# Reverse Mortgage



## Belizean Beach Bum (Apr 19, 2009)

Hi,

My half-brother and I inherited our mother's house in British Columbia. My half-brother is living in the house, wants to continue living in the house & doesn't have the funds to buy me out of my half of the house. He is 76, I am 56 & we are both retired.

I have been looking into reverse mortgages as a possible solution to his problems and CHIP appears willing to help us out. I have some questions...

1) Is it true that we need to get him listed as the sole property owner since I am too young to qualify for a reverse mortgage?

2) If so, would this be a simple property transfer (currently in both our names, as executors) to him subject to him receiving a reverse mortgage and buying me out?

3) Are there any other alternative solutions out there besides selling the property?

Cheers!


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## Berubeland (Sep 6, 2009)

If you want to keep the house maybe you could hold the mortgage on the property via your RRSP.

At the age of 76 you might want to just let him live there rent free if he will will the other half of the house to you when he passes away. Yeah you don't get the cash immediately but your Karma will go up.


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## iherald (Apr 18, 2009)

Berubeland said:


> If you want to keep the house maybe you could hold the mortgage on the property via your RRSP.
> 
> At the age of 76 you might want to just let him live there rent free if he will will the other half of the house to you when he passes away. Yeah you don't get the cash immediately but your Karma will go up.


If not rent free, figure out what the payments would be on a reverse mortgage and go lower than that. But, that assumes you can afford to fund your retirement as it is, and the 100% of the house later on will be a nice bonus.


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## Four Pillars (Apr 5, 2009)

How can you guarantee the brother will keep the will as agreed? What if it is contested.

I would think about selling. If the bro can't afford that house, then he can find something else.


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## the-royal-mail (Dec 11, 2009)

Four Pillars said:


> If the bro can't afford that house, then he can find something else.


That's probably the kicker. Bro probably knows that the cash he would get from this house would give him nowhere near the same kind of dwelling he has now. He would have to downgrade and move, something not easy to do. Costly too.

I get the feeling the bro isn't too willing to negotiate here. Sounds to me like a tense situation.


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## MoneyGal (Apr 24, 2009)

I'm going to add a couple of points that I hope don't take this conversation far off the rails. 

[As a side note: I know a fair amount about reverse mortgages and don't particularly like them. However, in this case, it is your [the OP's] brother, not you, who would be the participant, so I'm not sure how much you would need to worry about the alternatives to a reverse mortgage (and CHIP is the market leader in this area).]

Here are my two thoughts: the first is that for everyone who is suggesting that the Belize brother retain his half-share of the property as a kind of "investment" that will pay off in the future: this proposition is based on the underlying assumption that the property will retain value at worst, and increase in value at best. I'm not sure I personally would be willing to take that bet, especially for a BC property, and especially over the expected duration of the investment, which I'm going to get to next. 

The other significant issue is that the duration of this investment/the expected payoff date is unknown and uncertain. 

The average life expectancy for a Canadian man, aged 76, in good health is just under 10 more years. But fully 50% of Canadian men now aged 76 are expected to be alive after that average life expectancy age has been reached!

I don't know about anybody else, but I like to deal with probabilities at the 90% or higher value. That is, unless something (money-related) has a 90% chance of success, I'm going to avoid it. (Careful. I'm not talking about "whether stock markets go up" or "whether stock markets are variable." I'm talking about "what is the point in time at which I have a 90% chance of this investment paying off?")

When you are considering a problem that includes calculating longevity and mortality, you can calculate the probability that a Canadian male aged 76 will be alive in 10, 15, 20 (etc.) years. What I wanted to find is, "what is the point at which odds are 90% or greater that I will receive the payoff from this housing 'investment'?"

Using Canadian mortality data, I see that a male aged 76 has a greater than 20% chance of living to age 91 (15 more years). OK: not good enough for me. My gamble has only an 80% chance of paying off within 15 years. I need to consider a longer time horizon. 

Using the same data, I see that a male aged 76 has only a 5.6% chance of living to age 96 (20 more years). I am comfortable with that. 

What you get from these two factors are: the proposition to keep the house and cash in later rests on an assumption that the house will at least retain value (keep up with inflation) or possibly increase in value - and the chance you'd need to wait longer than 20 years for the payoff is small (but the chance you'd wait more than 5,10,15 years is too high for my comfort level).

Now, would anyone here seriously consider an investment with those terms? Here's how it is properly framed: you can keep this asset, which may or may not retain value, and you can expect to wait for as long as 20 years to see any return. 

