Women's Wealth Canada
Women's Wealth Canada
Top Ways to Squeeze Money From Your Home With Rita Cousins
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Hosted by Glory Gray of Glory Gray Wealth Solutions
Our home is often our biggest asset. But it can be hard to access that value when we need cash.
Rita Cousins of the Cousins Mortgage Team at Mortgage Architects is here to help you find ways to squeeze money from your home!
- What's the difference between a Reverse Mortgage and a HELOC?
- The one thing Rita recommends we do BEFORE we retire.
- How applying for a mortgage on an investment property is different than applying for a mortgage on your own home.
- Top tips for new homebuyers
Resources in this episode:
Reverse Mortgage, Downsizing or HELOC? by Erica Alini, Global News
Hosted by Glory Gray, BSc Finance, MFA
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When you're dealing with a mortgage broker, we're self employed, we're working seven days a week, we're there to make sure our clients get the service that they need. And we also have designated underwriters from certain banks that are also working weekends,
Glory Gray:I was one of those clients and I, I don't know how Rita, does it, I could contact her at any time. And I'm just convinced that she doesn't sleep, Eat or bathe, because she's so available. Welcome to Women's Wealth Canada, I'm glory gray. You know, the value of the real estate that Canadians own has always made up a large portion of our net worth. In the past 10 years with the prices of homes skyrocketing in many areas this is more true than ever. When I say net worth, I'm simply talking about the difference between the value of what you own, such as the market value of your home, or the balances in your checking and investment accounts, minus the amount of debt you owe, like the balance of your mortgage. That difference is your net worth. when I'm meeting with a client for the first time, I sometimes ask the following question: There are two people, Susan and Sally. Susan owns a home worth$500,000 She has a $200,000 mortgage and $100,000 in her investment account. So Susan has a net worth of 400,000 That's 500,000, minus the 200,000 mortgage, plus the 100,000 in her investment account. And that 100,000 is an investment account that she can draw income from. now Sally also owns a $500,000 home, but she has no mortgage. She does however have a line of credit for 100,000. And she can borrow from that line of credit if she needs money. So Sally also has a net worth of 400,000 just like Susan, but which situation would you rather be in, Susan's situation where she has a mortgage but she also has cash investments or Sally's situation where she has no mortgage, but she could borrow money? Now here's the thing, there's no right answer to this question. Everyone's view is different. But the answer to the question helps me understand how comfortable a client is with carrying debt, and whether they would prefer to save and invest as much as possible. That way we know how we want to go forward in our work together. Now if you were Sally and not Susan you don't have a lot of investments to draw from. Most of your net worth is tied up in the value of your home. If that's the case, you'll be interested in today's discussion. Today we're going to talk about top ways to squeeze money from your home, and our guests is Rita cousins, an independent mortgage broker with mortgage architects, and part of the mother daughter team of Rita and Rachel cousins. Rita and her husband are based in Langley, BC and Rachel and the grandchildren you're on the island. So needless to say they spend a lot of time going back and forth on the ferries. I met Rita back when Squatch and I were buying our first home, and I'm thrilled to have her on with us today because she has been such a great resource all these years. She's so knowledgeable. So, Join us now as we talk about top ways to squeeze money from your home. So, in the past 20 years, there's been a great deal of personal wealth built up in the value of our homes, particularly in the past 10 years home values have really skyrocketed right. And the problem of course is accessing that value, that capital, that income, and living off of the money. Two ways of accessing that value are a home equity line of credit, or HELOC. And another way is reverse mortgage. So let's talk about that. What is the difference between a HELOC and a reverse mortgage?
Rita Cousins:Well, a reverse mortgage is specifically designed for seniors over 55 and above. A HELOC is available to anyone over the age of 19 who has equity in their home. So the Home Equity is specifically designed for seniors to keep them in their home for as long as they can. And one of the biggest differences is there's no payments on the Home Equity Reverse Mortgage. The home owner lines of credits, HELOCs, etc. You have to pay at least interest only on those products.
