CBC MARKETPLACE: YOUR HOME »
MORTGAGES
'Reverse mortgages' explained
Broadcast: April 11, 2000
The television ad promises fast cash
and no monthly payments. And to elderly Canadians whose
only asset is their house, it seems a good idea. But a
reverse mortgage may cost you a fortune.
Meet
Sylvia Welowszky. At 69, she feels she's in the prime of
her life. Her main asset is a three-bedroom house in the
west end of Toronto.
After 42 years of marriage, she's
separated from her husband. In the separation, her husband
got the money and she got the house, which was paid off.
So she's house-rich but cash-poor.
"I have a very low pension because
I'm single," says Welowszky. "And I have a house
to upkeep and I needed to do repairs on the house. I needed
to pay off debts because I had been repairing the house."
Welowszky's solution was to get a
reverse mortgage on her house.
She
qualifies because she's over 62 years old. She got $46,000,
and she won't have to repay a penny for years -- so long
as she lives in her house.
Sylvia is not alone. The average Canadian
senior has 80% of their assets tied up in their house.
But for those with little or no income that can be a real
problem. Typically they can't borrow on their house because
they have no income to make monthly payments.
With a reverse mortgage you get a lump sum and make no monthly
payments. But the principal remains unpaid and interest accumulates.
The debt is repaid only when you sell your house or you die.
P.J.
Wade is a financial planner and an expert on reverse mortgages.
She wrote a book on them, called Have Your Home and
Money Too.
"Well, a reverse mortgage is a way
to have your home and money too," Wade says. "It's
a way to tap into the equity you've accumulated in your
home and have cash, a lump sum, a stream of income and
still be the owner of your home -- to live where you want
to live without the worry of repayment until sometime in
the future."
Sylvia
Welowszky says she thinks it's a wonderful plan.
"I'm enthusiastic
about it. I don't jump into things that I don't find
out about. And I'm very pleased with it."
She was so pleased she agreed to appear
in a TV commercial for reverse mortgages - part of the
first national advertising campaign to market the product
to Canadians. And she's been speaking to friends, like
Hansa Chauhan, about them.
But
unlike Sylvia, Hansa Chauhan is only 50. She was told she
and her husband could get a reverse mortgage because he's
almost 62. And they'll put the house in his name.
"We'd like to do some travelling,
buy a car and maybe another house," Chauhan says.
But here's the rub. Because of her age, if she takes out
a reverse mortgage now, she'll still be relatively young
when the equity in her house is gone.
For example, if she took out a $50,000
reverse mortgage now at the present rate of 10%, she'll
owe $100,000 seven years from now. And in 14 years the
original loan will quadruple to $200,000.
Chauhan
would be just 64 and most of the value of her house would
be owing to the mortgage company. All in all, it's not a
great deal.
"A reverse mortgage can be your best
friend or your worst enemy," says author Wade. "It
can be your worst enemy because it can eat up the equity
that you've accumulated in your home over many years in
just a few years."
But at least the reverse mortgage company
can't foreclose, no matter how large your debt - even if
it's greater than the value of the house.
MORE:
Is a
reverse mortgage right for you? »
^TOP
|