Case Study: How homeowners age 55+ help their family and adult children purchase real estate.
Homeowners and mortgage brokers work in tandem to adapt to industry policy changes and shifts in the interest rate environment. The most recent interest rate hikes are negatively affecting the purchasing power of homebuyers.
Let’s take a look at the purchasing power in Q1 2022 and Q4 2022 of homebuyers with an annual household income of $150,000:
Q1 2022:
Qualifying Rate: 5.25% (mortgage rates were below 3%)
Purchasing Power: $850,000 – $900,000 (eligible mortgage amount)
Q4 2022:
Qualifying Rate: 7.25% (mortgage rates are around 5.25%)
Purchasing Power: $725,000 – $750,000 (eligible mortgage amount)
As of the start of Q4 2022, the homebuyers qualify for a mortgage amount that is $125,000 to $150,000 less than the mortgage amount they qualified for earlier in 2022.
As a result, the clients now need to find an additional $125,000 to $150,000 in the form of a down payment to purchase a home in the same price category.
Solution: Use a Reverse Mortgage to find the required funds
Homeowners age 55+ may use a Reverse Mortgage to help their adult children (taken as an example in this case study) purchase real estate.
How It Works:
Homeowners age 55+, who own their home, apply for a Reverse Mortgage to access the equity in their homes.
The clients can take a $150,000 Reverse Mortgage (or any amount subject to guidelines) and provide these funds to their adult children to help with the down payment.
Homeowners with a Reverse Mortgage are not obligated to pay the money back until the property is sold. Most Reverse Mortgages can also be set up so there are no monthly payments required to be paid.
Due to rising real estate prices, more and more homeowners choose to give early inheritance to their adult children via a Reverse Mortgage. Others may choose to provide the funds to their adult children in the form of a repayable loan.
Ways for the Adult Children to Pay Their Parents Back:
1) At some point in the future, the adult children may be able to refinance their mortgage and take equity out of their own property to pay back their parents. If history repeats, once the interest rates drop from current historic heights, these clients will be eligible to refinance for a higher mortgage amount and pay back their parents.
2) Adult children can set up payment terms with their parents and repay the loan over time.
The solutions exist – reach out to our team for more information.
This approach is gaining popularity in many regions as rising interest rates have lowered homebuyers’ purchasing power.
Applying for a Reverse Mortgage requires the expertise of a professional mortgage broker.
The team at Access My Home Equity can help clients set up a proper Reverse Mortgage and find the lowest rate.
We will also find the correct mortgage product for first-time home buyers and ensure that all our clients get superior service from start to finish.
Do you have any questions?
Reach out to our team of experienced professionals at Access My Home Equity today for a free consultation:
Email: info@accessmyhomeequity.ca
Phone: 604-362-4467
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