We are seeing an increasing number of clients turn to revenue properties to supplement their monthly income in retirement. But how does that work given that reverse mortgages primarily lends on the primary residence?
Client Details:
- 70 year old male & 70 year old female
- $2.4M primary residence in North Vancouver
- Purchasing 1 bedroom condo in Lower Lonsdale for $725,000, currently rented for $2,500/month
- Monthly condo expenses: $350 strata fees, $150 property taxes, $100 insurance
Option 1: Mortgage on Primary Residence Only
Assuming the primary residence is free & clear these clients can do a $725,000 reverse mortgage and purchase the condo for cash, and still have some reverse mortgage funds to draw on in case of emergency.
There are no payments required on the reverse mortgage so the only things the rental income needs to service are the strata fees, property taxes and insurance. Our clients will have monthly net rental income of $1,900.
These clients could have chosen to do the Reverse Income Advantage product and received $1,900/month that way, but they value real estate and like the idea of having two properties growing in value over time. And because they used the $725,000 reverse mortgage to purchase an investment property, the mortgage interest is tax deductible (please consult an accountant for tax advice).
Option 2: Inter-alia Mortgage on Primary Residence & Rental Property
But what if their primary residence has an existing $200,000 mortgage? No problem! They will do an inter-alia mortgage over the existing property and the new rental property to get them the extra funds they need to pay off the existing mortgage and purchase the revenue property.
Based on a $725,000 purchase price, these clients qualify for an inter-alia mortgage of $924,000. The clients will have just enough to payout their existing mortgage and purchase the new revenue property.
Not only are they receiving $1,900 in net rents each month, they no longer have a mortgage payment on the previously existing $200,000 mortgage. Their cash flow situation is improved significantly.
Please let me know if you have any questions about how to support you or a loved one in the purchase of a revenue property.
Angela Calla is an 19-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.
Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.
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