Glory Gray:Okay, so how does someone apply for each one?
Rita Cousins:So for the reverse mortgage, through Home Equity Bank--there's a couple of other banks now that offer a similar product but let's just keep it simple-- through Home Equity Bank, you apply either, you know, through a mortgage broker like myself who's certified with Home Equity Bank, or you can go onto their website and just easily apply. Because it's focused on seniors, it's easier to talk to someone so a lot of clients will call me and we'll have a conversation first. Quick and easy to apply. There is no income requirements, except that they have to make sure they have funds to pay property taxes, and keep their home insurance up to date, that's really it in a nutshell.
Glory Gray:it's a CHP mortgage the same thing as a reverse mortgage?
Rita Cousins:Yeah that's the Home Equity that's their, their Canadian home income mortgage that's CHP that's through Home Equity bank. There's four products that they now actually offer, and it's all for seniors 55 and above, and the maximum loan to value that they can pull out of their home is 55%, depending on the age so the older the senior is, the more equity they are able to pull out. So they have four products. They have the income advantage, which could supplement the seniors income monthly, then they have the regular reverse mortgage where you get a lump sum, maybe 200,000 depending on the value of your home, then they have the max reverse mortgage which can allow for a little bit more funds, if the property is in a major urban area, detached, etc. So there's a little bit more specifications around the actual product, and then they have the open mortgage now which is designed to be more of a bridge loan, which allow people to not have a big penalty or whatever if they want to stay in their home, buy another home and then sell that home when they're ready and it's not so much of an upheaval for them when they're moving into their new home. So the home equity bank has four products specifically designed for seniors at this point in time. The Home Equity Line of Credit which the majority of the banks offer, now those you have to income-qualify for. And at the Bank of Canada stress test of currently 5.25% As of today. So you have to provide your income documents, you have to make sure that you can qualify for the payments on those home equity lines of credits.
Glory Gray:So would it be better to apply for a HELOC before you retire when you have a higher income?
Rita Cousins:absolutely, if you look at just a quick guideline based on today's stress test of 5.25% you qualify for on an income. At an income of around 100,000 You qualify for a mortgage of approximately 500,000. So if you, if your income goes down to 29,000 because you're now retired and you're on CPP or OAS, you're going to see a huge reduction in the amount of mortgage that you can qualify on a reduced income. And you also have to understand, if you do go with the home equity reverse mortgage, Those funds that you pull out are not taxable, they are not going to negatively affect your CPP or OAS or your, you know, those type of pension incomes, which a lot of people, if they in turn instead, pull out their investments, those are obviously taxable on their, on their income tax and could affect their pensions going forward.
Glory Gray:And using that reverse mortgage allows us to access equity, access income without pulling out our investments, we can keep them in there and can help them continue to grow.
Rita Cousins:and those funds that you pull out of a reverse mortgage they can be used to provide to your children for an early inheritance, they can be used to purchase a vacation home, they can be used to pay off debt. It all depends on what works best for those clients at that point in time.
Glory Gray:And how is the reverse mortgage repaid?
Rita Cousins:A reverse mortgage is not repaid until the clients actually sell the home, or, you know, they pass on, and then the estate pays it. It's a regular mortgage so it's registered exactly the same as home equity line of mortgage or regular first mortgage, it's an actual mortgage so there's no payments while the clients are in the home and the property taxes are up to date and the home insurance is up to date and the home is in good condition. So it's only paid once the home is sold or the clients pass on and then the estate, takes care of the mortgage.
Glory Gray:Is there a limit to the amount of money, the amount of income that can be streamed? I mean what if I live for 60 years?
