Mortgage 101 – Living Better in Retirement

Dan Ahlstrand and Clinton Wilkins discuss reverse mortgages with special guest Trevor, highlighting common misconceptions and the benefits for seniors.

Dan Ahlstrand
You’re listening to Mortgage 101. I’m Dan Ahlstrand. He’s Clinton Wilkins, and we have a special guest in the studio with us today, and we’re talking about reverse mortgages. Clinton, this is something that I know a lot of people have a lot of questions about, because, as we said off the top of the show, we see the literature out there, we see the commercials out there, and a lot of people maybe don’t know as much as they think they know when it comes to reverse mortgages.

Clinton Wilkins
I think that’s 100% the case. I think there’s I think there’s stigma, I think there’s uncertainty. And, I think we’re here just to break down some of the barriers. I can tell you, we do business with Trevor and his company. I think it’s great for a lot of people. It’s not for everyone, just like not every product is for everyone, but it’s right for a lot of people. And, we had to cut Trevor off, but I want to kind of throw a question to you, and we’ll go from there. I know when you think about a reverse mortgage, the older you are, the more money you can get as a percentage of your home value. So, can you give us a little rundown on how that works and how that’s calculated?

Trevor Gordon
Yeah, absolutely. So there are really three factors, two main ones. One is age. The older you are, the more money that we can give you, and the reason behind that is because it’s less time in the property. So from a risk standpoint. ,e can’t give a 55-year-old the amount that we would give an 85-year-old.

Clinton Wilkins
Well, obviously, that makes sense.

Trevor Gordon
But location is also a big factor. So we can lend more in Halifax/Dartmouth than we could in, say, Digby. And again, that is just risk and marketability on that end. Also, we have 40 years of data that we use to determine a proper loan-to-value. So our goal really is that when the client does eventually sell, they still have a lot of equity left that they can use now for their next chapter, whether that be moving into an apartment, downsizing, whatever it is. That is our goal. We don’t like it when we start getting, not that it ever, ever happens, but you need to be careful, because you could be underwater.

Clinton Wilkins
But is there some type of guarantee that you guys offer that if the mortgage amount increases, kind of beyond what that valuation is? I just can’t see it happening. As the mortgage goes up, the property values usually go up as well. Maybe in Ontario, there might be some folks who might be suffering from some of this.

Trevor Gordon
Ontario and BC could be right now, we do have a no negative equity guarantee. And what we mean by that is, if you ever owed more, we will not go after the estate for that. It’s whatever, if it sells for a fair market value. So let’s say it sells for 500 and they owe 550, well, that 50,000 difference is on us.

Clinton Wilkins
Well, that’s it. That’s a gift from the whole equity bank.

Trevor Gordon
Yes, and we’re actually the only bank that has that type of policy because, and I don’t know if you’ve seen it, Clinton, but I’ve seen it in my day a few times where somebody was looking to purchase a home, everything’s great on the purchase, but the vendor, two days before closing, finds out that they’re underwater.

Clinton Wilkins
We’ve been seeing that maybe a little bit more, maybe not lately. But I used to see that a lot back in the day, because property values were not increasing as much. People owed a lot of money, etc, especially, etc, especially that we were doing 100% financing. We were involved in some short sales, obviously, maybe not so much today, but it’s very interesting. I like this idea of maybe, maybe I’ll call it no recourse, like they’re not coming after any of this negative equity, which is great, and I think that probably gives seniors that solace to say, Hey, I’m not going to put an additional burden on my estate. And my estate may have all kinds of cash, but if they’re tying up the home, that’s one thing for sure.

Trevor Gordon
Yeah, for sure. And that’s what I love about the company that I work for. We eat, sleep and drink this.

Clinton Wilkins
And you’re, and you’re so patient. Like, let me tell you, I don’t sometimes get frustrated with my father, but sometimes I think about maybe getting frustrated with them, but you’re just so patient. And I don’t know, it takes a special person to be able to deal, obviously, with seniors as we go through the training to, obviously, make sure that we’re protecting them, from a,, regulatory standpoint, but as you can imagine, we all have parents, we all have grandparents. Sometimes they are challenging to deal with.

Trevor Gordon
And in all honesty, Clinton, you and I have known each other for over 20 years, and I was with de. Lending institutions. I will be celebrating nine years this year with home equity bank, but I have to be honest, it took me probably two years before I really, truly understood what it was like to be an average retiree living in Canada, right, and to really understand it and to be able to show empathy to our clients and everything else, and that’s what’s great about us. So, if there is a situation where a child is selling the home for the parents who just passed away, we understand, and we know, because we deal with it every time, exactly.

Clinton Wilkins
I’m not dealing with seniors every day. I deal with them, probably, yeah, every month, but not every day. So I think what it takes is some special patience sometimes, to be able to do that for sure.

Dan Ahlstrand
So people are listening out there right now, and maybe they think that this might be something for them. I guess the probably the very first question that you get when you sit down with an elderly couple or an older couple or an older client, is, how much money can I get out of this, this mortgage? How does the percentage work?

Trevor Gordon
Well, as I said, it’s really based on lend to it is, yeah, and that’s a that’s a that’s actually an offshore rule. Okay, so there’s no breaking the 55-year-old. So that would be the minimum. And again, there’s no maximum age. If I’m thinking, I think the oldest client I ever did was 94 from there. But I do know we have some clients that are 100 that are with us on the books, and

Clinton Wilkins
And women get more than men, correct? I guess men don’t live as long, correct?

