Mortgage 101 LIVE Special – reverse mortgages, lump-sum payments, and investments | November 23, 2021

In this special LIVE episode of Mortgage 101 with Clinton Wilkins and Todd Veinotte, as heard on CityNews 95.7, the guys took calls live on the air to answer your mortgage questions! In this episode, callers ask about reverse mortgages, real estate prices, variable-rate and fixed-rate mortgages, lump-sum payments, and if you can use investments as security for your mortgage, without pulling the money out of the investment.

Full segment:

Don’t feel like listening? Check out the transcript below!

Transcript:

Todd Veinotte: [00:00:07.47] Alright. Well, you heard it: It’s Mortgage 101, it’s part of Financial Literacy Month, we are taking some time to chat with Clinton Wilkins, our mortgage guru, and taking your calls as well. The way to give us a call and ask Clinton questions related to mortgages is 902-405-6000 or 877-801-8255. We’ve got Clinton to the bottom of the hour, Clinton. Thanks for doing this. What’s going on?

Clinton Wilkins: [00:00:32.52] Thanks for having me, Todd. You know, it’s a little bit of a rainy day here on a Tuesday, but you know, we’re doing pretty well and November is almost coming to a close, believe it or not.

Todd Veinotte: [00:00:42.45] Yeah, it’s more than a little bit of rain, though.

Clinton Wilkins: [00:00:45.45] I know. I really kind of slept through it all, but there were definitely some major, you know, power interruptions for some Nova Scotians, for sure.

Todd Veinotte: [00:00:53.73] Yeah.

Clinton Wilkins: [00:00:54.54] So it’ll be interesting to kind of see what moves along today. I know even some people that we do business with that live here locally, that work for some of the financial institutions, they work from home, they don’t have any power. So we’ll we’ll see how how fast things move here this afternoon. And luckily, we have power at the office and I didn’t lose any power at home. How did you do, Todd?

Todd Veinotte: [00:01:14.76] Well, I look, I maybe I’m not living as good a life as you. I didn’t sleep through at all. The wind was howling pretty, pretty steadily there and lots of lots of rain. However, I survived my friend.

Clinton Wilkins: [00:01:26.27] That’s good. And we’re going to be seeing a lot of each other this week.

Todd Veinotte: [00:01:30.33] How so?

Clinton Wilkins: [00:01:31.26] Well, we’re going to be gearing up here for our weekend show. So we’re going to be recording,

Todd Veinotte: [00:01:35.49] Oh, that’s right, we’re recording! Exactly! Yeah, thanks for reminding me.

Clinton Wilkins: [00:01:39.24] Our show here, It’ll be on Saturday and Sunday, and that’ll basically wrap up Financial Literacy Month and we have some guests coming on, so that’s pretty exciting. And I’m looking forward today to taking some calls on the air. It was a really great last week, you know, to talk to listeners, you know, we haven’t done that all year. So it was it was exciting.

Caller Jim asks about reverse mortgages

Todd Veinotte: [00:01:57.84] Alright. 902-405-6000 is the way to do just that. Your mortgage related to questions 902-405-6000 Jim, hello!

Jim: [00:02:10.65] Hey! I won’t keep your lines up. I just want to know from the mortgage man. How he feels about reverse mortgages, and I’m going to hang up and just listen to his answer on the radio.

Todd Veinotte: [00:02:21.18] Okay, thanks, Jim.

Clinton Wilkins: [00:02:22.47] Yeah, thanks, Jim. You know, we’re certainly getting a lot of enquiries about reverse mortgage lending. You know, in Nova Scotia, we do have an ageing population, Todd, like that’s reality. Reverse mortgages are really good for seniors. You know, obviously, if you own your home free and clear or you have a very small mortgage, a reverse mortgage could really work out well for you.

Usually, there’s kind of two schools of thought around reverse mortgages. One piece could be, you know, maybe cleaning up an existing mortgage, some unsecured debt, doing some improvements of the property and basically taking a lump-sum of money. And the way that a reverse mortgage works is the older the borrower gets, kind of, the more the lender will give you. So, you know, if you’re 70 years old, you may get a smaller amount. But if you’re 80 years old, you may get a bigger amount.

