# A fine example of human greed



## carverman (Nov 8, 2010)

I was exploring ways to supplement my pension income as my Nortel pension plan gets wound up and they take the lump sum allotted to me, and put it into an annuity with Sun Life, who no doubt take a hefty management fee from whats left and then dole me out about a bit over 50% of what I'm getting now.

I saw these ads on TV that they are constantly running about "Wouldn't it be nice" where some old codger tells you that the CHIP home income plan frees up the equity in your home to do all the things you have been dreaming of...
for the last ten years since your first heart attack or stroke..such as..take a cruise aboard an Italian Cruise ship, feed the
penguins in the Antartic..climb Everest, and many of those things that require cash in your pocket..ripe for picking.

So I go online and fill out the form (but being careful not to give out my phone number) to find out what it's all about...they claim they will pay up UP TO 40% of what they think the value of your home is...ok.....

But first you have to pay between $300 and $400 for an assessment of your property value...then you have to pay another $300 to $500 for legal processing (reverse mortgage registering I assume)..these are out of pocket expenses..then they want another $1495 for ADMIN and so on..(76K - $2.5K = 73.5K that you actually receive from them. 

So in the end that say "$76,000" that they will give you in advance tax free money at 8.25% simple interest (per 5 year term) so that's 3 terms =180 months... before you either die or decide to sell.

At 8.57% effective interest, in 15 years it will add up to a whopping $273,599.34 in their pocket. 

So lets see..if we do that math..$273,599 minus $73,500 net that you receive from them nets them a whopping $200K profit..and they may actually leave your estate enough to bury you or for moving expenses. They also claim that
even if the property values go down while the interest piles up, they won't ask you for more than the actual value
of your home at the time..so nice of them to be so considerate of the 80 year olds. 

So you latte sipping financial gurus out there...is there anything worthwhile with this money making scheme (similar to "sell us all your old gold" ) or..is this a big scam perpretrated on the trusting seniors who don't know any better?

*BTW....those that don't read my posts BECAUSE THEY ARE TOO LONG...Don't read this one either!*


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## GreenAvenue (Dec 28, 2011)

Don't worry, I had a latte and I'm still awake. 

I'm sure a lot of people fall for these schemes and that is the sad part.


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## sisco (Oct 18, 2011)

My personal opinion on these products is that they are aimed at people who are broke and too proud/stubborn/stupid to sell their homes. I can't think of many occasions when it wouldn't be better to just sell the home and rent, then do what you wish with the freed equity.


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## Berubeland (Sep 6, 2009)

While I agree that these products are totally predatory, the people who are likely to fall for it hook line & sinker are the most likely to benefit from it. That is people who cannot manage their money. 

They will spend their "free" cash and continue living...

FYI this product will disappear in the coming crash.


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## MoneyGal (Apr 24, 2009)

I'm sitting in a US hotel room watching TV and there are all kinds of ads for financial products - they sound really weird to me as a Canadian. 

I just watched (heard, really) an ad for breaking structured settlements. "Do you have an annuity or structured settlement but you want the money now?" [Cue people loudly exclaiming, "It's my money and I want it now!"]

...and then there's viaticals. http://en.wikipedia.org/wiki/Viatical_settlement


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## carverman (Nov 8, 2010)

Berubeland said:


> They will spend their "free" cash and continue living...
> 
> FYI this product will disappear in the coming crash.


Yes, "B" it is predatory..as they see baby boomers "ripe for the picking".

FYI..it started in the states in the late 80s and after the 2009 market/real estate crash in the US..a lot of banks got out of it..because the resale of the properties at the time of seniors either passing or going into nursing homes had deteriorated so much that it was hard to sell the homes in the reality of the new market, and in many cases the homes had either depreciated or appreciated enough that they could still get their loan + interest back.

In the CHIP scheme/scam the $1500 they deduct from the money (they advance you) has some kind of insurance to protect them in case the home is worth less than the principle + interest at the time when the home is sold.

Of course, that comes out of your money, not theirs.


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## carverman (Nov 8, 2010)

MoneyGal said:


> I
> I just watched (heard, really) an ad for breaking structured settlements. "Do you have an annuity or structured settlement but you want the money now?" [Cue people loudly exclaiming, "It's my money and I want it now!"]


