Latest / Your Estate Matters / Episode 42 - Divorce, Debt & Secrets Lenders Don’t Tell You: Sabeena Bubber on Protecting Your Estate

Transcript

Episode 42 - Divorce, Debt & Secrets Lenders Don’t Tell You: Sabeena Bubber on Protecting Your Estate · Your Estate Matters

0:02
[SPEAKER_03]: Hello, and welcome to your estate matters with your hosts, my colleague Greg Bernand, and myself Nicole Garton of Heritage Trust.
0:09
[SPEAKER_00]: Your estate matters is a podcast dedicated to everything a state, including building and preserving your legacy.
0:16
[SPEAKER_03]: If it's a state related, we'll be talking about it.
0:19
[SPEAKER_03]: We're having the conversations today that will help Canadians protect their families, their assets, and their legacies tomorrow.
0:35
[SPEAKER_00]: But with us today is Sabina Bubber, a mortgage broker with Zeva mortgage.
0:40
[SPEAKER_00]: With over thirty years of consumer mortgage and finance experience, Sabina has helped clients right across Canada, she has served over three thousand clients and funded over a billion dollars of mortgages in her career.
0:53
[SPEAKER_00]: Sabina is committed to finding solutions for her clients that go beyond just getting a good interest rate.
0:59
[SPEAKER_00]: is a specialist reading fine print and loves to help clients get the mortgage product that best suits their needs.
1:06
[SPEAKER_00]: Sabina helps you with your financial help so that you can create your own well.
1:11
[SPEAKER_00]: She believes in establishing long-term relationships with her clients.
1:14
[SPEAKER_00]: She is more than happy to help you secure a single mortgage but gets really excited about giving you mortgage advice for life.
1:27
[SPEAKER_00]: So being at thanks for being with us here today to talk about mortgages and estates.
1:31
[SPEAKER_00]: You please tell us about yourself and your journey towards becoming a top mortgage broker.
1:35
[SPEAKER_01]: Well, thank you for having me today.
1:37
[SPEAKER_01]: I am having a fan moment because I am a fan of the podcast, so I'm really excited to be here today.
1:42
[SPEAKER_01]: I have been a mortgage broker for almost twenty-five years, and I've been recognized as one of the top seventy-five brokers in Canada, a woman of influence, and as well, recognized in the CMP Hall of Fame.
1:53
[SPEAKER_01]: I've also been nominated for a mortgage broker of the year for the six nominations.
1:57
[SPEAKER_01]: I'm kind of like the Susan Lucci of the mortgage broker awards.
2:00
[SPEAKER_01]: and nominated for Excellence in Philanthropy for my work in an organization called Broker's Who Care.
2:05
[SPEAKER_01]: I also founded the divorce circle which brings information and resources to people going through divorce and separation and helping them to become financially empowered to find out who their team should be, their divorce team should be because it's more than just finding a lawyer.
2:21
[SPEAKER_01]: It's finding the people that will help you get from beginning to end.
2:24
[SPEAKER_01]: Go from weed to me and find balance in the end.
2:29
[SPEAKER_01]: So how do marketers impact a state planning?
2:32
[SPEAKER_01]: Well, when it comes to when somebody passes away and there's real estate, sometimes there's a mortgage on that property.
2:38
[SPEAKER_01]: So the outstanding debt will reduce the value of that property because regardless of whether that person is not there anymore.
2:46
[SPEAKER_01]: then the debt still has to be paid regardless.
2:49
[SPEAKER_01]: So there's obligations for the survivors.
2:52
[SPEAKER_01]: So if there's another person on title, on that mortgage, then it becomes that person's responsibility to pay that mortgage when the first one passes away.
3:01
[SPEAKER_01]: When that mortgage comes up for renewal, often the lender will require that person to qualify on their own in order to keep that mortgage, which can create an issue if that person doesn't qualify.
3:12
[SPEAKER_01]: So then they might be forced to sell the property.
3:15
[SPEAKER_01]: There's also potential tax implications.
3:17
[SPEAKER_01]: If there's no surviving parties that own the property after probate goes through and the air is decided to keep the property, there can be capital gains implications based on the value
3:27
[SPEAKER_01]: at the time it was inherited and if they wait longer in terms of when they sell it.
3:32
[SPEAKER_03]: So Greg and I had messed her a lot of the states where there's outstanding market just and we end up negotiating with lenders.
3:39
[SPEAKER_00]: Yeah, it's quite common.
3:41
[SPEAKER_00]: And what you don't see a lot of surprisingly is mortgage insurance.
3:46
[SPEAKER_00]: I see it on very few states.
3:48
[SPEAKER_01]: Yeah, mortgage insurance is an interesting conversation.
3:52
[SPEAKER_01]: So I don't necessarily believe in having mortgage insurance that's tied to the mortgage itself because it's a declining benefit.
4:00
[SPEAKER_01]: So say for example, you take out a five hundred thousand more mortgage and there's three hundred thousand remaining at the time that the person passes away.