There’s another way that a reverse mortgage kind of is interesting, and as we know, there’s lots of seniors out there that have pretty limited income, whether that’s from pensions, CPP, OAS, but with this reverse mortgage product, you can actually take a monthly instalment.

Clinton Wilkins: [00:03:24.63] So you might still take a little bit of a lump-sum of cash, but maybe you’ll take a monthly instalment as well, and that can be a great way to increase the income tax-free. And with a reverse mortgage, there’s typically no payments, primarily. And it’s not that the bank necessarily owns your home, but you are eligible to stay in your home until the time that you either may go to like an, you know, assisted living facility or if you were to pass away, then the estate would need to sell the home just like you’d have to sell the home with any regular mortgage.

You know, the big difference is it’s not tied as much towards the borrower’s income. It’s more tied to the property and the age of the individuals. So, certainly an interesting product, and I think it works well for certainly the older borrowers. And you know, it’s a great solution to maybe keep a borrower in their home for longer. You know, if you know some of these homes need some modifications to make it more accessible and stuff like that.

Caller Tony asks about real estate prices

Todd Veinotte: [00:04:27.96] Alright 902-405-6000 is the way to reach this for Mortgage 101 or 877-801-8255. Tony, hello.

Tony: [00:04:40.01] Hi, Todd. I wanted to ask you, Clinton, about the potential for a bubble. A friend of mine just sold his house out here in the Porters Lake area. Had it on the market for $360,000. He eventually sold it for $450,000. I don’t understand. Can you tell me, I want to sell my house but my wife says, “Well, where would we live?” and I said, “I don’t know.”

I actually don’t know where we would live, and you know, I don’t want to get in a bidding war looking for a place, but then I’m thinking about I’m sure we could qualify for a mortgage even at $450,000 because of the equity we have in our current home. But I’m afraid. I don’t want to get into this bidding war. And I’m wondering what people, are they looking at that? Or are they looking at the potential for ending up underwater should their interest rates rise rapidly? And should I be afraid of that? Should I look at an ARM, a wrap-around or look at it fixed or whatever the case may be? Can you help me out with that?

Clinton Wilkins: [00:05:37.83] You know, I think that’s a question a lot of borrowers are thinking. And it’s not just Halifax and Nova Scotia and Atlantic Canada, it’s the same question from across the country. I need to be really honest with you. You know, the one thing here in Halifax, we’ve had a very stable market for years. You know, we’ve seen the one, two, three per cent growth. Yes, right now we are seeing some double digit growth numbers. Do I think that’s going to, you know, maintain? Do I think it’s still going to keep on going up this fast? Probably not.

But, you know, a lot has to do with the economics of what’s happening here in Halifax. It really comes down to supply and demand, and our population here is growing. And we certainly don’t have enough housing stock. I also think in Halifax and I’ll just use Halifax as like a broad term. I think our real estate here was undervalued for the size of our city compared to maybe other areas from across the country. So I think during the pandemic, yes, we saw some growth, but I think now we’re in a situation of the new normal.

I don’t think the prices are going to go down. I think it’s probably going to take 20 years to kind of get this, you know, the supply built up to a place that we may even be in a balanced market. So I think you’re good for a while. That’s my Coles Notes version and I don’t have a crystal ball, and I’m not an economist, but kind of see whats going on.

Caller Tony follows up with a question about fixed-rate mortgages

Jim: [00:06:55.65] I’m not trying to stop ya, I’m just curious if I do decide to sell, do I go for an ARM, or do I go for a fixed mortgage? I’m a senior citizen, my wife considerably younger than I am. You know, what do I do?

