Early Inheritance

Everyone knows that Canada’s real estate market has seen record appreciation over the past several years. Homeowners who have been paying down their mortgage while their value has been going up are likely sitting on a large chunk of equity.

I often find myself in conversation with people who are astonished that any First Time Homebuyers are able to get into the market at all these days. With the down payment requirements it can take years of savings to bank the minimum 5% down. And by the time it is gathered young buyers could be priced out of the market.

Then there is the Stress Test that forces buyers to qualify as if their interest rate was 2.00% higher than their actual rate. It sometimes seems impossible for young people to own a home of their own.

There is an ever-increasing trend in Canada where owners sitting on large amounts of equity are tapping into it to provide a larger down payment to their adult children – kind of like giving them an early inheritance.

But with many of these older Canadians in retirement with lower incomes than they had in their working days how do they qualify under the Stress Test? They may not want to sell their home to help their children.

There is an option for owners who are 55+ that many have not considered. With a Reverse Mortgage there is no need to qualify under the Stress Test. Borrowers can access up to 55% of their home’s value for any purpose and there is no need to repay the loan until the home is sold or the borrower(s) pass away.

Interest rates are higher than traditional mortgages so it is recommended that you get a demonstration of how much interest would accumulate in the estimated time before selling and down-sizing. But if the money is used to get your loved ones into a home of their own so they can start gathering equity too, it could be well worth it!

There are only 3 institutions in Canada that provide Reverse Mortgages so ask your mortgage professional which would be the best option for you if this is something you are considering.

• Written by Kristin Woolard