4:07
[SPEAKER_01]: Well, only the three hundred thousand is paid off.
4:10
[SPEAKER_01]: And often they don't underwrite policy at the time.
4:13
[SPEAKER_01]: So they could find out that they're not eligible to have the mortgage paid off due to pre-existing health conditions.
4:18
[SPEAKER_02]: Thanks.
4:19
[SPEAKER_01]: So when I'm talking to people about ensuring their biggest asset, which I firmly believe is the most important thing you should do when you have such a large asset is to obtain an independent insurance policy from an independent broker where they underwrite the policy and make sure that you qualify for it and you decide the terms of that policy.
4:42
[SPEAKER_01]: So depending on your age, depending on what your estate plan is, you want to make sure that
4:48
[SPEAKER_01]: you're able to deliver that plan to the errors in the way that you want.
4:53
[SPEAKER_01]: So if you're turning sixty five before that mortgage is paid off, maybe a whole life insurance might be more suitable for you than a term insurance.
5:01
[SPEAKER_01]: So that no matter when you pass away, that insurance will pay off the debt.
5:07
[SPEAKER_03]: So in an absence of insurance, which unfortunately is a lot of people, a lot of family members wonder what happens, like say, my mother died, still has a mortgage on their house, and they pass away, and you know, it's going to be six months to a year before you can sell that house.
5:23
[SPEAKER_03]: What happens to that market and his response?
5:26
[SPEAKER_01]: Well, the state is responsible to pay the mortgage during the time that you're waiting for it to pass through probate.
5:33
[SPEAKER_01]: And then if they don't qualify to take over the mortgage after the title has transferred, then they would be forced to sell it.
5:40
[SPEAKER_00]: And I think what we're seeing lately is the financial institutions are for closing very quickly compared to five years ago.
5:49
[SPEAKER_00]: You know, you could let a mortgage saying it's in a state and it's being probated and it'll be sold and they were just happy to carry along the mis payments if you were to liquid.
6:00
[SPEAKER_00]: And now we've had some three months and the person owns eighty percent equity.
6:06
[SPEAKER_00]: And you say, why would you foreclose on that?
6:08
[SPEAKER_00]: That seems very strange to me, and it speaks to the condition of some of the market right at the moment.
6:14
[SPEAKER_01]: Yeah, a lot of lenders don't base anything on equity anymore.
6:18
[SPEAKER_01]: It really comes down to finances when it comes to if there's mispayments, they want to ensure that they get their funds back, even if they're foreclosing on an estate, which.
6:29
[SPEAKER_00]: Well, I think it's thanks for that.
6:31
[SPEAKER_00]: In B.C.
6:32
[SPEAKER_00]: would be to put a rent rent, but then that's a problem too.
6:36
[SPEAKER_01]: The banks often say we are not property managers, so they're not interested in bearing that expense of putting a renter in to pay the bills and whoever the errors are should make the payments, but often they don't have the capacity to pay those in addition to their own debts, especially in the lower mainland when people are already burdened with high payments.
6:56
[SPEAKER_02]: Right.
6:57
[SPEAKER_03]: Very good.
6:57
[SPEAKER_03]: I have noticed that.
6:58
[SPEAKER_03]: So as professional executives in the past when someone's passed away, and there's some market shot standing, and certainly when there's a lot of equity, we'll often say the lender, you know what, we're going to get probates going to take us a few months.
7:11
[SPEAKER_03]: We're going to meet the list of property for sale.
7:14
[SPEAKER_03]: There's no risk to you receiving the loan because there's maybe eighty percent equity.
7:20
[SPEAKER_03]: And in the past, we were able to negotiate a reasonable
7:23
[SPEAKER_03]: deal with a lender and just like very excited.
7:25
[SPEAKER_03]: It's really interesting, even with relatively small sums owing, the banks are increasingly more assertive in enforcing that.
7:33
[SPEAKER_03]: And I think it does go to show that maybe they are more conscious of their loan portfolios and their risk, appetite or ability to hold loans without payment is definitely reduced.
7:47
[SPEAKER_03]: Even in the last six months, I would say we've noticed a difference.
7:49
[SPEAKER_00]: Yes, I would suspect it's the regulator.
7:52
[SPEAKER_01]: I was just going to say that it's probably the regulator that doesn't want the banks showing that on their book because it does affect their numbers.
7:58
[SPEAKER_01]: And they may not when people are looking at the numbers for the banks, they may not be looking at why those mortgages are in default.
8:06
[SPEAKER_01]: And the questions aren't being asked that, oh, these are estate sales.
8:10
[SPEAKER_01]: It's more regulation and just how the numbers look for the banks on the books.
8:14
[SPEAKER_01]: If it's a consistent practice across all the banks, it's likely the regulator that's pushing for that.
8:19
[SPEAKER_00]: Now are there strategies for ensuring that a mortgage doesn't become a financial burden on ears?
8:24
[SPEAKER_00]: And how can life insurance or a state planning help other than what we've already discussed?