Clinton Wilkins: [00:07:08.82] I really like I personally like the variable. You know, I’m a big believer in the variable-rate. Historically, borrowers do better in a variable. Will it always be cheaper? Probably not. But the one thing that you really have to think about with a fixed-rate is sometimes it gives you a false sense of security, because what happens when a five year fixed is up for renewal? You know, today you can get a fixed on an insured, you know, mortgage maybe 2.59. What happens in five years? If that five year fixed is five per cent? That’s going to be a lot more shock than a very slow burn of increase in the variable.

The other thing that you really need to think about around rate selection is if you’re going to take a variable. Are you going to lose sleep at night? That’s a that’s a great question for me, I hope not. But, you know, for some people, they will. The one really nice thing about the variable is you can always convert it into a fixed. And if you were to break that mortgage early, because who knows what’s going to change in your life if you were ever going to break that mortgage early would only be three months interest to get out.

Jim: [00:08:08.85] Yeah, yeah, exactly. Okay, Clinton, thank you very much. It gives me some insight, at any rate, I really appreciate that. Have a good day.

Todd Veinotte: [00:08:15.33] Thanks, Tony.

Clinton Wilkins: [00:08:15.93] Yeah, no problem.

Todd Veinotte asks if variable-rates have had a sudden spike

Todd Veinotte: [00:08:16.47] You got it, 902-405-6000 or 877-801-8255. Yeah, the variable mortgage it’s, I think you and I have chatted about it before on one of the other versions of the show that we’ve done, iterations of the show. But I’ve had variable mortgages now for going on decades showing my age and never once has there been some big, huge swing. It just hasn’t happened. Can you recall a time when the variable rates, you’ve had to warn your clients this is coming?

Clinton Wilkins: [00:08:48.69] You know what? Honestly, Todd, in the last 15 years we’ve seen them go up and we’ve seen them go down, but usually goes down a lot faster than it goes up. And, you know, I think the one symptom of that is the overnight rate is really set by the Bank of Canada, which really is triggered by the government. And, you know, they lower to really keep people spending and keep liquidity maybe in the marketplace. But when they increase it, it’s very planned out and systematic.

And I think that when we do go to see some increases, and we’re going to. That’s going to happen. I think that we’re going to see some increases mid-late next year, and it’s going to be a very slow burn over the next number of years. But the gap between where a variable-rate is today and where a fixed-rate is even widening today. So borrowers today they know that the variable-rate is going to go up, but it’s still better.

They’re saving today, and what’s the future value of money? I think a lot of people are just thinking about this. And even with what the potential runway is for some rate increases, I think there’s still more security being in the variable. There’s so many pros that it kind of outweighs the cons of an increase down the road.

Todd Veinotte: [00:09:58.95] Alright. Stick right there, Clinton, 902-405-6000 is the way to reach us, or 877-801-8255. Mortgages 101: Your Guide to Homeownership continues when we come back.

Todd Veinotte asks about common mortgage misconceptions

Todd Veinotte: [00:10:12.04] Alright, it’s Financial Literacy Month and we are having some special programming with our mortgage guru, Clinton Wilkins, and we are taking your calls as well. Give us a buzz if you’ve got a mortgage related question: 902-405-6000 or 877-801-8255. That’s the way to reach us again, 902-405-6000 or 877-801-8255. Clinton what are a couple of the biggest misconceptions that you hear consistently out there when it comes to mortgages?

Clinton Wilkins: [00:10:46.75] I think a lot of it has to do with credit. You know, I think a lot of borrowers think that they can never get a mortgage or, you know, if they’ve had some credit issues in the past that they’re just, you know, in purgatory and they can never get to that next level. There’s always a solution, Todd. And we see a lot of borrowers that are existing homeowners potentially that have had some challenges in the past. And there’s always a solution there, especially in the more urban areas.

There’s a bunch of lenders that do, you know, alternative style lending that’s good for the short term. And sometimes these borrowers just need, you know, a little bit of a helping hand to kind of get to that next, get to the next stage of their life. And we do a lot of that kind of coaching type of stuff, which is, I think, really empowering. For me, we deal with a lot of first-time home buyers and we deal with a lot of existing home owners that might have even used a different financial institution, you know, in the past. And they’re really coming to us now for that expert advice. So it’s interesting. And, you know, I think every day is a little bit of a different day for us, which makes it exciting for me.

