Author: Peter Gomes

If you are planning to take out a reverse mortgage, you can free up some of the equity that is trapped in your house. Reverse mortgage plays an important role for older Canadians. It offers financial security to seniors. The proceeds of reverse mortgage in Canada can be used for meeting various financial obligations. It may include meeting unforeseen expenses or you can use the cash for home improvement, renovation, repairing work etc.

Reverse mortgage in Canada is different from the traditional mortgages that are taken out. There are many differences between reverse mortgage and traditional mortgage, the main one being mode of repayment. In case of traditional mortgage you should have a sound income that can support your monthly mortgage payments. In Canadian reverse mortgage, you don’t have to make monthly mortgage payments. And you can repay the mortgage if you change your residence or the mortgagee dies.


There are few requirements that are to be fulfilled if you are planning to opt for reverse mortgage. You need to be 60 years and above and the house in which you are residing should be your primary residence. The proceeds of reverse mortgage can be availed as –

Lump sum
Supplement to retirement funds
As supplement to Social Security
In form of “Stream of payments”.

While a traditional mortgage is “Decreasing debt and increasing equity”, a reverse mortgage on the other hand is “Increasing debt and decreasing equity”.

When you take out a reverse mortgage in Canada, you have to continue paying your real estate taxes and also make payments for utilities etc. If you have opted for Ontario reverse mortgage, you cannot face foreclosure for missing your mortgage payments.

Reverse mortgage fees in Canada
The reverse mortgage fees in Canada usually vary from one lender to another. The initial set-up fee ranges between USD$1275 and USD$1485. A lender may also offer Equity Protection Option in some cases. This ensures that at any point of time at least a certain amount of equity remains in the property.

Last night the Senate voted cloture on a bill that includes the extension of the first time home buyer tax credit.

This is not the final vote, however it effectively solidifies the plan to extend the $8000 first time buyer credit through April 30th and expand the credit to move-up buyers on a smaller $6500 scale.

The extension is an expansion, giving some move up buyers $6500 more in purchasing power, but that's only up to the income cap of $150,000 for single filers and $225,000 for joint filers...again, covering an awful lot of Americans, but not everyone. Why not make it available to Investors who could then buy some of the dilapidated properties and repair them?

So is this a good thing or just another prop up that will ultimately just prolong the housing problems?

Sure it is going to create some more sales but the credit only extends primarily through the winter/slow housing season. How are move up buyer going to participate when they can’t purchase the new home until they unload the current one. It may take them until next spring to find a buyer.

While a lot of this focus has been on First Time Home Buyers, the real money to get the economy moving is with the move up buyers and Investors. The inventory of homes at the lower end of the market is mostly junk. Poorly cared for properties that need lot of work. First Time Buyers don’t want this stuff but an Investor might? With an almost 10% unemployment many of the newer foreclosures are happening in the higher bracket between $250,000 and $500,000. With the income caps of the program this will eliminate a chunk of this market.

Let’s stop being cheap on the programs and making a bunch of political statements about all the people that are going to benefit and then find out only a handful made it work. Put the program out for all to use with reasonable deadlines. Not everyone will take advantage of it but that’s their choice. Ultimately is will reduce the inventory of unsold homes which will lead to higher demand.

Economics 101 --more demand = higher prices

Mortgage applications are dropping, that is slowing down, thanks to several factors that are making borrowing for a home less attractive. First, mortgage interest rates moved up a bit in the past week, causing some to think that perhaps the great deals are over. Even refinancing demand dropped as people began re-evaluating their situations and the interest rates became less attractive.

Second, especially for purchases, the first time home buyer tax credit still has not been extended. Though there are rumors that a deal may get struck in congress we all just have to play the wait and see game. It’s fairly obvious that if you haven’t already started the paperwork by now, you probably won’t close in time for the deadline based on lender turn times and the various appraisals and inspections. Even just changing things so that paperwork initiated by the November 30 deadline would probably help home sales. If it does not get extended I would expect further slowdown for a period of time as inventory still need to get worked off.



Third, credit requirements continue to tighten as Banks try and shore up their balance sheets and have little appetite for risk. As credit tightens, fewer and fewer borrowers will be in a position to qualify. Less buyers = less sales or Lower demand = lower prices

While the 203k and the FHA 203k Streamline are great programs, you hear horror stories about them all too frequently. Many people get frustrated. However, if you look behind the scenes there are only a couple of major reasons why they don’t close.

1) Under Estimating the REAL cost to repair the property. This is probably the biggest reason why these loans don’t close. The buyer likes the house and thinks they are getting a good deal. They estimate that it will take a certain amount of money to fix it up. When the real cost comes in the deal no longer makes sense.

Example: Mr. First Time Buyer finds a house that is currently for sale for $50,000. It needs paint, carpet, appliances, minor plumbing and electric work. He thinks he can get the repairs for $10,000. Fixed up home are selling for $75,000 in the area. He signs a purchase contract for $50,000. Now he start to get the real prices in and it is more like $18,000. The lender requires an additional 10% holdback on the repairs for cost overruns. Factor in the closing cost, inspection fees, appraisal and other cost and soon the deal is just not making any sense anymore.

You should try and get your estimates in line prior to making the offer to purchase. These deals are made or lost at the time of writing the offer. If the repairs cost more then you have to offer less for the house.

2) Being the guinea pig for the Loan Officer. This is not a common product. It takes a higher level of experience. Don’t just shop for a lender on these based on who offers you the lowest rate. Chances are if you shop that way it will never close and certainly not at the rate you are quoted.

You should interview loan officers for this product. How many have they done? When was the last one? Can they provide you a list of reference for the people that you have done these loans for? Can you talk to Realtors that they have works with on this type of loan?

While all mortgage loans have bumps, you are looking to see that they solved them. If they won’t provide the references then they probably have never done this loan product. They may say they can not give you the information on past clients due to privacy reasons. That’s fine, why don’t they call their client and ask if they could release the information to you so you could contact them. The Realtor should not be a problem as Realtors love phone calls from potential clients.

Some other great tips can be found on the Mortgage Loan Place Blog -- Tips for buying a fixer-upper home