8:29
[SPEAKER_01]: Well, again, mortgage life insurance or just life insurance periods so that the errors can decide how to distribute those funds, whether they be mortgage funds, whether it be to maintain the payments until the property sells, is better to have control over it.
8:45
[SPEAKER_01]: There's the difference between term life insurance and whole life insurance.
8:49
[SPEAKER_01]: I'm a strong believer in whole life, because it allows your, you know, people are living longer.
8:55
[SPEAKER_01]: So being able to pay off any outstanding debts past sixty five is, is a great thing to do.
9:03
[SPEAKER_01]: making sure that your will is up to date, making sure that your property title and mortgage are aligned with the will and everything else so that it makes for a smooth transition and that there's clarity.
9:17
[SPEAKER_01]: Something I see is that a lot of people don't communicate their estate plans with their errors.
9:23
[SPEAKER_01]: And I think the number is like maybe fifteen to twenty percent of seniors actually communicate to their children what the plan is, which can often leave the kids not understanding what was intended to be for them how it was going to be structured.
9:37
[SPEAKER_03]: So, Howard joint mortgages are cosine loans dealt with in terms of the state administration.
9:44
[SPEAKER_01]: If you're a co-signer or joined on a mortgage, you are responsible to make those mortgage payments.
9:50
[SPEAKER_01]: I often recommend that if that mortgage is not up for renewal, just continue to make the payments before you notify the bank of that, otherwise they will ask you to qualify immediately to have it transferred.
10:01
[SPEAKER_01]: Sometimes that's not possible because you have your mortgage with the same place where you've got all the bank accounts.
10:06
[SPEAKER_01]: So you have to manage it.
10:08
[SPEAKER_01]: If you can't demonstrate that you qualify, then the bank will ask you to repay the loan or go elsewhere.
10:14
[SPEAKER_01]: Maybe you have to look too alternative lending sources.
10:17
[SPEAKER_01]: This is often the case with maybe a non-earning spouse.
10:21
[SPEAKER_01]: And just because there's a life insurance payout, it might not be enough, or there's no income to support it.
10:29
[SPEAKER_01]: And often, or if it's, if you're in a situation where you've got a two income household and one person is passed away, that one income may not be enough to qualify for that remaining mortgage.
10:40
[SPEAKER_01]: You don't want your partner and children to be having to move out after a sudden death or something like that.
10:46
[SPEAKER_01]: You want to make sure that you make those plans well in advance just because your young doesn't, doesn't necessarily mean that an unexpected can't happen.
10:55
[SPEAKER_00]: So if somebody passes away with an outstanding reverse mortgage, we all see those on TV, how does that impact their estate and their beneficiaries?
11:04
[SPEAKER_01]: So let's talk about whatever's mortgages before we start the conversation.
11:08
[SPEAKER_01]: Reverse mortgages are for people over the age of fifty five more commonly over the age of sixty where they borrow against their equity and their property to pay out their current debt.
11:19
[SPEAKER_01]: And sometimes use that equity as a monthly income supplement.
11:23
[SPEAKER_01]: Or perhaps they've taken equity out to give an early inheritance to younger family members since people are living longer.
11:30
[SPEAKER_01]: There are no monthly payments on reverse mortgages.
11:32
[SPEAKER_01]: The interest accumulates over time.
11:35
[SPEAKER_01]: And if you look at the models, people are like, oh, well, that's a negative equity situation.
11:39
[SPEAKER_01]: If you look at the appreciation of real estate over time versus the interest that accumulates, you're still in a, with most reverse mortgages, you're still in a positive growth situation in terms of the equity balance of that reverse mortgage has to be paid upon the owner's death.
11:55
[SPEAKER_01]: So if there's still owner left in the home, then the mortgage automatically goes to that person, then they do not have to recall a fine.
12:03
[SPEAKER_01]: So that's the benefit of that.
12:06
[SPEAKER_01]: And if both owners have passed away, then the balance has to be repaid.
12:11
[SPEAKER_01]: So either the airs qualify for traditional mortgage to pay that mortgage off or they sell the property and pay off the reverse mortgage that way.
12:21
[SPEAKER_00]: But because of the sort of the age group of people that typically take reverse mortgages, is there any insurance available with that product?
12:30
[SPEAKER_01]: Generally no.
12:31
[SPEAKER_01]: No.
12:33
[SPEAKER_01]: It was very hard to get any sort of life insurance after sixty-five.
12:37
[SPEAKER_03]: What percentage of equity can people borrow in our reverse market and are the interest rates higher than they would be in a traditional illock or market?
12:46
[SPEAKER_01]: That's a great question.
12:47
[SPEAKER_01]: The amount of equity you can borrow is a formulation based on
12:52
[SPEAKER_01]: the age of the youngest borrower with some of our mortgage companies, even the sex of the youngest borrower matters.
12:58
[SPEAKER_01]: And then the property value and the location of the property, the type of property.