Caller Wally asks about lump-sum payments and paying more than the minimum on your mortgage

Todd Veinotte: [00:11:47.23] Alright, 902-405-6000 or 877-801-8255 and Wally is giving us a call. Hello, Wally.

Wally: [00:11:56.20] Hi, how are you today?

Todd Veinotte: [00:11:57.28] I’m well, you?

Clinton Wilkins: [00:11:58.66] Excellent.

Wally: [00:11:59.11] Good. When we first started, we got our mortgage renewed there last year and we got a two per cent, five year fixed mortgage. But our mortgage rate before that was at 2.46, but they recommended that we keep our payments the same, even though our mortgage, the percentage went down and the extra money would just go on to the mortgage and it would decrease our mortgage faster. Is that something that’s recommended or is that something that’s done?

Clinton Wilkins: [00:12:32.59] You know, if I could even change any of the marketing that I’m doing today, and I know we’ve talked just so much about like variable-rate. I know you’re in a fixed, but I really love payment increases and I love lump-sum payments. And really, now is a great time to think about stuff like that. And any time that we’re doing potentially like a refinance for someone, or if we do a renewal whether that’s at the renewal date or a mid-term renewal, and the rates lower, I love paying it like the higher rate.

So even, for example, borrowers that were doing a variable-rate mortgage today, and I need to be honest with you, like some of them on a purchase are getting, you know, prime minus 130, and that is a rate of 1.15. But I’m really encouraging those borrowers to pay it like they took a fixed-rate. So in some cases, it cuts three, four, five years off their amortization. And the more money that goes down on the on the balance, the more the amortization gets reduced. So, you know, it’s a great idea to do the lump-sum payment. I’m really a big kind of believer in that. Put the money aside and maybe once a year do a lump-sum payment, maybe $5,000 or $10,000, and you can just do a lump-sum.

Kind of the other alternative, and a lot of lenders allow this, is you can do a payment increase. So every payment you make, it’s increased a little bit. Sometimes it’s cool just to, you know, round it up to the next hundred dollars or rounded up to the next even number. And you know, any extra bit that goes on, the principal is certainly going to reduce that amortization. With the lower interest rate, you can certainly pay that mortgage down faster. I think you should definitely take advantage of it.

Wally: [00:14:11.83] Okay, thanks. I thought that was the case. I remember the mortgage person said it would, it was a significant amount, even though it wasn’t that much more of our payment. But to keep the payment the same, I thought, well, you know, if it’s going to be a significant decrease on the mortgage over the term, I thought, well, we may as well do it so.

Clinton Wilkins: [00:14:32.56] Well, just think, with the reduction in that interest rate, it’s going to save you thousands of dollars just in interest. So if that money goes right on the principal, it will definitely reduce the amortization. So I think it’s something you should think about.

Todd Veinotte: [00:14:42.73] Thanks, Wally.

Wally: [00:14:43.96] Thank you very much.

Caller Cheryl asks about using investments as security on a mortgage, without having to pull money out of the investment

Todd Veinotte: [00:14:44.71] All right. Take care. Let’s talk to Cheryl. Hello, Cheryl.

Cheryl: [00:14:48.58] Hi, how are you guys? Hi, Clinton.

Todd Veinotte: [00:14:50.65] Hi.

Clinton Wilkins: [00:14:51.40] Hi, how are you?

Cheryl: [00:14:52.51] Good. I just have a question. I had friends that, it was their second host and they didn’t need to do the home, the RSP home buyers’ program. And they were just kind of shy, you know, $50,000 to $100,000 of getting in on that home. Do you think there’s ever going to be a change where say, you have $200,000 or $300,000 in RSPs, you know where you could maybe use those as security without having to pull them out of the investments when you don’t feel you really need to?

