When it comes to reverse mortgages, seniors will speak in code.
They speak in code for 3 reasons:
1. They don’t understand what a reverse mortgage is
2. They are afraid that the questions they ask, might make them look stupid
3. They don’t want to make a huge mistake at this stage in their life
If you want to make a huge impact for a client 55yr+ that doesn’t want to sell their home, but they are finding it increasingly difficult to afford to stay in it, you need to become a codebreaker.
Here are 3 commonly coded questions, what they really mean, and how to address them to help your clients fully understand the options they have available to them:
Question #1.“I heard reverse mortgages are bad…”
Code For:“I don’t really know anything about reverse mortgages, what the hell does it mean that the mortgage is in reverse?!”
You Answer: “You’re not the only one that’s heard that; reverse mortgages are commonly misunderstood in Canada. A reverse mortgage is exactly the same as any other mortgage with one major difference: with a reverse mortgage, you have the option to defer your mortgage payments, until the home is sold, or the last homeowner passes away. You can choose how much or how little to pay on your mortgage, its completely flexible. If you’re like thousands of other Canadians with a reverse mortgage and choose not to make payments, the loan will increase over time. And that’s why it’s called a reverse mortgage, simply because your loan balance increases, which is the reverse, of a normal mortgage which goes down over time as you make your monthly payments. Make sense?”
Question #2. “I heard that rates on a reverse mortgage are extremely high?”
Code For:“I am worried if I take a reverse mortgage there will be nothing left over for my kids’ inheritance?”
Your Answer:“Rates will always be higher with a reverse mortgage than a normal mortgage because the bank is not receiving monthly payments from you. In fact, the bank may not see a payment from you over the next 30-years! Rates are higher, but they will never be out of whack from what the banks charge on a normal mortgage. For example, if the Royal Bank is charging 3.50%, HomeEquity Bank will be around 5.75%, if the Royal Bank is charging 7.50%, HomeEquity Bank will be around 9.75%; rates will always be appx. 2.50% higher on a reverse. But the nice thing is, housing, over a long-term basis, tends to increase with inflation. I see your house is worth approximately $800,000…if it goes up by 2% per year, how much is it increasing per year? Correct, it’s going up by roughly $16,000 dollars per year. Now, you’re looking to borrow $200,000 at 6.00%, how much is your loan increasing over time? Correct, your loan is increasing by only $12,000 per year. You can see why so many clients don’t ever make any payments on their loan, because long-term, house appreciation tends to take care of the interest. So, if you’re worried about your kids not having an inheritance, put that worry away! There will be plenty left over for your children.
Question #3.“Home prices can’t possibly keep increasing the way they have”
Code For:“It’s nice to think that future home appreciation will help take care of the interest costs, but I am really worried that it won’t and there will be nothing left over for the kids”
Your Answer: “Do you remember what you paid for your home when you bought it? Wow! Your home has certainly increased in value over time. If housing was that cheap today, you could buy your house using your credit card! In the last 60 years in Canada, there have been 4 major housing market corrections. But each time, housing has bounced back and continued to increase over a long-term basis. I did a presentation last week in front of a group of retirees. When I asked them, “What’s the lowest price you remember paying for a movie ticket?”, I aged myself by telling them that I remember “toonie Tuesday’s”…one gentleman stood up and said “Son, that’s nothing, I remember going to the movies and paying only twenty-five cents for my ticket!”. Just like the price of movies, coffee and gasoline, inflation pushes prices up over a long-term basis…and with Toronto being undervalued in terms of square footage, compared to world markets such as New York City, London U.K., and Sydney Australia, we have plenty of room for growth.
My advice to any mortgage, real estate or financial professional is simple: take your time when dealing with your 55yr+ clients. They will speak in code; not to confuse you, it’s because they want to fully understand what a reverse mortgage is, not to appear stupid for asking questions and really want peace of mind that they are making the right decision. Take your time, learn their story and make recommendations based on what is right for them.