13:04
[SPEAKER_01]: So is it a detached home?
13:06
[SPEAKER_01]: Is it a row like a townhouse?
13:08
[SPEAKER_01]: Is it a condo?
13:10
[SPEAKER_01]: All those things will affect how much you can pull for equity.
13:15
[SPEAKER_01]: So the younger you are, the less amount of equity that you can get from your property.
13:19
[SPEAKER_01]: And then as you age, you can apply for increases in that limit based on, say, your sixty when you get the mortgage at sixty five, you'll qualify for a little bit more and so on and so forth.
13:32
[SPEAKER_01]: What was the other question?
13:33
[SPEAKER_03]: Are there interest rate, differentials of that product versus a traditional market?
13:37
[SPEAKER_01]: So with the interest rate differential between a traditional mortgage and a reverse mortgage, the reverse mortgage is tend to be higher than what people are paying for current bank rates.
13:48
[SPEAKER_01]: And the reason for that is the bank that's taking on the reverse mortgage is deferring the realization of that interest until that borrower either goes into a care home.
13:57
[SPEAKER_01]: or passes away.
13:59
[SPEAKER_01]: So they don't get that interest for some time.
14:01
[SPEAKER_01]: And they're hedging that over.
14:03
[SPEAKER_01]: What could be ten, fifteen, twenty years before they see any of that interest.
14:07
[SPEAKER_01]: So there is a premium for that, which some people often are surprised with.
14:11
[SPEAKER_03]: So reverse market just kind of have a bad name.
14:13
[SPEAKER_03]: Is that fair?
14:14
[SPEAKER_03]: I think there is a perception out there that there is somewhat predatory of of older people is have things changed or was that a misapprehension that people have?
14:26
[SPEAKER_01]: It was a misperception based on reverse mortgages in the US, which were predatory.
14:31
[SPEAKER_01]: People were not getting equity out of their homes somewhere forced to sell.
14:35
[SPEAKER_01]: With Canadian reverse mortgages, they are federally regulated.
14:38
[SPEAKER_01]: The institutions that offer them are banks.
14:42
[SPEAKER_01]: They're not the big six banks, but they are banks that specialize in reverse mortgages, so they are regulated.
14:48
[SPEAKER_01]: And they have to have a known negative equity guarantee.
14:52
[SPEAKER_01]: borrowers never forced from their home if the balance is more than the equity which is rare because of the formula that they use for how you can access the equity that's how they create that no negative equity guarantee they limit how much you can access an equity.
15:07
[SPEAKER_03]: That's interesting because we have so much volatility right now with you know so many economic factors I know in Toronto there was potentially even twenty-five percent drops of
15:20
[SPEAKER_03]: values, sort of interesting to see how that might change with variable, property values.
15:26
[SPEAKER_00]: So for properties left to multiple layers, but there's still a mortgage on it, what are the options for the beneficiaries?
15:33
[SPEAKER_01]: The beneficiaries have to collaborate on how they want to deal with the mortgage.
15:39
[SPEAKER_01]: Will they collectively pay that mortgage until they can obtain a new mortgage collectively to pay it out or would they just sell the property and divide the proceeds?
15:49
[SPEAKER_01]: Often we see when there's multiple errors, the property is sold and divided among the errors.
15:54
[SPEAKER_01]: What are the considerations if you're thinking of home equity for a state planning particularly if you're thinking of taking out equity for a pre-inheritance people are living longer so many seniors are considering taking those reverse mortgages or loans against their property
16:12
[SPEAKER_01]: to provide an early inheritance.
16:15
[SPEAKER_01]: I actually met with a ninety-nine-year-old borrower the other day who owes her daughters some money because they have been funding her care costs and some of her living expenses because her pensions are not enough to pay for everything anymore.
16:30
[SPEAKER_01]: And she wants to repay her daughters and she wants to have those monthly supplements come from the equity in the home.
16:38
[SPEAKER_01]: So, in that particular instance, it was a family discussion.
16:42
[SPEAKER_01]: It was sitting around the table with a cup of tea and having a discussion as to whether, you know, wow that fit in with the needs of the kids and everything like that, and then grandkids and great-gant grandchildren.
16:53
[SPEAKER_00]: So, it's supposed to be a reverse mortgage.
16:55
[SPEAKER_00]: How would a refinancing play a role in a state planning, particularly for the aging homeowners who want to simplify things for theirs?
17:04
[SPEAKER_01]: It can put everything into one place.
17:06
[SPEAKER_01]: As I said, seniors are living longer, so often their pensions are not enough to cover all those debts, whether it be mortgage payments, any debts they've accumulated lines of credit, and it takes away those payments so that they can live comfortably and actually enjoy their retirement instead of feeling stressed by retirement.
17:25
[SPEAKER_01]: We've had some borrowers that have decided to retire, but their self-employed and they still have mortgages.
17:31
[SPEAKER_01]: So they've been able to use reverse mortgages to pay off their current mortgage and take an early retirement or just have that benefit of not having to make those payments and have that stress.
