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Pros and cons of reverse mortgages

 

Free up money from equity that you already have – sounds pretty good, right? And reverse mortgages can be a good thing for some people. But for anyone thinking about going down that road, it’s prudent to take a closer look at their advantages and disadvantages before making any moves.

 

 

What’s a reverse mortgage and who’s eligible for one

A reverse mortgage is a type of loan in which homeowners get money from their home equity without having to actually sell the home. Depending on age, location, existing financing and the type of property, you can get from 20 to 55 per cent of your home's value. In Canada, you (and your spouse, if you have one) must be at least 55 to be eligible.

 

 

Advantages of a reverse mortgage

  • You don't have to make any scheduled loan payments and the money you borrow is a tax-free source of income
  • This income doesn’t affect any Old-Age Security (OAS) or Guaranteed Income Supplement (GIS) benefits
  • You are still the owner of your home
  • You decide how to get the funds, i.e., lump sum, scheduled payments

 

Disadvantages of a reverse mortgage

  •  The interest rates charged are higher than most other mortgages
  • Your home’s equity may go down as your loan’s interest adds up
  • When you die, your estate must repay the loan and interest in full within a set time
  • The time necessary to settle an estate is often longer than the time allowed to repay the reverse mortgage
  • Your estate will likely have less to leave to children or other beneficiaries
  • Reverse mortgage fees and costs are also higher than those of regular mortgages. So, unless you’re sure you’re going to stay in your home until you pass away, it can really add up

 

 

You can visit the Government of Canada website here to find out more details about qualifying for, accessing and repaying the loan.

 

Make sure to talk to your lender about fees and repayment schedule. It may be right for you; then again, maybe you’d be better off downsizing to a condo or townhouse or considering a line of credit.

 

For information about this or other aspects of housing and real estate in the Comox Valley, please get in touch through my website or my Facebook page.

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A Realtor’s perspective on buying real estate that makes a profit

Whether you’re looking to diversify your holdings beyond the usual bonds and stocks or just hoping to cash in on a hot market and low interest rates, there are numerous reasons why you might be thinking about an investment property.

 

And if you happen to be considering making such a purchase, here are a few key things to consider when buying an investment property.

 

 

Buy property that is in demand. This takes some research – speak to a Realtor®, talk to property managers, look at the want ads. Find out what other people want in order to figure out what you might want.

 

Buy something that doesn’t require a bunch of time or management. As they say, time is money. Some properties take too much time or attention to make them good investments. Think long and hard before you commence with a vacation or college rentals, likewise with a low-quality property in a less than desirable location.

 

Buy something that’s central and easily accessible. Don’t underestimate the importance of a convenient location that is near transit.

 

Beware the fixer-upper. It may be worth getting something that you’re willing to put the time, money and effort into when you will be the one living there; however, fixing something up for other people to enjoy is a whole other proposition. And along those lines . . .

 

Don’t get overly attached to an investment property. Yes, it’s something you own, but the reason you bought it is for the rental returns and the eventual growth in capital upon selling. Don’t go overboard with making changes or doing renos. Sure, it should be clean and treated well by tenants, but that’s where the relationship ends.

 

If you’re considering a townhouse or condo, talk to people who live there now and see what they like about the place or what potential problems may be. Check on the parking situation, strata board, rental rates, etc.

 

If the condo is new, look into the developer and builder and do some research into how their previous projects have been received. 

 

 

A few other things to think about

Figure out what you want for a projected income. Of course, you want a good return, but you need to know what your minimum is – likely at little more than what you need to cover the monthly mortgage payment. That then determines what you want to rent something for and if that figure is realistic. Many people go with the “One-Percent Rule” in that case. For example, if you buy a property for $300,000 with a $20,000 downpayment, you should aim for getting around $2,700 to $3,200 a month in rent. Of course, much depends on your location and the local rental availability. It’s also a good idea to talk with your banker or mortgage professional to discuss the purchase of an investment property and run the numbers with them. 

 

Seriously consider whether you’re prepared to be a landlord. There will be issues to address, so think about whether you have the right temperament to deal with the matters that will arise. Good tenants mean less management, and treating them fairly and with respect leads to good relations.

 

Do your research, take your time and make good decisions and you’ll end up with a cash flow-positive property. A decent, plain, well-situated property can be a solid investment. And they’re out there if you know where to look or have an experienced local Realtor in your corner.

 

Please visit my website to look at local listings, or get in touch with questions about the local real estate market through my website or my Facebook page!

 

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