Those are money lending sharks that prey on people that have a monthly payment from a insurance company
( ie: settlement of an accident or perhaps perperpetual alimony payments). 
These "sharks" will take over the assignment of the structured settlement in exchange for a cash lump sum, which will amount to far less than if the person collected the payments over time. 
But then, more than likely, they spend all the money in a short time, and sacrifice their financial income in the future..then
have to go on welfare, or whatever they offer in the US for the destitute heavily in debt.


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## LondonHomes (Dec 29, 2010)

If the product was structured to be fair to the home owner then it would make a lot of sense. Lot of people ending up house poor having a lot of equity tied up in their home that they have a hard time accessing.

However, the way you describe it is certainly sounds like it is predatory. 8.5% interest on a secured loan seems to be a lot these days.

I do think that the best option would be to sell your home and move. You can invest the money and start to earn more with it, plus you probably ending saving money by not needing to worry about the maintaince and other upkeep.

Failing that I bet a secured LOC from a bank would be a cheaper source of funds.


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## carverman (Nov 8, 2010)

sisco said:


> My personal opinion on these products is that they are aimed at people who are broke and too proud/stubborn/stupid to sell their homes. I can't think of many occasions when it wouldn't be better to just sell the home and rent, then do what you wish with the freed equity.


Well you have a point there..but in my area, my home (no mortgage) is worth say $280K in todays market (according to a real estate agent I called in a month ago..to explore my options). To carry my place it costs about $550 a month (and this primarily in the winter months when gas heating costs about $200 a month for Dec/Jan/Feb. 

The rest of the year, it costs less..lets say $400. The closest senior's accomodation (apts with an elevator) is around
$1,000 a month for a 2 bedroom + $30 a month for parking spot and $30 for their supplied A/C in the summer months.

Now there is a $600 differential between selling and renting and just living and paying the property taxes and the heat/hydro. The other thing is that the seniiors apt is only a 2 bedroom with no workshop and I need a workshop.

Now if I sell for $275 and after reatly fees and closing fees end up with $259K and moving is say $1500..I will have about $256K left to put into GICs or something REALLY SAFE that I can draw on as needed.

But at $12K a year for rent...the remaining balance will give me 21 years of renting..provided the rents don't rise (and they do) from lease to lease. 

(21 years at my age (66) puts me in the 87 year catagory, and somehow, I don't think I'll be around then..so maybe it's still my best option to sell and rent..but then I don't have a nice back yard to sit in.


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## MoneyGal (Apr 24, 2009)

LondonHomes said:


> Failing that I bet a secured LOC from a bank would be a cheaper source of funds.


This product is for people who can't get a secured line, because their income is too low relative to their needs. Plus there are no payments on these products, unlike a conventional loan or LOC. 

I always think of Garth Turner's comment about these products that they are "great for people that hate their kids."


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## carverman (Nov 8, 2010)

LondonHomes said:


> I
> 
> Failing that I bet a secured LOC from a bank would be a cheaper source of funds.


I thought about that too..but there is a good chance with my Nortel pension being reduced even more as an annuity by the end of this year, that the monthly pension payment may drop from $1342 (net) to $700 (net) approximately.

At that rate, I won't have enough income to live and pay back the equity loan as I can no longer work to supplement my income. I am disabled with a serious mobility problem (almost in a wheelchair but still managing).


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## carverman (Nov 8, 2010)

Here's another one of the reverse mortgage schemes..seems less predatory
than CHIP.. any thoughts on this one?

Note: at my age (66 going on 67 this year) I can only qualify for 22% of the appraised value.
(Say $250K is the appraised value from current market value of $280K)..22% = 55K

http://www.seniorsmoney.ca/what_is_a_seniors_money_loan/your_opportunity.php


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## RoR (Jan 18, 2012)

MoneyGal said:


> I always think of Garth Turner's comment about these products that they are "great for people that hate their kids."


LMAO! Oh that's funny.


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## RoR (Jan 18, 2012)

Honest question, what's happening with your Nortel pension? Are you weighing out monthly payment vs lump sum into an annuity right now?


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## carverman (Nov 8, 2010)

RoR said:


> Honest question, what's happening with your Nortel pension? Are you weighing out monthly payment vs lump sum into an annuity right now?


Nortel pension is now 40% underfunded..still in the process of being wound up..
I will get an actuarized lump sum (DB pension) that can only be one of two
options : a LIF or a annuity..both adminstered by a life insurance company
like Sun Life or Manual Life. There are NO other options available or offered for me with the Nortel
DB pension plan windup that is going to happen between now and Dec 31st.