17:42
[SPEAKER_01]: It's not everybody has traditional salary jobs.
17:46
[SPEAKER_01]: So those self-employed borrowers tend to suffer a little bit.
17:51
[SPEAKER_01]: So those products work well for them.
17:53
[SPEAKER_03]: So we understand you specialize in divorce refinance, is that right?
17:57
[SPEAKER_03]: That's right.
17:58
[SPEAKER_03]: So how to divorce and increase in blended families and complicated state planning particularly for real estate assets?
18:06
[SPEAKER_01]: It can create a lot of complexities, especially when you talk about blended families and that kind of thing.
18:11
[SPEAKER_01]: We have to consider, first of all, once you're getting a divorce, you have to redo your well and consider what you want for your half that you've walked away with.
18:21
[SPEAKER_01]: If you have real estate, are you making your mortgage payments using child support and spouse will support?
18:27
[SPEAKER_01]: What is the term of that child support?
18:30
[SPEAKER_01]: Usually only payable until your child is nineteen and the mortgage is usually for thirty years.
18:36
[SPEAKER_01]: So there's a financial plan and a state plan around that to determine how you're going to manage that.
18:42
[SPEAKER_01]: And then if something happens to you, what do you want for your children?
18:46
[SPEAKER_01]: Do you want to have that mortgage paid off, the real estate retained?
18:50
[SPEAKER_01]: do want the real estate sold off and that money just goes to the kids in British Columbia with the property values the way they are.
19:00
[SPEAKER_01]: A lot of people want to have the real estate retained because, you know, ten, fifteen years when your kids are ready to buy, it'd be better for them to have that real estate already in place than to have lost that time and the market and that appreciation over time.
19:15
[SPEAKER_01]: There's a lot of considerations on that front in terms of
19:21
[SPEAKER_01]: Just redoing your estate, talking to a lawyer, talking to a financial planner, reading a team around new goals and new initiatives.
19:30
[SPEAKER_01]: And then also, if you have a blended family, how the blending of those families really comes to, what does it mean for your new partner?
19:39
[SPEAKER_01]: Do you need a preneutral agreement that protects your children, all those types of things?
19:44
[SPEAKER_00]: Their mortgage products or financial tools that can help airs keep a family home rather than selling it to pay off the state debts.
19:53
[SPEAKER_01]: If an heir to a property wants to take over a mortgage, they have to qualify for that mortgage.
19:59
[SPEAKER_01]: There's a huge misperception that if there is a lot of equity and a property that somebody can get a home equity line of credit or a home equity loan, those home equity products are still qualified based on your capacity to pay.
20:14
[SPEAKER_01]: equity products disappeared with the financial crisis so they don't the banks can no longer do equity lending so there has to be a demonstrated capacity to pay to deal with that otherwise you again you're in a situation where you have to pay off the mortgage
20:30
[SPEAKER_01]: if you are planning to rent the property, perhaps that rental income can be used towards contributing your capacity to pay, but you still have to qualify for that.
20:40
[SPEAKER_03]: So with rising real estate prices and aging homeowners, are you seeing real estate being used to transfer generational wealth?
20:49
[SPEAKER_01]: Yes, I'm definitely seeing that transfer of generational wealth also seeing younger kids combine homes with parents, whereas the parents are aging and need more support where the kids are selling off their real estate mom and dad or one or the other are selling off theirs and they're combining all of that into one home.
21:10
[SPEAKER_01]: and all living together in the same home.
21:13
[SPEAKER_01]: That means that there's got to be some obviously Vancouver is great because we have the sweet available with a lot of detached homes.
21:21
[SPEAKER_01]: So often that's appealing for those generational homes.
21:24
[SPEAKER_01]: But again, need to have a clear plan on what happens when that person passes away.
21:29
[SPEAKER_01]: Will you still qualify for that mortgage when she's not here, when she or here, not here?
21:35
[SPEAKER_01]: and what is the plan for any other siblings that are not living in the home as well has to be considered within that.
21:40
[SPEAKER_01]: So a clear plan clearly written out and everybody's on board to begin with can save from a lot of litigation costs and that kind of thing when maybe somebody who's not living in the home might feel like they're disadvantaged in a way.
21:55
[SPEAKER_00]: For those who want to leave their home to their children, but still need financial flexibility at a home equity loans or verse mortgage or other tools come into play.
22:06
[SPEAKER_01]: I think I kind of answered that on the last question.
22:10
[SPEAKER_01]: But yeah, the whole equity, again, is not a guarantee of getting alone.
22:15
[SPEAKER_01]: So qualification and demonstrating a capacity to pay are important.
22:20
[SPEAKER_01]: Reverse mortgages are great tools for equity-based lending because you do not have to qualify for that.
22:27
[SPEAKER_01]: You just have to demonstrate on a reverse mortgage that you have
22:31
[SPEAKER_01]: enough income to pay the home insurance.