Rita Cousins:That's why they do it very selective, right, they only go up to 55% of the value of their home. And over the course of these home equity mortgages 99% of these mortgages have proven to have equity still left in the home when they're sold. It's a completely different product from down in the United States where they, you know their mortgages were quite a bit different. These are designed to keep seniors in their home versus going into a care home. And that's why the income advantage one... I've had clients supplement their income by 5000 a month to bring in a Care Aid everyday to bring in, you know the dialysis machine or take them to their, you know, appointments, etc, so that they can stay in their home and they can have the Care Aid to come into their home versus going into a Long Term Care Home.
Glory Gray:And that's, that's so important. Now, returning
Rita Cousins:At this point, no. Obviously it would depend on the back to the HELOC. Let's say that I decided to obtain a home equity line of credit while I was still working. I was approved for, we'll say 200,000, and then I retire. So now my financial institution you are dealing with if their policies income has gone down. Do I have to apply every year, or is it changed but as far as currently, no, you would just have access ust one and done? to those funds, but you are paying you know the interest on what you draw monthly on those funds.
Glory Gray:As opposed to the reverse mortgage where there are no payments. Right?
Rita Cousins:Correct.
Glory Gray:Excellent. Now, let's talk about some others. So those are two resources that we can get value out of our homes that's locked up. If I decide to buy a rental property with a mortgage, you know, let's say I go out and buy a new property I'm thinking about becoming a landlord I'm not currently a landlord. I'm thinking about making this property a rental, it doesn't currently have a renter in it. Can I use the anticipated rents all received to qualify for that mortgage?
Rita Cousins:Well you can, yeah, absolutely. So the banks generally as a guideline use 50% of the Estimated Rental income so if you were looking at renting a house say for 2000 they would use $1,000 of the rental income, but then they also deduct off the property taxes and if applicable strata fees. Right so, you know, you could add that to your income. 50% of the rental income.
Glory Gray:Do I have to prove that I can get that anticipated rent?
Rita Cousins:It depends on the financial institution. They all have slightly different policies in place. Some of them will want an Appraiser's Economical Rent Schedule A, it's called, so you would have to have an appraiser go out and take a look at the properties in the area and see if it is, you know, going to substantiate the $2,000 a month rental income, and they do a full analysis for the bank. Some banks require just a tenancy agreement in place prior to. So you would have to have somebody who you know who's going to rent it out for 2000 a month.
Glory Gray:Okay, and as long as that's done before closing is that the idea of that?
Rita Cousins:Yes.
Glory Gray:Okay, any common problems you run into with rental property mortgage qualifying?
Rita Cousins:Some lenders actually surcharge on the interest rates for rental properties and the reason for that is is because it's a rental property, it's not your home. Right, so there could be more wear and tear so there's more added risk. You know, you don't really know what's going on there. There are insurance rules when you buy an investment property that you're supposed to inspect the house once a month, etc. To dig more into that you would probably want to have an in home insurance broker, on your podcast as well, but the banks look at where the property is, how close you're going to be in relation to being able to know what's going on in the home. So those are the risks. Other than that, I mean, generally the banks will prefer, they will prefer you own your own home first, before you buy an investment property.
Glory Gray:Okay, thanks for that. It's a tough market for homebuyers right now, especially first time homebuyers. If I know I want to buy a home in a year, what steps can I take to make it easier to qualify next year?
Rita Cousins:Definitely speak to a mortgage broker and put an application forward, we can, we can tell as soon as we get the application in what you're going to qualify for, or what you need to do in order to pay down some debt to get your servicing within guidelines, pre approval mortgages are good for four months. So when you look at even one year out, it's not that far away when you're looking at for pre approvals to, to get you there. It is important though to have a credit report or pull your own credit report or know what your credit report is with Equifax, so that you know what your score is and what you need to do to improve your score as well. And generally I find the best information that you can get is, is in discussion with the mortgage broker and they can guide you accordingly to make sure you can buy within a year.
Glory Gray:How can we pull our own credit report in Canada?
Rita Cousins:Just contact Equifax, equifax.ca. And you can do that on the internet, there is a phone number you can call as well but most of it is done online these days. There are two credit systems in Canada there's TransUnion and Equifax, but the majority of the banks use Equifax, so that's your best bet to go to them.