Clinton Wilkins: [00:15:20.44] Hmm. Yeah, I don’t know. I think that’s going to be something that, it may a TBD for the future. I can tell you there are a few options other than the home buyers’ plan to get money out of the RRSP. The government actually changed it, I think two years ago, that if any borrowers had gone through a divorce or separation, they could basically become first-time home buyers again. So that’s kind of cool.

Cheryl: [00:15:42.42] Oh, that’s great!

Clinton Wilkins: [00:15:43.35] Yeah, so that was really, I think, very helpful for, you know, the single mother, the single father, you know, the single individual that, you know, really maybe has the ability to, you know, service a mortgage. But they didn’t have kind of that liquid collateral to put down for down payments, that they were able to do that home buyers’ plan again. So that’s really cool.

Cheryl: [00:16:05.67] What’s the maximum on that again?

Clinton Wilkins: [00:16:07.26] Thirty five thousand, yeah, and it’s $35,000 per individual. So if there’s two borrowers on a mortgage and they both can qualify for that home buyers’ plan, they both can take up to $35,000 out. And usually what we recommend is if borrowers do have RRSPs and sometimes you know they have TFSAs and other savings, we usually recommend that they take the money out of the RRSP first. So basically the first $35,000 they’re going to use, if they have the money in the RRSP, they use that. Because, as you know, there’s not many options to get money out of the RRSP tax-free, and they have 15 years to put it back. So it really is is a great program to get borrowers into a home. And you,

Cheryl: [00:16:46.68] Yeah, and you can’t,

Clinton Wilkins: [00:16:48.63] Sorry, go ahead.

Cheryl: [00:16:50.13] No, you can’t use it. Like, say, you feel that you can pay this for a house, but the bank says you can’t. But you have all these locked-in investments, and they don’t let you use that as security in the event you default on the mortgage, you see what I mean?

Clinton Wilkins: [00:17:04.81] No. Yeah, they certainly won’t tie up the other kind of assets. Usually with the mortgage that would only be secured against the home. There are some lenders and maybe even like some of the banks that will do a secured line of credit against some type of, you know, investment vehicles. And I think that’s more of a on a case by case basis, and that’s probably outside the scope of like what we would normally do. But there certainly are some lenders that will do some loans or lines of credit, I’ll just use this kind of as the air quote against some different types of investments.

So I think it depends on like what type of investment that it’s in and what the lender is, but there certainly could be some options. I think that would be more of a question to the, you know, financial institution that’s managing those investments and see if they do have any like secured or cross secured like loan guarantee programs, because that would be certainly something separate from the mortgage, but they might be able to do something like that.

Cheryl: [00:18:04.29] Yeah. And I think you can be more innovative when people know they have their pension locked in or, know what I mean? Their income is guaranteed. It’s not like they could be out of a job, say,

Todd Veinotte: [00:18:13.65] You know, we’re just out of time. I hate to cut you off, Cheryl, but we’re just out of time.

Cheryl: [00:18:17.67] Oh okay, thank you Clinton for everything.

Clinton Wilkins: [00:18:19.20] No problem.

Check us out at TeamClinton.ca/Radio

Todd Veinotte: [00:18:19.86] Thanks so much. Clinton, how do people get a hold of you?

Clinton Wilkins: [00:18:22.02] They can check us out online at TeamClinton.ca/Radio. Lots of great information on there. Lots of great information about Financial Literacy Month. And, you know, if they want some more information, they can certainly tune in this weekend, Saturday and Sunday. Todd and I will have our show on there for an hour and there’s going to be lots of great topics, so we love for you to tune in.

Todd Veinotte: [00:18:38.52] Always great. Thanks Clinton, my friend. I appreciate it very much.

Clinton Wilkins: [00:18:41.88] Thanks, Todd.

Todd Veinotte: [00:18:42.33] Alright. Take care. That’s Clinton Wilkins, our mortgage guru, and check him out online. As mentioned, he is as knowledgeable as anybody in the business, that’s for sure. A doctor shortage: The list is topping 81,000 when it comes to people on the waiting list for a family doctor. We’ll talk about that when we return.

If you have any questions, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.