Many senior citizens who have spent years paying mortgage payments on their homes and either own them free and clear or have come close to paying their loans off can now take even more equity out of those homes if they need to. HomEquity Bank boosted its highest loan-to-value ration on a reverse mortgage up to 55% — and even more in some cases. The announcement was a quiet one, but it will give needed funds to thousands more homeowners in their golden years.
Before making this change, HomEquity Bank had limited the LTV ratio to 50 percent, so this means that if you have a $500,000 property, you can get as much as $25,000 more out of it. For seniors who have sudden medical costs, renovation needs on the home — or who want to take that 50th or 75h anniversary cruise — this is a way to access more money than seniors had at this point last year. Seniors who are running out of liquidity but also need to stay in their home can use this to get access to more cash.
According to Yovonee Ziomecki, the SVP of HomEquity Bank, the institution thought long and hard before making this adjustment to their ratios. They had to go back and look through 29 years of actuarial pages on repayment history, and what they saw (in terms of overall income) made them feel like an increase to 55 percent was worth the risk.
Now that HomEquity Bank has made this decision, it is going to stay with it for the long term. There is some apprehension that the bank might take the new percentage off the table if some early borrowers default, but Ziomecki reports that the company will stick with the change for the long term, having already run the calculations to see the long-term benefit.
If you want a 55% LTV reverse mortgage from HomEquity Bank, though, there are some minimum requirements to consider. A borrower has to have a marketable dwelling in a solid location to qualify, and he has to be at least 75 years of age.
But why is a reverse mortgage a good idea in the first place? If you are a senior in need of elevated cash flow, the equity in your house can become a revenue stream that lasts as long as you live (as long as you stay in that house). The banks set up the schedule so that you can never get upside-down on the home. The fact that you only face optional interest expense patients over the life of the loan (with the goal of helping your estate retain more of its money) means that you can’t default — and you can’t lose your home while you’re in it. If you move out and sell it, you have to satisfy the remaining balance on the reverse mortgage before you can draw any other funds out of the home.
Seniors often face a wide variety of demands on their cash holdings after retirement. Even in a country with generous national medical care, there can be expensive costs associated with procedures and operations — and for many Canadian seniors, the equity in their home is the only way to pay for such a significant operation. In other cases, the expenses come from other needs — a grandchild who needs help paying tuition for university, a decision to add an RV to the family fleet of vehicles, or a net loss in the investment portfolio that the senior had been counting on to provide interest income for basic needs. In all of these cases, a reverse mortgage can be a real lifesaver. This does mean that some more of your estate will have to cover the balance of the loan when you move or pass away, but that’s much better than running short of cash while you are still alive. This way, even if your estate’s value is lower, you’re not a burden to the rest of your family.
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