22:34
[SPEAKER_01]: And if there's a strata property, then pay your strategies.
22:37
[SPEAKER_01]: So often your CPP and OAP is enough for that.
22:40
[SPEAKER_01]: And so there's not a qualification for that type of equity lending.
22:45
[SPEAKER_01]: And with reverse
22:46
[SPEAKER_01]: even though they are higher interest rates, you do have the option to pay that interest during the mortgage.
22:52
[SPEAKER_01]: So if you just because you don't have to make payments on it, it doesn't mean you don't need to.
22:58
[SPEAKER_01]: So you don't have to wait for that interest to accumulate on that balance.
23:01
[SPEAKER_01]: If you're an area you want to make the interest payments, you can also prepay that mortgage every year by up to ten percent to bring the balance down.
23:10
[SPEAKER_01]: So it's still a vehicle that's available for people that don't have income, but feel that they can make those payments without being forced to.
23:17
[SPEAKER_00]: I think a lot of people were probably under the assumption reverse mortgage is really dealt with a death fully paid off, but not that there was some prepamence that might be available.
23:26
[SPEAKER_01]: Yeah, still has a lot of flexibility, which is great.
23:29
[SPEAKER_01]: So if, for example, like when you have somebody who's got outstanding mortgage debt come across this quite a bit, because there's, you know, especially with the cost of living lately, it's been quite challenging for seniors to manage the cost of living.
23:42
[SPEAKER_01]: with the pensions that haven't changed.
23:44
[SPEAKER_01]: So they've accumulated that now paying that off.
23:46
[SPEAKER_01]: They still have a capacity to pay something and they may choose that they want to pay something.
23:51
[SPEAKER_01]: So they can to minimize the impact to the estate because all those debts still have to be paid from the estate once that person passes away.
23:58
[SPEAKER_01]: Putting it in a situation that won't affect their credit and allows them to live more comfortably is it's a great, great tool.
24:07
[SPEAKER_01]: What about deferring a property tax?
24:10
[SPEAKER_01]: Like who is able to do that and is that common?
24:13
[SPEAKER_01]: So with a reverse mortgage, if there are deferred taxes on the title at the time we're doing the reverse mortgage, then the deferred taxes have to be paid out because the deferred taxes are in first position.
24:24
[SPEAKER_01]: So the mortgage has to go into first position.
24:26
[SPEAKER_01]: But once the mortgage is advanced, the person can continue to defer their taxes after that.
24:33
[SPEAKER_03]: but who's able to defer tax and what interest rate does the government charge on the outstanding taxes?
24:40
[SPEAKER_01]: I think after age sixty five you can defer taxes but in some situations you can defer taxes if you've got dependence at home and you've got younger kids at home there's a lot of scenarios in which you can defer taxes against your property but the bank has to approve it.
24:57
[SPEAKER_01]: So there are some banks that have what they call like a total equity plan or something that consumes the entire title of the mortgage.
25:05
[SPEAKER_01]: So it's a collateral charge of title.
25:07
[SPEAKER_01]: So sometimes those banks won't allow you to defer taxes because they don't know about that tax balance when they're giving credit facilities within it.
25:16
[SPEAKER_03]: And what about insurance?
25:17
[SPEAKER_03]: Are you noticing changes in the ability of people to ensure properties and what are the banks having to say about that?
25:24
[SPEAKER_01]: In sure for life insurance or in sure of property insurance.
25:28
[SPEAKER_01]: Property insurance?
25:29
[SPEAKER_01]: There are some situations where it's getting challenging to get property insurance.
25:34
[SPEAKER_01]: There's some straddles that have, if there's flooding or water issues, sometimes there can be issue with that when it comes to strad insurance.
25:42
[SPEAKER_01]: There can also be challenges with homes where just trying to remember what the situation was, where the particular lender on title was not on a specific list.
25:52
[SPEAKER_01]: So when we're talking about private mortgages, sometimes the insurance companies won't land with certain private lenders.
26:01
[SPEAKER_00]: We've seen it also very difficult for homes that have been vacant for a greater than two years.
26:08
[SPEAKER_00]: There's a few insurers that will do it, but you have to look for them even if they're being inspected and kept up.
26:15
[SPEAKER_03]: Yeah, we see that unusual situations where what was the one where I think it had been up to for ten plus twenty or twenty years to strada and houses.
26:24
[SPEAKER_03]: Oh, really?
26:25
[SPEAKER_00]: Yeah, we're unique set of situation.
26:28
[SPEAKER_03]: We get some interesting increase into some insurance.
26:33
[SPEAKER_03]: That's what an interesting thing about our role as administrators as we see a lot of the unusual circumstance.
26:39
[SPEAKER_01]: And there's also a location like if it's in a floodplain that can be an issue for insurance.
26:44
[SPEAKER_01]: There's so many different property types that are just uninsurable or very challenging or you pay a lot of money for insurance.
26:52
[SPEAKER_01]: I recently had a situation where in a generational home where the kids were running a small business out of the place, but they did not have commercial insurance.
