Mortgage 101 – The truth about reverse mortgages

Clinton Wilkins and Dan Ahlstrand discuss reverse mortgages with Trevor Gordon from Home Equity Bank. They highlight the benefits of reverse mortgages for seniors.

Dan Ahlstrand
Welcome back to Mortgage 101. I’m Dan Ahlstrand here with Clinton Wilkins. Clinton, before the break, we were teasing a little bit about something we’re going to discuss, I don’t think we’ve discussed before, and that is reverse mortgages. We all see the commercials. We all see the ads on TV. But a lot of questions out there as to what these things are useful for, and if it’s right for me, and you brought in a special guest today to answer those questions for us.

Clinton Wilkins
I have brought in a special guest. Now it’s not Kurt Browning, and I know a lot of us have seen those ads on TV for the chip product, but we have Trevor Gordon here from Home Equity Bank, and thank you so much, Trevor, for coming. You were on our show, I think, last year or the year before last year. And it’s such an important product. And we don’t talk about mortgage financing that much for seniors. I do actually quite a bit of it. We do some, obviously, with this chip production; we do some traditional mortgage lending for seniors as well, but it’s almost like that taboo topic. And I think on our show, we break down so many barriers already. We talk about maybe having a glass of wine and opening your bills, talking about your credit, your income, your assets, but we don’t talk about mortgage financing for our parents or grandparents as much as maybe we should. And what, they are some of the most vulnerable parts of our population, and so many of these folks are living off, PP and OAS, but they’re sitting on this asset, which is the home. And yes, maybe we all want to get an inheritance, but don’t we want to see our parents and grandparents living their best lives and staying in these homes for as long as possible? I personally do so, thanks, and thanks for coming on the show.

Trevor Gordon
Thanks for the invite again. And you mentioned a really good point there, with respect to talking about mortgage financing or financing for retirees. Today, there’s help with a lot of matters, such as their health; they can speak to other people about it. They have doctors for other parts of their lives. They have a resource to go to when they’re struggling with finances. There aren’t a lot of opportunities or things online for them to really, you can go in and, you can do your Google searches and everything else, but we have found, with respect to finances with retirees, there’s just not a lot of opportunity for them to get the information or the right information.

Clinton Wilkins
And I think there’s a lot of almost shame or something like that. I don’t even know if that’s the right word, Trevor, but like, I see some of these retirees, and they come in to see me in this office, and they’re like, I know I should be in better shape now, and I’m not, but I want to try to write my situation and try to enjoy my retirement.

Trevor Gordon
And you’re 100% bang on, and I think, part of the reason why they don’t this demographic doesn’t get help sooner, is with the embarrassment, right? And I’ve asked clients, maybe they did an inquiry a year ago, and now they’ve come back a year later, and they want to do it. And, I look at their financial situation, it’s like, why did you not proceed with this a year ago? I could have saved you a whole lot of stress.
Clinton Wilkins
I don’t even know if that’s just the retirees that might be for all our clients, like, sooner is always, always better.

Dan Ahlstrand
So when it comes in, and seniors are a wily bunch, I will say, and they’re, they’re always very concerned about protecting what’s theirs. They’ve worked their whole lives. They’ve been paying into this, this mortgage, forever, that’s paid off, or it’s almost paid off, and then they see this product that you offer, there’s obviously some concern there about any kind of repercussions when it comes to getting involved in a reverse mortgage. Can you tell us a little bit of the dime store version of how this whole system works? How does it work?

Trevor Gordon
So if I could sum it up in one sentence, what does a reverse mortgage do? It gives retirees the ability to age in place. And how do we do that? Well, a reverse mortgage is going to increase your cash flow. So if we look at our average client, which is typically a widowed female in their later 70s, the average income on that is going to be about 2000 a month. So let’s just say that that individual has a $600,000 home with a $100,000 mortgage. What payment would Clinton make on that $100,000 mortgage?

Clinton Wilkins,
It might be $1,000 a month. It really depends on the amortization.

Trevor Gordon
Exactly the rate is, but it could be so right there, your income is cut in half. And, we mentioned earlier, gas prices and everything that’s going up right now. Like, it’s just harder and harder. And, when I do speak to a client directly, and hey, my income is 2000, I’m gonna find it tough.