Trevor Gordon
Yes, and so a single or widowed male will get more money than a single woman; it’s not a huge difference. Yes, a male will qualify for a little bit more because in our calculator, there’s a lot of actuary data in that as well.

Clinton Wilkins
So as much as we’re almost being the opposite of ageist, right? The quicker you will not be living, the more money you’re going to get, essentially, yeah? I mean, that’s a very that’s an interesting way to think about it, because we almost think about things a lot in the opposite way, normally, okay, we want people to live longer, be older or be younger, et cetera, et cetera. But this is like with you guys. You want them to be older. You want them to have, being a male, they’re not going to live as long as females. So that’s interesting.

Dan Ahlstrand
Is there a cap? Is there a percentage of the amount of of the value of the home that you’re able to lend to people?

Trevor Gordon
Yeah. So from our end, depending on the situation, we can sometimes go 55, 56 or 57% of the property value. Now that would be our max. Now, if you’re in a situation where you need a little bit more, we do allow seconds to go in behind us, depending on the situation, which we’ve done, which, yep, which, which we’ve done, for sure, but the absolute max on that would be 65%.

Clinton Wilkins
So between the first and the second. Okay, that makes sense. Ideally, we don’t want to have clients who have second mortgages. That’s not the ideal situation. But sometimes, some of these files that we’re doing, Dan, people are in sometimes challenging situations. Sometimes there’s either credit issues, or maybe there’s been a health issue. We really want to try to keep these borrowers in their homes, like that’s really the number one kind of outlook that I’m thinking about. And, the second mortgage lenders will go up to that 65,% depending on the amount Chip will give them in first.

Trevor Gordon
Yeah. So, luckily, we don’t have to do that a lot, but when we do get those situations, it is an option for the client.

Dan Ahlstrand
Did you mention annuity earlier? This? Does it come as an annuity? Can it come as a lump sum? And when you get that mortgage, does that money from your mortgage, and I think you may have already addressed this, is that taxable income?

Trevor Gordon
Yeah, so number one, it’s not taxed. It’s equity from your primary residence. So it’s 100% tax free. As far as how the client takes the money, there are several different options. They can get a monthly annuity, or they can get a lump sum. They can get a big lump sum and then get a monthly annuity. They can get a big lump sum and then, if there’s more money available, get access to it in the future. Very similar to a HELOC.

Clinton Wilkins
Either or both is basically what I’m hearing.

Trevor Gordon
Yes.

Clinton Wilkins
I love it. I really feel like this is something that we need to talk more and more about. I think breaking down some of these barriers is really important. There are a lot of these inquiries. I know, obviously, they’re coming from our channel, the broker channel, back in the day. I think some of them are even coming from bank branches. And I think that’s probably kind of gone away a little bit. I would love to talk to our listeners, and actually our clients,s to talk to their parents, and I think that’s a tough conversation. So, Trevor, what advice would you give? , someone who’s 40, 5060, years old, that has to talk to their aging parents about their finances? Do you have any advice around that?

Trevor Gordon
That’s a great question. Clinton, and I’m going to give an example of a deal that I did a few years ago with a broker here, here in the city, and it was actually her assistant’s parents, and,, they were, speaking to her about maybe redoing their current mortgage they have and everything else, and they decided that the reverse mortgage was the best product for them based on their, current situation. And I remember the assistant of the broker said to me, after it went, she said I had because, again, her parents only made OAS and CPP, right? And she said to me, I had no clue. My parents made so little money. She said I had no clue. So the best advice is to sit down with your parents. What is your situation? For those that are, want to talk to their parents about that and say, Well, let’s get you into maybe something better that’s going to be beneficial to you now and again, if we have a, 70 something, single or married couple, it really doesn’t matter, and they have a $300,000 mortgage, well, that’s not going to get paid off in their lifetime. So why not switch it into something that’s going to benefit you now?

Clinton Wilkins
And I think it really all comes down to the quality of life. And, I think that’s something that we don’t talk about enough. We don’t talk about that cash flow. We don’t talk about our income. And I would say seniors, that’s something that they were probably brought up with. They were never talking about their credit, income or assets. Yeah, I talk about this every single day. We talk about it on the radio every day, and we’ve obviously taken calls, live from our listeners and stuff like that, but it’s like one of these barriers that, I think, it’s tough to break down. Oh, it is. People are quick to talk about their health.

Clinton Wilkins
But they’re not quick to talk about their finances.

Trevor Gordon
Not at all.

Clinton Wilkins
Well, they’ll call Dan. They’ll call Dan about their health. Dan, do you ever get any calls about financial stuff? Because we talk about so much.

Dan Ahlstrand
The only time we do is when we do our financial literacy month, which we do at the end of the year. Very quickly, we’re almost out of time on the segment here. Estate planning is something that a lot of people are doing these days. Obviously, this would have to fit into that conversation. If, when somebody’s planning for their state, what they’re gonna leave for their children, so the kids know that this is going on.

Trevor Gordon
I mean, we would encourage everybody to let their children know, or whoever is executor of the will, to know, hey, just to let, I have this mortgage, and this is going to come up. But a lot of times it’s found out because the person passes the lawyer doing the will in the estate, then does a title search and sees that they have a mortgage with Home Equity Bank.

Clinton Wilkins
And then they know where to go.

Trevor Gordon
Yes.

Clinton Wilkins
Thank you so much. Trevor. I really, really appreciate it. I know we’re gonna get on to our next segment, but I might have a couple more comments here on the Canadian home income plan and chip. So thank you very much, and we’ll certainly have you on again.