Reverse Mortgages- whats the catch?

t’s a tempting proposition: after years of writing cheques to the bank to pay off your mortgage, the bank will write a nice big cheque for you. That’s the allure of reverse mortgages, which allow anybody 60 or older to borrow money against the value already built up in their home. With the number of 60-year-olds in Canada expected to double in the next 25 years, demand for the product is expected to grow. Seeing that as an opportunity, a new provider of reverse mortgages has arrived in Canada, providing some competition to the Vancouver-based Canadian Home Income Plan, which has become almost synonymous with the product over the past 20 years.

Seniors Money Ltd., based in Mississauga, Ont., started selling reverse mortgages in Ontario in 2007. By this past February, it had expanded into every other province except for Quebec, a market it expects to enter later this year or in early 2009. There are differences between the two competing reverse mortgage products, but the basics are the same. They allow a person or a couple to convert up to 45 per cent of a home’s equity into cash, providing extra money that can come in handy during the retirement years when there’s an absence of a regular income stream.

A homeowner will usually get a lump sum upon opening an account and will make no interest payments, although the products are offering options now to receive the funds in regular instalments and make some payments along the way. Home equity gradually decreases as the debt load goes up, but the products are designed to leave a homeowner with at least 50 per cent equity at the end of a reverse mortgage, and promise total charges will never be more than the value of the home. Reverse mortgages get repaid when a homeowner dies, the house is sold, or a pre-determined term ends, often set at 10 or 15 years.

Reverse mortgages are still a niche market; CHIP currently has 6,600 of them outstanding in Canada worth over $700 million. But they appear to be catching on with seniors, who are estimated by Statistics Canada to have 77 per cent of their net worth in their home equity. According to Greg Bandler, senior vice-president of sales and marketing for CHIP, the company’s business is now growing by over 20 per cent a year.

Financial experts warn there are drawbacks. Reverse mortgages, for instance, charge interest rates that are usually two to three percentage points higher than a simpler home equity line of credit, which some financial planners suggest as a better alternative. Seniors Money offers a variable rate calculated as the bank prime rate plus 1.25 per cent, while CHIP’s rate is prime rate plus 2.0 per cent. But Seniors Canada’s interest compounds monthly, while CHIP’s compounds semi-annually. Some customers also are eligible for discounts under the CHIP plan.

“This is a product for people who either can’t make any payments or don’t want to make any payments, and they are typically looking to free up cash flow,” says Nick DiRenzo, president and CEO of Seniors Money Canada. Reverse mortgages help seniors to “squeeze a living out of their home, so they don’t just have to sit there on the old nest egg like their grandparents did,” adds PJ Wade, strategist and Toronto author of the reverse mortgage primer Have Your Home and Money Too.

The best candidate for a reverse mortgage is somebody who wants to stay in their existing home for the long haul, but has no major funds or employment income to draw on and doesn’t have other options to raise cash, such as taking in a border or reorganizing their finances, says Wade.
If a homeowner can be just as happy downsizing and moving somewhere else, then the reverse mortgage is not the right route, she says.

“There are a lot of situations where there may be better options,” agrees Philip Shead, a Certified Financial Planner with Investors Group in Winnipeg. A line of credit, for instance, where a person pays off the monthly interest charges right away, may be a better fit in many circumstances. He cautions that a person doesn’t typically make any payments towards a reverse mortgage, so what is owed can accumulate to a large portion of the home’s value.

Wade suggests that financial planners may be hesitant to recommend reverse mortgages because many aren’t familiar with them, and aren’t interested in supporting a product that puts a client back into debt. “Many of them are in the saving or investing business, not in the spending business. They are not comfortable advising a client to spend an asset,” says Wade. Bandler agrees that taking out a line of credit may make sense when a person can pay off the debt and interest charges. But that usually means he or she still must be earning income. By contrast, no payments are required during the life of the reverse mortgage loan.

“Working in association with a financial planner, you can see the application for a reverse mortgage in many, many ways,” Bandler contends. “Whether as an estate planning tool, a wealth management tool, or used in any number of instances to fit into a broader financial plan, a reverse mortgage makes a tremendous amount of sense.”