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## sisco (Oct 18, 2011)

carverman said:


> <snip>
> 
> But at $12K a year for rent...the remaining balance will give me 21 years of renting..provided the rents don't rise (and they do) from lease to lease.
> 
> (21 years at my age (66) puts me in the 87 year catagory, and somehow, I don't think I'll be around then..so maybe it's still my best option to sell and rent..but then I don't have a nice back yard to sit in.


Is that 21 years assuming no return on investment? Even with something extremely safe, like a GIC ladder, a very modest 2% return would gross ~5000 per year. One would also assume that interest rates will rise in the coming years. In addition, your calculation assumes that your current home won't cost you anything in repairs (new roof, paint, etc) over the next 21 years.

Of course no one can tell you to sell your house, but in the end, like most things, it comes down to working out how much your workshop and backyard are worth to you...for some (perhaps you are one), it is priceless, but for others, the costs aren't worth the benefit.

To each their own!


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## RoR (Jan 18, 2012)

If you take the LIF can you not unlock 50% of it and move it? I get that it initially has to go to Sunlife or Manulife, but can you mot move it from there? 

Had no idea Nortel pension stuff was still ongoing. Know someone who "retired" from there when the **** hit the fan.


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## RoR (Jan 18, 2012)

You're only 66. I'd keep the yard and the shop for a few more years. You might change your mind in your 70's. Many places have nice yards for residents to use, and even better, you just get to enjoy it, you don't have to do the gardening/mowing/weeding.


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## MoneyGal (Apr 24, 2009)

RoR said:


> If you take the LIF can you not unlock 50% of it and move it?


Depends on a couple of things, mostly the size of the fund. Otherwise the ITA specifies minimum and maximum yearly withdrawals based on the annuitant's age.


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## carverman (Nov 8, 2010)

RoR said:


> If you take the LIF can you not unlock 50% of it and move it? I get that it initially has to go to Sunlife or Manulife,* but can you mot move it from there*?
> 
> Had no idea Nortel pension stuff was still ongoing. Know someone who "retired" from there when the **** hit the fan.


I'll investigate that option, if it's available to me..I don't know all the
rules on a DB plan though. 
Yes, the Nortel pension windup is still ongoing..it's really messy with all the
lawsuits. The oensioners have their own legal team working for them and
the DB pension is with a trustee for the time being. It may take a year or
even more to finally wind it up..but they have to as more an more former
vested employees reach the pension age and start drawing from it.
It's not sustainable now..and it won't be for long with more drawing their
appropriate pensions from it.


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## carverman (Nov 8, 2010)

RoR said:


> You're only 66. I'd keep the yard and the shop for a few more years. You might change your mind in your 70's. Many places have nice yards for residents to use, and* even better, you just get to enjoy it, you don't have to do the gardening/mowing/weeding.*


I haven't been able to do that for about 3 years now...my neighbour does it for me..and snowblowing/shovelling the sidewalk. I love my back yard with the birdfeeder and nice shady maple. I can sit there and read a book or carve in the summer in complete privacy as there is a cedar hedge all the way around. 

Being a woodworker/carver in my retirement years..I just can't see myself in an apt in a wheelchair waiting to die. 
I want to stay busy with my hands at least, until it's time to go. 

So assuming there will be a drop in my income in the next few months (I already lost $576 monthly net in 2009 when my TRA dried up and last year they cut the pension by 30%.about $600) so I'm still managing so far, but with the anticipated
reduction(assuming no relief from the lawsuit on Nortel's liquidated assets), I have to be prepared to survive on what's left..and GIS isn't going to be a lot of help when living on my own..the cutoff is 15K and at that point they
only pay about a $1 a month!


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## Four Pillars (Apr 5, 2009)

carverman said:


> I'll investigate that option, if it's available to me..I don't know all the
> rules on a DB plan though.
> Yes, the Nortel pension windup is still ongoing..it's really messy with all the
> lawsuits. The oensioners have their own legal team working for them and
> ...


Here are the rules for unlocking part of a locked-in retirement account in Ontario - I'm not sure if Nortel is Ontario or Fed regulated. Even if it's Federal, the unlocking provisions are similar.

http://www.moneysmartsblog.com/how-to-unlock-an-ontario-locked-in-retirement-account-lira-lrif/


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## marina628 (Dec 14, 2010)

If things are a bit tight and given Secured credit lines are so low wouldn't it make sense for you to bite bullet and get a credit line with fixed rate you can draw from?I just got a 2.99% which I hear is no longer available but I think the new rate is 3.40% for 4 years.