[Another side note: you can use those variables, plus the long-term interest rate and some assumption about what the house would be worth in 20 years, to get the PV of the expected future payout. That's what you really need to calculate in order to consider whether you should get/take the money now, versus waiting.] 

OK, lunch break over...


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## cardhu (May 26, 2009)

These CHIP-type programs strike me as an expensive way to access your equity. Also, I believe CHIP would only free up 40% of the value of the home as an up-front lump sum ... if your brother needs 50% to buy you out, does he have enough to make up the difference? 

I don’t know whether the age 60 requirement is legislated, or is simply an in-house policy at CHIP ... if its only their policy, and not law, you could try persuading them to make an exception in your case. I have no idea whether they’d be likely to bend. 

One alternative might be to secure a HELOC against the home, draw enough funds from the HELOC for your brother to buy out your share, and then transfer the ownership to him ... potential pitfalls to that approach might be ...


I don’t think a HELOC is transferable to a new owner, so its existence with a substantial debit balance might complicate the transfer of title to your brother. 
bro will have to make interest payments on the HELOC for the rest of his life ... is he willing to do that? ... alternatively, maybe some financial institution would be willing to arrange a HELOC where the monthly interest amounts simply accrue to the debit balance ... (which is exactly what a reverse mortgage does) 
a HELOC is a demand loan, and can be called at any time, for any reason ... I don’t know if the CHIP reverse mortgage is any different, but it might be, in which case the HELOC option exposes your bro to more risk of being tossed out on the street if things go awry.
I wouldn't rely on someone’s promise to put me in their will ... people can change their wills at any time, for any reason (or for no reason at all).


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## Berubeland (Sep 6, 2009)

Extrapolated from the OP's post. 

The preferred situation would be to have the half brother live in the house and the other brother have his money. 

The OP is trying to get the best of both worlds. I am not a lawyer but i am fairly certain that some kind of arrangement could be made for the full ownership of the house to revert back to the OP upon half brother's death. 

Furthermore in reply to Moneygal.... yes the half brother may live to 96 but long before that time he may have to move into a home. Further we have no idea of his current state of health. If he smokes and drinks and has a heart condition and diabetes he's already living on borrowed time. The OP has that knowledge and we do not. 

Additionally the house is almost guaranteed to increase in value even in BC even with a correction in the market. The reason are inflationary rather than speculative over a 20 year timeline. 

Additionally, although we can analyse the situation to death purely from a monetary standpoint he is family and that changes every thing. Embroiled in this whole ball of wax include lots of different factors such as the Op's own personal financial situation does he need the money? Is he close to his half brother? do the have a good relationship? What is the culture in his family about situations like this? Will his selling the house estrange the rest of his family? What does he feel like he should do? What was his mom's expectation? 

This is one of those situations where it is very hard to win.


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## andrewf (Mar 1, 2010)

How about this: OP takes on a mortgage and buys out the half-brother who lives in the home, and rents it back to him. The half-brother uses the proceeds from the sale to buy an annuity (to give him peace of mind WRT ability to cover rent). At 76, he should be able to buy an annuity with a pretty high yield. Only problem is that OP takes on the risk of owning the home. Perhaps if the two could make an arrangement with a third party investor to buy the home?

Realistically, even if he lives to 96, it is unlikely he will live in the house for that entire time.


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## MoneyGal (Apr 24, 2009)

$100K buys an annuity that pays about $750/month (I am averaging from a number of issuers) for a 76-year-old male, with a 10-year guarantee.

Just for information. 

I like these kinds of discussions...where different people bring in different points of view. 

(And Berubeland...I agree with everything you said, including the point that this is not a speculative investment. My point was intended to be not that this is speculative, but simply that adding a random and potentially long-term payoff date increases the "speculative quality" of this _when considered as an investment_. Unlike, for example, using GICs or T-bills to invest the money from the sale of the house.)


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## Cal (Jun 17, 2009)

andrewf - good idea

That is definitely worth looking into. Or some for of buying the house, and having the brother rent it in some way.


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## dagman1 (Mar 3, 2010)

Just a heads up that you should look into whether you are co-owners or tenants in common: http://en.wikipedia.org/wiki/Concurrent_estate

If it is the former, there is a right of survivorship (which means if you were the first to die, title would pass to your brother, not your estate) as well as a right to occupy the premises. It sounds like you might want to speak to a lawyer.


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## bean438 (Jul 18, 2009)

Type of tennance does not matter in BC. Nor does a will for that matter. 
BC has some pretty whacked estate laws where a long lost adult child can over ride a will. I think it is called the wills variation act. 

Seriously bro has to cough up your half or just sell and be done with it. 

I can see only headaches otherwise.


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