Glory Gray:And if I pull my own does it ding my credit?
Rita Cousins:No, it doesn't, it's not a hit. So a lot of clients will pull their own credit and forward it to me so I can take a look and let them know what they need to work on versus me pulling it.
Glory Gray:That's a good idea.
Rita Cousins:And one thing too with the mortgage broker, we'll pull your credit, and then we'll send it off to the banks for pre approval. We could send it off to four, five, six banks, right, they all use our one credit report, Whereas if you yourself went to the bank, you know, five different banks, you would then get five hits. So that's one of the benefits of using a mortgage broker, you only get one hit on your credit report in order to secure multiple pre approvals.
Glory Gray:And there's a lot of benefits to to using a mortgage broker and for our listeners, Rita is my personal mortgage broker. And so obviously I believe in what she and Rachel are doing. So that's actually a good segue, let's talk about the difference between a mortgage broker and going to your local bank.
Rita Cousins:Yeah, so where are we, I had clients call me on the weekend where they had started the pre approval process with their bank. And then because of the market, and the way it is right now and the multiple offers...All offers were being accepted on Monday at six o'clock and when they reached out to their bank again. It had been over a weekend, they were told that they would need a month, in order for subject removal. And at that point in time their realtor got involved and said we can't, we won't even be accepted. We're not even competing with a month Subject removal, let alone, needing an appraisal, etc. So this was on Friday night, Saturday morning, I received their application, had them pre approved officially and then yesterday they were successful in getting their offer accepted because when you're dealing with a mortgage broker, you're not dealing with the regular channels in the bank. The banks are unfortunately due to COVID, 19 they're working, still on reduced hours they're working with reduce staff. And so when you're dealing with a mortgage broker, We're self employed, we're working seven days a week, we're there to make sure our clients get the service that they need. And we also have designated underwriters from certain banks that are also working weekends that are also available to us, and can answer and pre approve our deals on the weekends, so you get that added service, and you also get like with Rachel and myself, we've got over 45 years experience, which is a lot more, and helps us be able to put the puzzle together quickly and help the clients get their files approved. So that's what I find is one of the most beneficial reasons to using a mortgage broker and a lot of the pushback I hear is I want to use my bank, my bank Well, we have access to almost all of the banks, and when we look at each application, we will know which product is going to work the best for those clients, based on our experience and we can get them done so much faster than having to make an appointment, waiting, you know, sometimes up to a week to get into the branch, just to make that initial appointment then the initial appointment back in the branch to bring your documents in etc it's, it's quite a process through the branches versus using a mortgage broker which can get can get you done within a couple days,
Glory Gray:And you do all that legwork and you have those relationships that you've built up over all the years with all the individual financial financial institutions.
Rita Cousins:Yes, absolutely. Yeah. And it's It's nice seeing, you know, first time buyers get into the market because it is really challenging right now the, the rental market is so expensive and then the rules that the governments have implemented have restricted first time buyers, it's so challenging so to have someone to help them hold their hands, get them there, you know maybe talk to the parents to see what we can do as well. It just makes it that much easier and takes the stress off of them.
Glory Gray:So again, if I'm looking to qualify in the next year, maybe some of the things I can start doing is perhaps paying down debt is that one thing?