Here’s an example of how the product works, based on calculations provided by Krzycki of CHIP:
If a couple, both 72, has a $220,000 home in Manitoba, they would be eligible for a loan of about $76,000. At the end of 15 years, they would owe about $230,978 in principal and interest, assuming an interest rate of 8.25 per cent. Supposing the home appreciates by 5.6 per cent annually (the national 20-year average), it would be worth $498,174, leaving $267,197 in equity.

© (c) CanWest MediaWorks Publications Inc.

Future rate hikes by the Bank of Canada

Here is the latest news on what to expect on future rate hikes by the Bank of Canada.

The Bank of Canada kept its benchmark lending rate at an historic low Tuesday, but removed a so-called conditional commitment to stay on hold through the middle of the year, signaling that it could raise interest rates as early as its next policy decision June 1.

In the statement accompanying Tuesday’s decision, Governor Mark Carney and his rate-setting panel said they expect the economy to return to full capacity in the second quarter of next year, rather than the third as previously forecast.

That shows the central bank believes that slack created by the country’s first recession since the early 1990s, and the sharpest global downturn since the Great Depression, is being absorbed more quickly than policy makers had predicted.

At the height of the global crisis in April, 2009, the central bank cut the benchmark overnight rate to the lowest it could go, 0.25 per cent, and pledged to keep it there until at least the middle of this year, depending on inflation. The removal of that pledge increased investor bets that the first rate hike will be on June 1, rather than July 20 or later, and sent the currency shooting through parity with the U.S. dollar because it now seems certain the Bank of Canada will act long before the U.S. Federal Reserve.

``A June rate hike is now likely,’’ said Doug Porter, deputy deputy chief economist at the Bank of Montreal. ``This statement marks a dramatic change in tone by the Bank, and doesn’t rule out possible 50-basis-point moves.’’

Tuesday, Mr. Carney said that his “extraordinary guidance” has achieved its purpose, as the reliably low cost of money has spurred more borrowing and spending than expected since late last year.

“This unconventional policy provided considerable additional stimulus during the period of very weak economic conditions,” the central bank said. “With recent improvements in the economic outlook, the need for such extraordinary policy is now passing, and it is appropriate to begin to lessen the degree of monetary stimulus.”

The statement said that core inflation, the bank’s preferred gauge that has been ``somewhat firmer than projected in January,’’ will ``ease slightly’’ in the current three-month period while staying close to the bank’s 2-per-cent target until the end of 2012. The total inflation rate will be ``slightly higher’’ than 2 per cent over the next year and return to the target level in the second half of 2011, the bank said.

Central bankers also tweaked their growth projections for the economy, reflecting a wave of stronger-than-expected data in recent months both in Canada and abroad and a white-hot housing market that point to a ``more front-loaded’’ expansion.

Real Estate Channel now with Chinese language portal

Real Estate Channel Update

Real Estate Channel now with Chinese language portal!

Thu 15 Apr, 2010

VANCOUVER, BC March 14th, 2010. Real Estate Channel is pleased to announce a powerful new feature designed to help our clients leverage maximum exposure for their propert ies in foreign markets. Available immediately all Real Estate Channel listings are automatically translated into Chinese and posted to our exclusive web portal www.beimeifangwu.com based in Hong Kong. Translated to English Bei Mei Fang Wu means quite simply "North American Housing" and though in its infancy has already proven to be immensely popular. Available now and publishing new listings by the minute, BeiMeiFangWu is designed to specifically target domestic mainland China residents looking for real estate opportunities in Canada and North America. This exciting free service represents a tremendous value add-on for our Real Estate Channel clients who can now be sure that their properties will be placed in front of an enormous foreign audience looking to invest in Canadian and North American Real Estate. The best part about this new translation service is that it requires absolutely no input from our clients. This service is automatic and functions in the same way as our automatic social network postings such as Twitter, Craigslist and Kijiji. BeiMeiFangWu features simplified versions of our Real Estate Channel listings including text description and pictures; however, Real Estate Channel clients also now have the option to have their videos and voiceovers recorded into Chinese for a small cost which are then incorporated into our Real Estate Channel website along side traditional English speaking listings. The Real Estate Channel is now deep in the works to secure similar distribution platforms for French, Spanish and Korean audiences. Stay tuned for updates as the Real Estate Channel continues to pus h the boundaries and generate more leads for your properties. Pacific Real Estate Media Ltd. on December 1st, 2006 - launched The Real Estate Channel (www.realestatechannel.ca), with the mission to be the Number One Multimedia portal for researching, buying or selling residential real estate in Canada. The Real Estate Channel made television advertising an affordable reality for local and national businesses. Products and services can be advertised on TV and web portal at affordable rates.