27:02
[SPEAKER_01]: So they were denied home insurance because it became evident that they were running their business out of their home, like getting packages delivered and I couldn't anything and they didn't have.
27:11
[SPEAKER_01]: So they ended up having to get an expensive home insurance policy.
27:14
[SPEAKER_01]: Commercial policy it was was a lot.
27:17
[SPEAKER_03]: We have a home in Palm Desert and we got dropped by our insurance company.
27:23
[SPEAKER_03]: So we are scrambling.
27:25
[SPEAKER_00]: You can imagine the problems in California.
27:27
[SPEAKER_00]: Yeah, right for for homes that were burned down.
27:32
[SPEAKER_00]: It'll be very hard to get insurance.
27:35
[SPEAKER_00]: What advice would you give to somebody who wants to use Redel State as a key part of their legacy, but it isn't sure where to start.
27:41
[SPEAKER_01]: understand why you want to have what your goal is.
27:45
[SPEAKER_01]: Understand your short-term and your long-term goals.
27:48
[SPEAKER_01]: Being a real estate investor is not necessarily about property flipping.
27:51
[SPEAKER_01]: That can be a really dangerous game.
27:54
[SPEAKER_01]: Educate yourself, but don't just use chatGBT and Google, get proper advisors.
28:00
[SPEAKER_01]: So a proper mortgage broker, financial planner, lawyer that can help you determine the right path, whether you want to go with residential real estate,
28:08
[SPEAKER_01]: commercial real estate if you're buying investment properties.
28:12
[SPEAKER_01]: Understand what your financing options are.
28:15
[SPEAKER_01]: Understand what the tax implications are.
28:18
[SPEAKER_01]: Understand any ownership structures like how you're going to structure it and what your long-term plan is.
28:24
[SPEAKER_01]: Think about the long-term from day one.
28:26
[SPEAKER_01]: That's a huge one.
28:28
[SPEAKER_01]: So a lot of people worry about cash flow when it comes to investment properties, because if you're with the rental income versus the property values, most properties don't cash flow when it comes to that.
28:38
[SPEAKER_01]: But if you consider that shortfall you have in a rental property, for example,
28:43
[SPEAKER_01]: that you're paying out of pocket every month, would you be able to have the same amount if you invested that money on a monthly basis?
28:50
[SPEAKER_01]: Would you have the same amount of money at the end of twenty five years as you would if you had that mortgage paid off in twenty five years in that capital asset that's appreciated?
28:59
[SPEAKER_01]: So you have to think about those scenarios and then also consider how you want to transfer that to your children, your
29:07
[SPEAKER_01]: and how you would minimize the tax implications for them and making sure that all those things are stipulated in your well and communicating with your errors too.
29:16
[SPEAKER_01]: I think it was actually on one of your podcasts where we were talking about seniors in their seventies aren't necessarily sharing that information with their kids because they like to hang on to the property and it's their baby and they want to
29:28
[SPEAKER_01]: do that thing and I think communication between errors and parents and all that stuff needs to be well communicated so the transition is easy and everything is done smoothly and again I can't emphasize enough insurance.
29:43
[SPEAKER_01]: life, not only life, but disability too.
29:45
[SPEAKER_01]: Because if you've got a short fall of payments that you're making, you want to make sure that your insurance is going to cover you.
29:53
[SPEAKER_01]: If you have employment insurance, sorry, if you have disability insurance through your employer and you have a long-term disability, you're not going to get a hundred percent of your income anymore.
30:01
[SPEAKER_01]: So having a top-up of insurance would be important.
30:05
[SPEAKER_01]: one out of five people are diagnosed with cancer these days.
30:07
[SPEAKER_01]: So what happens if you're the one that gets that call and you're going to be dealing with being off work periodically for a period of time.
30:14
[SPEAKER_01]: So having all influences you can't buy it when you need it, but it's really important.
30:19
[SPEAKER_03]: So it used to be in the past if you bought real estate certainly in Metro Vancouver area that there is
30:27
[SPEAKER_03]: Certainly appreciation, and it was, it's been a part of people accruing wealth, but it seems, but the headwinds of inflated property values may be in interest rates, have things shifted and are do you see people moving away from, from home ownership?
30:44
[SPEAKER_01]: My philosophy is it's not about timing the market.
30:48
[SPEAKER_01]: It's about time in the market.
30:50
[SPEAKER_01]: So some people luck out like they bought pre-twenty-twenty market was soft in twenty-nineteen and then they bought and then their property value just went up at a matter of two years and it's maintained that for the most part.
31:04
[SPEAKER_01]: but really for people who longer you're in the market.
31:07
[SPEAKER_01]: So again, think about your long-term goals and not worry about these market fluctuations because they will settle out in the end.
31:13
[SPEAKER_01]: And if it's an investment property, somebody's paying that mortgage for you.
31:17
[SPEAKER_01]: If it's your property, you are paying that mortgage and building your own equity regardless of the value.
