Tracy Green, a 25-year plus veteran in the industry, Level 2 Mortgage Broker and Owner of Ontario-Wide Financial in Orillia has received numerous enquiries over the years from older homeowners who have been rejected by a bank for a mortgage.
Green says, “I have a lot of seniors calling me looking for funds, but they have been turned down by some institutions based on age calculations being tighter due to reduced amortization periods for seniors specifically. That’s in addition to the 2% qualifying rate as set out by the Government of Canada, making it more difficult for seniors to obtain institutional funding. Many seniors are unable to borrow under the standard mortgage rules because of these combined policies."
Age and risk management
Obtaining a mortgage as a senior can be a daunting challenge in two ways: firstly, with the reduction of the amortization period based on age with some lenders, and secondly, the extra 2% added to their interest rate. Green says, “These measures, while justifiable under the guise of risk management, significantly hinder seniors’ ability to secure a mortgage if they need the funds.”
For younger applicants, banks typically offer amortization periods from 25 to 30 years. However, for seniors, the amortization period can be drastically reduced to 10 or 15 years, significantly increasing the monthly payments. The imposition of an additional 2% interest rate compounds the financial strain. Even though the equity in their home may be $1,000,000, they may not qualify for a $300,000 mortgage to buy a vacation home or help their children buy their own home. This often leaves seniors turning to private mortgages which come with higher interest rates. But Tracy Green says there are alternative solutions.
The benefits of a reverse mortgage
Reverse mortgages offer a unique flexibility that many may not be aware of. Green says, “Many people think that a reverse mortgage means that they’re giving their house away. They don’t realize that they can make mortgage payments on a reverse mortgage to maintain the equity in their home.”
By making regular payments, homeowners can cover the interest or a portion of the interest and even reduce the principal by up to 10% annually, maintaining or growing their equity stake in the property as values rise over time. Green says, “This approach allows older homeowners to enjoy the liquidity of a reverse mortgage while safeguarding the value of their home. A reverse mortgage does not have to mean that the homeowner is taking equity out while the interest is accumulating, and they’ll eventually have nothing left. A homeowner can make full payment which over the full term will not take any equity out of the property or they can make partial payments to slow the erosion of equity.”
Homeowners can also take advantage of the “no payment at all” option and take lump sums as needed rather than all at once. It works like a line of credit, with some restrictions.
As property values increase, a home’s equity will appreciate. A reverse mortgage with the option of making monthly mortgage payments slows or eliminates equity erosion, capitalizes on rising property values, and gives older homeowners peace of mind.
A 5-year mortgage payment pause
A program that offers a 5-year pause on monthly mortgage payments may sound like a financial fantasy, but Tracy Green says it’s a viable option for many, regardless of their age. “Up to 45% of the home’s value can be put on a 5-year, no payment program. While the interest accumulates over the 5 years, if the homeowner wants to sell or refinance early, they can do that with no penalties.”
The program is designed for homeowners who need a break from making full mortgage payments because they are returning to school, or they may be struggling financially and want to wait to see if interest rates decline. As home values rise and they age, they may then qualify for a reverse mortgage that can be held as long as they want. The program is open to homeowners of any age who can’t afford their mortgage payments and are considering selling.
Navigating the complexities of mortgage financing can be challenging, especially when traditional mortgages from a bank are out of reach. There are alternative options that can provide significant financial relief. Tracy Green and her team at Ontario-Wide Financial can access a wide range of mortgage options and tailor solutions to the clients’ specific needs.
Contact: Tracy Green (416) 573-7669/1-888-307-7799 Mortgage Broker/Owner Level 2 FSRA License # 12456 or visit: www.ontario-widefinancial.com.
