Mortgage stress test is the buzz phrase in mortgage lending for 2018. Every borrower, regardless of how much down payment you’re making, must pass a stress test to qualify for a mortgage. The math is simple, yet intimidating. Lenders must now use your mortgage contract rate PLUS 2.00% to qualify you.
Yes, that’s correct. You need to qualify at a rate that’s 2.00% higher than your actual rate. And it doesn’t matter if you have 35%, 40%, 50%, 60% or even 70% down payment. That will not have any impact on your approval. It’s all about how much income you can prove you earn and the strength of your credit worthiness.
For many, this new rule will prevent them from qualifying for a mortgage. And for seniors or people approaching retirement who still require a small mortgage to get through the next 10 or 20 years, these new mortgage rules are a killer. The stress test is surely causing stress among many Canadians!
I’M RETIRING AND WANT TO STAY IN MY HOME…
A reverse mortgage is a terrific option for homeowners who are at least 55 years old. It empowers them to be able to stay in their home and access tax-free equity without having to make regular payments.
That’s the key – no regular payments are required! All other lending products that enable homeowners to tap into their equity – such as a home equity line of credit (HELOC) or mortgage refinance – require regular payments.
Another factor involved when qualifying for a HELOC or refinance is your credit score. With a reverse mortgage, you can access up to 55% of the value of your home (in one lump sum or in multiple increments over time) and your credit is rarely an issue. You just have to prove you can pay property taxes and utilities.
USE THE FUNDS ANY WAY YOU WANT!
With a reverse mortgage, you can use the funds you receive how you choose.
The most popular uses include:
- Supplementing retirement income and savings
- Paying off debt
- Helping children and grandchildren
- Renovating or making your home more senior friendly
- Medical expenses
We all want to spend our retirement years doing the things we enjoy – not struggling to make ends meet, which often leads to the sale of the home we love.
You also retain control over your home! You’ll never be forced to sell and you’re only required to pay back the loan after you sell or leave your home.
LOAN CAP PROTECTS EQUITY…
To ensure that the balance owing on your reverse mortgage doesn’t exceed the home’s fair market value when it comes time to leave your home, the total loan amount has been capped at 55% of the home’s value.
Since reverse mortgages became available in Canada in the 80s, more than 99% of homeowners have had money left over when their loan was repaid. The equity remaining depends on the amount borrowed, the home’s value and the amount of time that has passed since the reverse mortgage was obtained.
Historically, your home will appreciate faster than your mortgage debt. This means your inheritance or estate value should not decrease. Your kids or designated beneficiaries will get the net sale proceeds of the home should you pass away.
VIABLE OPTION FOR MANY SENIORS…
Our low interest rate environment has really made the reverse mortgage a practical option for those approaching retirement. If you’re wondering how you’re going to stay in you home, make ends meet and live the kind of retirement life you’ve dreamed of living all the years you’ve been working, a reverse mortgage may be the solution you’ve been seeking to supplement your retirement income and savings.
Speak with an experienced mortgage broker to see if a reverse mortgage makes sense for you.
Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.
Steve Garganis: 416-224-0114; email@example.com
As an industry insider, Steve will share info that the BANKS don't want you to know. Steve has appeared on TV's Global Morning News, CBC's "Our Toronto" and The Real Life TV show. He's also been quoted in several newspapers such as the Globe and Mail, The Toronto Star, The Vancouver Sun, The Star Phoenix, etc.