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## carverman (Nov 8, 2010)

marina628 said:


> If things are a bit tight and given Secured credit lines are so low wouldn't it make sense for you to bite bullet and get a credit line with fixed rate you can draw from?I just got a 2.99% which I hear is no longer available but I think the new rate is 3.40% for 4 years.


I already have an unsecured credit line for $5K that I use to temporarily
pay for things until I can use my unused pension to make big lump payments
besides my cc. The last thing I want is an secured credit line which will cost
me to secure and then I still have to make monthly payments...my unsecured
is closer to 5% (prime + 2%). I doubt that I could get it at 2.99% .

My virtual bank, PC Financial are advertising Prime + 1% for a secured LOC..that's 4%+ compounded = 4.07% effective interest rate right now..but it could go up in future years. If I actually borrowed (over 15 years) so much a month..lets say $300 to make it even worth while..that $20K LOC would only last a bit over 11 years..and I would have to turn around and take some money out of that $300 to make the minimum monthly payment of $147.94, leaving me only about $150.00 to get by.

It's basically robbing Peter to pay Paul with this kind of scenario. The bank would make $36,407 off me in 15 years
time off their $20K LOC..so who would benefit the most from that sort of deal?


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## Beaver101 (Nov 14, 2011)

Just throwing an idea out ...how about taking in a tenant? Presumed you've either applied or considered applying for OAS,apart from CPP. It not, why not? Would want to do it before Harper bulldozes his way into raising the age requirement.


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## carverman (Nov 8, 2010)

Beaver101 said:


> Just throwing an idea out ...how about taking in a tenant? Presumed you've either applied or considered applying for OAS,apart from CPP. It not, why not? Would want to do it before Harper bulldozes his way into raising the age requirement.


I am receiving OAS. I have considered a tenant, but the problem is that 2 bedrooms (one being my computer/guitar room) is upstairs and I have two cats now that spend time at night in each room. A third bedroom +family room/rec room is
downstairs in the basement which is partially below ground but has large windows just at ground level.
My cats are non-paying tenants I suppose, but at the same time I have no mouse problems too..so it all comes out in the wash as they say. 

There are two major issues from taking on a tenant (other than a family member and that's not going to happen).
1. The heating system is not balanced for a house that has a family/rec room down stairs in the lower level (this is not a basement but a lower level of a side split and the rooms/carpeted floor are NOT well insulated, so the partial basement winds up at least 6 degrees cooler than upstairs..so if I run the furnace with my thermostat (setup in the basement) at 62F..it's 74F upstairs.
If the tenant wants more heat because they are too cold downstairs, then I would have to set the downstairs thermo at 68 which would make the upstairs unbearable for me at 75! Never mind the additional gas heating costs which range around
$200 a month for me now. 

The other problem is the plumbing (two piece downstairs) is not set up for a tenant..and I don't want them coming up to use my washroom upstairs which is now set up as para-disabled.

To modify the semi-basement area (which has large picture windows) would take *several thousand $$* to insulate the floor/walls, install better heat retaining windows, as well as energy consuming baseboard heaters to supplement the
furnace ducting, which is inadequate...but perhaps with better insulation it would be. 

Then there is the kitchen/cooking issue. To convert the downstairs area to a student apt, would require a shower stall, some sort of sink, microwave and a fridge and that is going to require more modifications to the plumbing and electrical. 

Then, what could I realistically charge? $500 for a room downstairs. more electricity consumed = higher electric bills, and the tenants car would be behind mine. I would have to ask the tenant to move their vehicle if I wanted to get out..winter would be a real problem with the ice and snow we get in Ottawa. 

Just more cons than pros in my case.


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## Spidey (May 11, 2009)

A LOC or HELOC can be a fairly good and cheaper alternative to a reverse-mortgage. My mother was looking for extra income to cover some home-maintenance issues and my aunts and uncles were all trying to persuade her to get a reverse-mortgage. After exploring the issue with her and her bank manager we decided that the HELOC route made more sense. She needed about $20,000 for the home maintenance but secured a $65,000 HELOC @3.7%. She pays interest only and the principal will eventually come from her estate. She can probably cover the HELOC interest from pension income but if she needs to, she can cover it or any unforeseen expenses from further HELOC withdrawals. Much cheaper and less complicated than a reverse-mortgage but accomplishes the same purpose.


