Golden-agers fund children’s down payments with opposite mortgages

COVID-19 has resulted in a new housing boom and catapulted prices to new heights, except to be outdone, the banks regarding mom and dad have adapted with the time.

“We’re seeing that parents who qualify for reverse mortgages are accessing them so they can unlock some of that equity for their kids,” said Daniel Johanis, principal broker of Pekoe Mortgages, adding that mortgages north of $1 million are becoming common. “As soon as you hit $1 million, you don’t qualify for mortgage insurance, and first-time buyers may have the income to support mortgage payments, but where will they find 20% down on a million bucks? That’s $200,000, and that’s a lot of money to save. Reverse mortgages are one way parents are helping their adult kids become homeowners.”

Reverse mortgages are for homeowners at least 55 years old, but the older they are, the larger the percentage of equity they can access. Instead of making regular mortgage payments, the interest they pay is accumulated into the amount owing. Frances Hinojosa, mortgage broker and managing partner at Tribe Financial, says it’s an ideal way for seniors to maintain healthy cash flows without dipping into other investments, like RRSPs. And in the current low interest rate environment—reverse mortgage rates hover around 4%—many seniors have decided to give their children early inheritances.

“COVID is a major life event and people are reevaluating their situations and looking at giving their kids earlier inheritances because it’s a tax-efficient way to both give inheritance and not hurt cash flow,” said Hinojosa. “They’re trying to get their kids into the housing market earlier with those inheritances.”

Although reverse mortgages are being used to help children get a foothold in the housing market—the benchmark price of a single-family detached home in the Greater Toronto Area just smack $1. 32 million , relating to Altus Group—many seniors, in light of one’s COVID-19 outbreaks in long-term maintenance facilities, are using them to age engaged.

“Some of them have their homes paid off and consequently are tapping into that equity to hire on location care as an alternative, ” said Hinojosa. “I’ve been talking to seniors who stay in their house for the last 50 years and do want to cash out. For whatever reason, they want that experts claim extra cash flow and this is a great application where they don’t have to make menstrual cycles mortgage payments, so their cash flow is not impacted. ”