31:25
[SPEAKER_01]: And you're not hanging your hat on your value every day.
31:27
[SPEAKER_01]: If you were paying rent, your rent is a hundred percent interest.
31:31
[SPEAKER_01]: You get no build of wealth, no build of equity whatsoever.
31:34
[SPEAKER_01]: So just be in the market as the biggest tip.
31:37
[SPEAKER_01]: So what about young people today that feels insurmountable?
31:41
[SPEAKER_01]: What do you advise them?
31:44
[SPEAKER_01]: We're not all entitled to live in a single detached home, but if we start early enough, we can get there.
31:50
[SPEAKER_01]: I'm building towards that.
31:51
[SPEAKER_01]: And it's a combination of income and equity build over time.
31:54
[SPEAKER_01]: So if you start small and you think maybe only we do have the stress testing candidates, so you have to qualify it to percent above the contract rate.
32:03
[SPEAKER_01]: So if you can afford more, keep more against your mortgage, build that equity by paying it down and that equity growth will help you to jump up to the next property.
32:13
[SPEAKER_01]: I have the philosophies that if you think you can afford that next property, start making your mortgage payments as if you're already there.
32:22
[SPEAKER_01]: And while you're waiting to either qualify for that or get the funds you need together, whatever it is that's holding you from doing that move right now, you're paying off your mortgage faster and building equity so that jump is it's easier.
32:35
[SPEAKER_03]: So you mentioned a stress test, what is that?
32:39
[SPEAKER_01]: It was a guideline put out by the government that in order to get a mortgage, you have to qualify at two percent above the contract rate.
32:47
[SPEAKER_01]: And then there's also the benchmark rate, which is certainly in two percent of a contract rate.
32:52
[SPEAKER_01]: So if you're getting charged four point five percent on your mortgage, then you would have to qualify as if you were paying six and a half percent.
33:01
[SPEAKER_01]: So when we had the pandemic and interest rates were extraordinary low, two percent above the rate was still not a reasonable amount.
33:09
[SPEAKER_01]: So they have it's the higher of two percent above the contract rate or the benchmark rate.
33:15
[SPEAKER_01]: And the benchmark rate is five point two five percent.
33:18
[SPEAKER_01]: So people who got mortgages at one point, eight, six, so to two percent, we're not qualifying at those rates.
33:24
[SPEAKER_01]: They were qualifying, if they were paying five point, two, five percent.
33:28
[SPEAKER_01]: And that's why when inflation came and hit us hard, a lot of people didn't lose their homes because they qualified as if they were paying five and a quarter.
33:40
[SPEAKER_01]: And so when the stress test came in in twenty eighteen, there was a lot of noise around, do we need this?
33:46
[SPEAKER_01]: This is not necessary, but then that time of inflation proved to us that the stress test is a good measure.
33:53
[SPEAKER_01]: And it's okay to have it.
33:55
[SPEAKER_01]: I don't think we'll ever see it go away.
33:57
[SPEAKER_03]: One other thing is that is it a lot harder to borrow if you're self employed versus a thief got a traditional employment job?
34:04
[SPEAKER_03]: Absolutely.
34:04
[SPEAKER_03]: Yep.
34:06
[SPEAKER_01]: We look at two-year history, and we look at what you're paying taxes on.
34:11
[SPEAKER_01]: So for example, if your business is making, and it also depends, are you a sole proprietor, you incorporated.
34:17
[SPEAKER_01]: Sometimes we can use some of the income within your corporation, but it depends on whether you're showing a positive net income year after year, and if your company is growing, if your company is shrinking, then no.
34:28
[SPEAKER_01]: But we can't use your gross business and come to qualify.
34:31
[SPEAKER_01]: We're using the net amount that you're paying income taxes on.
34:35
[SPEAKER_01]: So if you're writing your income down to nothing or drawing very little personal income out, it's going to affect your ability to get a mortgage.
34:42
[SPEAKER_01]: I'm going to listen to his fine Drew.
34:44
[SPEAKER_01]: It's Sabina Bobber.ca.
34:46
[SPEAKER_01]: I'm also at Instagram.
34:47
[SPEAKER_01]: My Instagram handle is at Sabina B. And I also have my website, the divorce or it's divorce circle.ca.
34:55
[SPEAKER_02]: Thank you very much.
34:57
[SPEAKER_01]: Yes, Sabina, thank you so much for sharing your wisdom and knowledge.
35:01
[SPEAKER_03]: Welcome.
35:01
[SPEAKER_03]: Thanks for having me.
35:02
[SPEAKER_02]: You're welcome.
35:04
[SPEAKER_03]: This podcast is for informational purposes only and should not be considered individual legal, financial, or tax advice.
35:11
[SPEAKER_03]: Make sure to consult the advisor of your choice to advise you on your own circumstances.
35:18
[SPEAKER_03]: Thank you for joining us for this episode of Your State Matters.
35:21
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35:26
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35:32
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35:37
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35:50
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