP wants to ensure that you still have equity left in your property if you decide to sell. Additionally, the amount to be repaid to CHIP will never exceed the fair market value of your home, so your estate is safe and you won’t need to come up with extra funds to repay your CHIP reverse mortgage.

    Single lump-sum: 100% of funds the homeowner
    is approved for.
    • Initial lump-sum with Subsequent Advances:
    homeowner takes less than 100% of approved
    funds initially and sets aside the rest.
    • The minimum initial advance is $25,000.

  11. #20
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    As I understand it, OP has said reverse mortgage is unavailable due to age and felt to be too expensive. Seeking ways he(?) can help friend to the tune of a $150k lump sum, to be paid back in x years or earlier.

    It is of course possible to just loan the money (with a promissory note). This requires an amount of trust in the friend, an amount of confidence in their financial situation -- and probably some confidence in their eventual executor in the event of their death. That is in effect what I have done (without even the promissory note!) for my parents, since I know them well, help them manage their finances anyway, and am their eventual executor and sole heir.

    If this is too loosey-goosey, as I expect it would be between "just friends", it is my (inexpert) understanding -- and implied by some of the responses above -- that it should be possible to make it a private mortgage registered against the title on the property. I found the following by googling: http://www.lsuc.on.ca/with.aspx?id=2147490134 which implies the paperwork is *more* significant than for a financial institution mortgage, but a real estate lawyer should be able to help (for a fee of course).

    You could of course also investigate purchasing part ownership of your friend's property for $150k now, which s/he repurchases back from you later. I expect this might have tax implications, since any gains on the property value would not be tax free to you since it is not eligible for the principal residence exemption. But it would be a way to help your friend as a real estate investor rather than as a lender (different risk-return profile). I'm assuming from your description of the situation that both of you are open to a range of solutions that i) do put your capital at some but bounded risk, and i) the terms are structured so as to keep you whole with a small (lower than market but positive) return on your capital.


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