Clinton Wilkins
I’m not surprised.

Trevor Gordon
Everybody would find it tough, right? Because you cannot live on that today. So what we do is we, depending on the situation and what’s great about this product, is that I mentioned earlier about our average client being a widowed female in their later 70s. But that’s not all we deal with. We deal with all kinds of different situations. So we have different products within the reverse mortgage based on the situation of the client that can be more tailored towards their needs. So let’s take that same client that we were just talking about with the $100,000 mortgage. Well, if we pay that off on a chip reverse mortgage, then that $1,000 payment goes away, right? They only have to pay us back when they sell the property, so we freed up $1,000 a month for that client in that situation. Now we might have other situations where maybe they don’t have a whole lot of debt, but as an example, they’ll come back and say, I just can’t do it anymore. It’s just too difficult, and I’m too stressed out over my finances. It’s from the equity of your primary residence, and there’s no capital gains, and it’s 100% tax free.

Clinton Wilkins
We had one like that before, and I’ll kind of tell you a story. We’re not going to share any names or anything. We don’t want to break confidentiality. But I had a single, single lady, and she had a mortgage, and she’s my client for years, always, doing some renovations, improving the property, a beautiful home, pretty decent income. But she’s like, I have no kids. I’m going to leave like the family something, but I need to enjoy this retirement. I need to make my finances a little bit easier. And I know Trevor, you and I worked together, and we were able to get the mortgage and the debt cleaned up, but we also did that kind of annuity plan, where I think she was getting maybe, like, $1,000 a month as well on top of that. And it just made her life and retirement that much easier.

Trevor Gordon
Yeah, it just took the stress load off. I remember actually speaking to her three months after it was put on, and I think even she called you Clinton to say, just, it’s my only regret. I didn’t do it sooner.

Clinton Wilkins
Yeah, and I think there, I think sometimes there’s that stigma, I think it’s breaking down that barrier of a reverse mortgage. And I think it’s almost the same barrier that I go through as a mortgage broker. I started doing this 20 years ago, and that’s when I first met you, Trevor. Obviously, we were in different areas of our lives at that point, but I think it’s breaking down the stigma of a mortgage broker. It’s almost as much as breaking down the stigma of having a reverse mortgage.

Trevor Gordon
And, there are critics of reverse mortgages out there, because it is accrued interest, and it does add up. But what I do find, though a lot, is that a lot of the critics are people who really think reverse mortgage is not for them.

Clinton Wilkins
And maybe the critics are the ones who are waiting for the parents to die, who want to get a big inheritance.

Trevor Gordon
To be frank, there is unfortunately some of that as well. I do find, though, in my nine years that, from nine years ago up until now, I’m seeing that children are actually more in favour, yeah, because they don’t have the time anymore to deal with this or deal with that and with their parents or anything else. So they’re more in favour than they would have been 10 years ago, 15 years ago.

Dan Ahlstrand
The complaint I hear about it, or at least the question I hear about it, Trevor is, What happens should my mom pass. What happens to the house?

Trevor Gordon
Absolutely no different than if any other mortgage, whether your mortgage was with TD Bank, Scotiabank, Home Equity Bank, or simply the executor, whoever that be, either sells the property, or if they want to take the property over, they simply pay us out.

Clinton Wilkins
Just get a new mortgage, or they pay it off in cash. It’s like, really, exactly, lots of options.

Trevor Gordon
So it’s really, again, there are the myths that, oh, we take the home, and we do that. It is completely false. Ownership stays with the client. We register our mortgages the same as some of the big fives; there are, TD, for example, is a collateral mortgage. We just do a standard charge.

Clinton Wilkins
I’m going to interrupt you, just because we’re almost out of time on the segment. I want to hear more about, like, what percentage we can lend people. And when we come back, I’m gonna have a lot more questions here for you.

Dan Ahlstrand
We’re digging into reverse mortgages as part of this month’s edition of Mortgage 10. I hope that you’re learning some stuff, and I hope that you stick around, because we’re going to learn a bunch more. We’re back in just a couple of minutes.