The Situation
The client bought the home twenty years earlier and had put close to $200,000 into renovations inside and out. At 78, income was a pension, Canada Pension Plan, Old Age Security and a survivor's benefit, about $40,000 a year in all, while the home still carried a first mortgage of roughly $290,000 with a major bank. On top of it sat about $35,000 of unsecured debt and a business loan of roughly $81,000. Credit was clean, every account paid as agreed.
The Challenge
A conventional refinance qualifies on income, and $40,000 a year does not carry a $400,000 mortgage at stress-test rates, whatever the equity. Keeping the bank mortgage meant a monthly payment taking a large share of the pension while the cards and the loan stayed where they were. Selling meant leaving a home the client had spent two decades improving.
The Solution
A reverse mortgage qualifies on age and equity rather than income, and it requires no monthly payment: interest is added to the balance, which is settled when the home is sold or the client moves out. We arranged a reverse mortgage of about $425,000, roughly 47% of the appraised value, with a reverse mortgage lender. The proceeds paid out the bank mortgage and covered the unsecured debt and the business loan, and the client's remaining equity, more than half the home's value, stayed intact.
The Outcome
No mortgage payment, no card or loan payments, and the client stays in the home. A reverse mortgage carries a higher rate than a bank mortgage, and we put that cost in dollars on the table before proceeding; the client chose it with eyes open. The cash flow that had gone to lenders every month now stays in the household, and the home's remaining equity still belongs to the client and the estate.