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## carverman (Nov 8, 2010)

Spidey said:


> A LOC or HELOC can be a fairly good and cheaper alternative to a reverse-mortgage. My mother was looking for extra income to cover some home-maintenance issues and my aunts and uncles were all trying to persuade her to get a reverse-mortgage. After exploring the issue with her and her bank manager we decided that the HELOC route made more sense. She needed about $20,000 for the home maintenance but secured a $65,000 HELOC @3.7%. She pays interest only and the principal will eventually come from her estate. She can probably cover the HELOC interest from pension income but if she needs to, she can cover it or any unforeseen expenses from further HELOC withdrawals. Much cheaper and less complicated than a reverse-mortgage but accomplishes the same purpose.


Ok, thanks..I will look into the HELOC. This seems like a more informed sensible approach
rather than falling prey to the "wouldn't it be nice..if we took your house" shysters!
Which bank was it?


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## sisco (Oct 18, 2011)

I'm no HELOC expert, but I THINK that most major banks offer them...probably best to start with whichever bank you are most involved with already. That said, perhaps someone else who's "in the know" will have more info re. which banks offer the best rates, etc.


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## RoR (Jan 18, 2012)

The thought of a tenant in a shared space makes me cringe.


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## carverman (Nov 8, 2010)

RoR said:


> The thought of a tenant in a shared space makes me cringe.


Yup. There are all sorts of underlying problems that one doesn't consider
if you have to share the same space with a tenant. Besides the things
I already mentioned they would bring over friends into my house, (and how
can I prevent tha)t, to go through all my stuff when I'm away from the house.
I like my privacy and choosing when my friends come over..not someone ringing the
doorbell at 1 am. 
Sharing a kitchen, bathroom or even living space..with a stranger is not workable
long term because you just don't know how that person will turn out.


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## carverman (Nov 8, 2010)

*Ripping off the seniors...everyones on the bandwagon!*

I installed an Acorn stairlift in my home because I'm having a lot of difficulty with stairs these days. I had a used stairlift installed about a year ago for $1200 but it turned out to be unreliable and there was no warranty..so everytime the
service guy came over..$140..thank you and all he did was tighten this and that.

I got fed up and called Acorn stairlifts and threw out the used one. 
They installed it for $3900 and it's been fine.

Now I just got a letter from them offering a service contract for $1195 for 4 years. Right..like I've got money growing on trees in my back yard.

I can't believe the ripoffs going on these days targetting seniors....from insurance schemes to warranties. How about a warranty on me.."Mr Maker"? I didn't come with an extended warranty. The drug pushers (doctors) don't do anything for me but bill OHIP and try to push more drugs on me..useless medicine!

<end of rant>


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## hboy43 (May 10, 2009)

Hi:

I think a HELOC has issues too: What if interst rates soar? Or what if the bank demands payment?

Have you considered selling Ottawa house at $280K and buying equivalent house in a cheaper market? Belleville maybe?

Sounds like you have some hard decisions to make.

hboy43


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## Spidey (May 11, 2009)

carverman said:


> Ok, thanks..I will look into the HELOC. This seems like a more informed sensible approach
> rather than falling prey to the "wouldn't it be nice..if we took your house" shysters!
> Which bank was it?


My mom is with Alterna but it can be set up at any bank. I have a HELOC for investment purposes at a slightly better rate with TD. An interest-only HELOC can be a way to create your own reverse-mortgage without dealing with vultures. I'm surprised that I've never seen this approach mentioned in financial literature.


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## carverman (Nov 8, 2010)

hboy43 said:


> Hi:
> 
> I think a HELOC has issues too: What if interst rates soar? Or what if the bank demands payment?
> 
> ...


Yes, you are right about the interest rates going up at some point once the economy recovers from this slump. 
I didn't realize that with a HELOC the bank can demand payment or foreclose and kick you out, if you
cant pay...going back to my original topic..human greed..and the banks are in on it. 

Belleville is a little cheaper but not that cheap. I just haven't thought of moving that far, as I'm basically disabled and depend on para-transpo which is cheap (2 bus tickets per ride) but a pain to get these days, as everyone is taking advantage of cheap transportation to get around to shopping, bingos, casinos..etc. 

Of course,that is subsidized by the Ottawa taxpayer, because when I look at the taxi meter on the para-vans..it's
definitely a shock to see the real cost.


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## Beaver101 (Nov 14, 2011)

carverman said:


> .... Being a woodworker/carver in my retirement years.....


. Throwing out another idea ... how about starting an online business of selling your art carvings?


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