Closing Costs

When you purchase a home, there are various fees in addition to your mortgage that you’re responsible for. An unexpected bill's the last thing you want when you go to pick up your keys. Closing costs will vary depending on individual circumstances but here’s a brief summary:

-Title Insurance - Assures title to the property. Costs usually range from $200 to $400.
-Legal Fees - Vary depending on the complexity of your situation but could cost up to $1,000.
-Mortgage Insurance & Appraisal - Prepare yourself by speaking with your lender so you’re aware of all the upfront costs associated with your mortgage.
-Taxes/Fees - Depending on your situation, there could be various land transfer fees and taxes to pay that could range from hundreds to thousands of dollars.

There are also some expenses that you'll want to keep in mind after you receive your keys (often referred to as post closing costs) which could include:

-Moving Costs - Factor in the costs of a moving and/or packing company. If you decide to move yourself, don’t forget the cost of the rental truck.
-Connection Fees - You may have to pay for hook ups at your new place which could include electricity, gas, cable TV, telephone, Internet, etc.
-Renovations and Repairs - It’s a good idea to set some money aside for potential repairs that may arise. Home ownership is all about expecting the unexpected!
-Miscellaneous - Costs could include such things as having the locks changed, decorating, window coverings, appliances, etc.

This summary is by no means all inclusive as closing costs vary from situation to situation but they usually represent somewhere between 2 - 4% of the purchase price. It's best to discuss your circumstances with a local real estate expert for a more accurate estimate. Buying a home can be an emotional roller coaster but you'll enjoy a smoother, less stressful ride if you're aware of what lies ahead.

Buyer's Market Continues in Fraser Valley

News Release: April 6, 2010

BUYER’S MARKET CONTINUES IN FRASER VALLEY

(Surrey, BC) – With plenty of selection and relatively modest price increases, buyers are enjoying a healthy spring market in the Fraser Valley. The Board’s Multiple Listing Service® (MLS®) recorded 1,565 sales in March, an increase of 30 per cent over February’s sales and an increase of 56 per cent over the 1,006 sales processed March of last year.

Deanna Horn, president of the Board says, “March sales volumes can fluctuate as much as the weather, and this year’s reached the mid-point between the highs and lows seen over the last decade.

“However, available listings were near the peak, meaning buyers had lots to choose from and were clearly taking advantage of great buying opportunities.”

There were 3,395 new listings entered onto the MLS® in March, slightly higher than in March 2009, when 3,028 new listings were added. Altogether, there were 9,828 active listings on the MLS® at the end of March, on par with the 9,832 active listings one year ago.

The ratio of sales compared to active listings, which indicates the type of market, reached 16 per cent in March, representing a buyer’s market. This is up from last year’s 10 per cent but a far cry from the 25 per cent ratio in March 2007, when the Fraser Valley was in a seller’s market.

“Prices are closing in on the record highs we last saw in spring 2008, so it’s no surprise to see the increase in listings as sellers position themselves to move up or downsize into a smaller residence using their home equity for their purchase.”

In March, the benchmark price for Fraser Valley detached homes was $514,787, an increase of 11.9 per cent from the March 2009 price of $459,841.

The benchmark price of Fraser Valley townhouses in March was $326,307, a 10.3 per cent increase compared to $295,809 in March 2009. The benchmark price of apartments increased by 8.6 per cent year-over-year going from $227,188 in March 2009 to $246,673 in March 2010.

Information and photos of all Fraser Valley Real Estate Board listings can be found on the national, public web site www.REALTOR.ca. Further market statistics can be found on the Board’s web page at www.fvreb.bc.ca. The Fraser Valley Real Estate Board is an association of 2,990 real estate professionals who live and work in the communities of North Delta, Surrey, White Rock, Langley, Abbotsford, and Mission.