Andrew: Welcome, everyone. We’re here today with Barb Wilhelm. She’s a mortgage agent with Dominion Lending. Today, we want to talk about how people can access the equity they have in their home. There’s a lot of wealth built up in people’s homes, especially going into retirement. People are looking for options on how to get that wealth out of their house. So there’s a few options out there and Barb’s going to help us go through that. So obviously, one of the ones is there’s a secured line of credit, but also a reverse mortgage are the two that we want to touch on. So Barb, tell us about the secured line of credit and what people should think about.

Barb: Sure. So having access to your home equity, to me is the most important thing, especially as you’re reaching retirement age. Ideally before you retire and you’re making your good income, you would qualify for a home equity line of credit. It has the same qualification standards as a regular mortgage. So you want to be having that income and have access to your equity.

We’re not saying spend your equity right, but just have access to it because life happens and once you retire and your income goes down, you’re no longer going to be able to qualify for that home equity line of credit.

The advantages to the home equity line of credit, if you don’t use it, there’s no payment right? And if you do use it, the payment is only… is interest only. So the payment would be smaller than a traditional mortgage that has principal and interest.

Andrew: There’s definitely a lot of flexibility once you have that secured line of credit set up, right. Just because you have it doesn’t mean you necessarily need to use it. But also, again, the interest only payments gives you a lot of flexibility around how much you want to pay off. Right. Are there any restrictions on how much you can use for that secured line of credit?

Barb: So based on qualifying, the government regulates that you can only have a line of credit up to 65% of the value, which is a lot of money.

Andrew: Substantial

Barb: Yes. So the big thing is too, is you’d rather have your debt or be using that than, say, high interest rate credit cards or unsecured line of credit. Those are going to have higher interest rates. So something that’s secured by a home is always going to be cheaper to borrow from than your other means of credit.

Andrew: Absolutely. And I think the key point there is it should be looked at before you retire, ideally.

Barb:

Ideally, because you’re going to qualify for more. Once you are retired, and we all hear of the stress test, right, with mortgages–that’s how the majority of home equity line of credit, you have to qualify. There is the other product that you touched on that has basically no stress test, the reverse mortgage, which allows seniors to get into their home equity.

Andrew: So let’s touch on the reverse mortgage now. We’ll switch gears over to that. So tell us the basics of a reverse mortgage, high level… what does it do and how does it work?

Barb: Sure. So I guess kind of the qualification for it is you have to be 55 years or older and you have to live in the home. It doesn’t have any credit requirements, income requirements. It’s all based basically on the equity. And they look at the value of your home, your age, and they kind of give you a certain amount of equity that they will give you a mortgage for. It is a typical mortgage. It’s registered against title, but you don’t make payments. The payments, kind of the interest from borrowing that money is just added on to the balance, when you… say, move out of the home, like sell the home or buy a new home. So it’s free money while you’re in the home. But once you pay off or need to leave that home, then the interest is paid then.

Andrew: The biggest fear that we always hear about this is will the bank ever kick me out of my house? Will that ever happen?

Barb: Absolutely not. You remain on title. The house is yours. It’s registered just like a regular mortgage. You’re just not making the payments, so the interest is just being added on to the balance.

Andrew: Absolutely. For sure. And the idea that you receive that tax free payment then allows the client to use that for however they wish, hopefully for retirement supplement. But also the idea of not having any mortgage payments is an advantage to that as well.

Barb: Sure, it comes down to cash flow. If they have an existing mortgage and they can’t make those payments, that’s how you’re going to lose your house, right? So there are different versions of a reverse mortgage. So you can take a lump sum payment and, you know, pay off all your debt and then put some money away in a nest egg or into investments or whatever. Or there is an option where you can get like a monthly payment from your equity. So if you wanted an extra $2,000 a month to help with that cash flow, but at the end of the day, it’s allowing seniors to remain in their homes because the only other way to access that equity is to sell. And then if you sell and you rent, well, there goes your equity. You’re just using that equity to pay for where you’re living.

Barb: So the idea they never let you get any more than 55% of the home’s value–and it’s based on age–so you’d have to be you know, if you’re only 71, they’re not giving you 55% of your equity. The majority, I want to say 90% of the time is when people go to sell, they still have at minimum 50% of their equity left from the reverse. There’s a lot of notions that all the equity gets eaten up and then the bank just takes over your house. That’s not how it works at all.

Andrew: No. Perfect. Sounds good. Appreciate all the information.