Rita Cousins:Well, it depends on what debt you're paying down because there are rules for lines of credits, how much payments are allowed so if you owe $10,000 on your line of credit, and you're only probably paying interest only on it say pay maybe 60 $70 a month. Well the rule though for the banks is that we have to take a 3% payment of that. So we would have to calculate in a $300 payment. So when you're trying to figure out what debt you should pay down, that's when you need to have a mortgage broker who knows what payments are being calculated that affect your debt servicing in order to ualify for a mortgage. And also, no credit is as bad as bad cred t so you don't want to pay off ll your credit and not have any ecent credit showing that the anks need to know that you are esponsible and that you can main ain your credit payments as you o along. So, a rule of thum is, you want to keep your cred t card balances at 30% of the imit, and that will help you aintain a score over 700 So, ow I'm jumping into credit scor s and this is another whole diff rent topic but credit scor s, you know, they run from 400 p to 900, 900 being the bes, and, you know, so the low r your score, the worse it is. So the banks want at least a cre it score, generally above 650 or six, eight, anything abo e 700 is good, 750, etc. The hig er the number the better so if y u pay off all your credit ebt, you could negativ ly pull your score down because there's no credit revolvi g but the Equifax system does no know that you're paying your cr dit because they don't, they ha en't seen how you're managin your debt load right so always est to speak to. Either you kno a mortgage broker or somebod like that or Equifax, how do get my score up, and there's many times where Rachel and I w ll send out information on how o improve your credit score a d you can improve that score w thin a couple of months if you now what to focus on in that cr dit report. So that's why, yo know, trying to do it on your own. It's, it's hard because we have so many years experie ce of seeing a credit report nowing, you know, you can get his fixed in a couple months or ven, you know, three weeks if yo do this, right. So, yeah, nd it can easily be repaire but it's just knowing what to d.
Glory Gray:So do you often talk to new homebuyers who are thinking about a year out and they, is it okay if they come to you and say we're thinking about this, this is our goal, what should we work on so that we can get our mortgage through you in a year?
Rita Cousins:Oh absolutely. We do that all the time. Absolutely. I have clients that I've worked with like for over four or five years that have now just purchased and, you know, they're so excited right they've got their plan. Right. You know some hiccups along the way and, you know, finally, it'll work and you get them in their home. I mean, there's nothing more heartfelt feeling that owning your own home, right and that first step of, you know, getting into your own home and opening up that door to your new life right so we helped many clients over the years, Glory, all the time. Yeah.
Glory Gray:And as I'm, as I mentioned, I was one of those clients and I, I don't know how Rita, does it, I could contact her at any time. And I'm just convinced that she doesn't sleep, eat or bathe, because she's so available.
Rita Cousins:Yeah, and you know I again I take it to heart. I just it's such a truly rewarding feeling when, when you've got clients and they and they've made it they've bought it, I mean buying a home is a huge investment the average prices are over half a million dollars right so that's a huge investment for clients and it just is so heartwarming. When you know, when they get their keys and, you know, I'm sure the realtors feel the same way too. But, you know, it's interesting because the realtors are out there running back and forth, back and forth to the houses and, you know, our job, we sit and wait right we've got them pre approved and then we sit and wait and then boom, they've got an accepted offer and then we're on right and so then we're back in the, in the game of helping them, you know, move forward with everything but it's it's fun. It's a passion of ours for sure.
Glory Gray:What's the best way for our listeners to get ahold of you,
Rita Cousins:Our website, CousinsMortgageTeam.com or email us at mortgages@Ritacousins.com but our website I think is the best because they can just put a quick note for us to call and give us a summary of what they want to chat about, and then it populates right into our email. Rachel and I were a mother daughter team, just in case listeners don't know and whether you reach out to Rachel or myself. We both work like as one. So, If she's busy, you know, with the kids going back to school or whatnot, then I can jump in and, you know, help the clients at that point in time so there's no difference between calling one or the other, it works seamlessly
Glory Gray:And in what areas of Canada Do you work?
Rita Cousins:We're licensed in the province of British Columbia. Our head office so is an Ontario so we are able to access other provinces through our head office. I'm located on the mainland. And of course, Rachel is on the island and so the grandkids are on the island so I go back and forth quite a bit, which makes it that much more rewarding. I guess right because I get to see the grandkids and then I get to work and you know I come back and it's it's really good.
Glory Gray:Sounds Like a great life. So thanks so much for being on Women's Wealth Canada with us today, Rita, and being a person who can hold our hand through this scary time of wanting
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