Interesting Fact: Seniors now outnumber youth.
Last year, the Canadian population experienced its greatest increase in seniors (over age 65) since Confederation, and projections suggest that this imbalance will only grow. By 2031, one in four Canadians will be seniors, and by 2061, there will be 12 million seniors to just 8 million children in Canada.
CBC conducted a survey that asked seniors whether they planned to downsize in the future: 91 percent of seniors said they wanted to stay in their homes or neighbourhoods and live independently for as long as possible.
With seniors living longer and wanting to stay in their homes, Cameron Mackie began to explore how a reverse mortgage could benefit his clients, many of whom were highly successful business owners or retired executives.
Cameron was surprised to learn that 44 percent of clients with between $1 million and $5 million dollars in assets were worried about retirement and had, what we call, the “Downsizing Dilemma.”
For retired upper-tier clients, their homes are a reflection of their success. The Downsizing Dilemma is the fear that eventually they are going to have to sell their luxury home—the home that they adore, the home that represents who they are and how successful they are—and purchase something substantially smaller in an area less prestigious.
And that is exactly the situation Cameron’s retired clients found themselves in when they called him to inquire about a reverse mortgage. Cameron’s clients live in a gorgeous waterfront property in a suburb just outside of Toronto. When you walk into their house, it is like walking into the hotel lobby of a Sandals resort in the Caribbean—high vaulted ceilings and wall-to-wall glass views of Lake Ontario. Simply stunning.
Cameron’s clients were hit hard in 2008 when the stock market took a tumble; they estimate almost half of their investments were eroded, and this put a dent in their monthly cash flow. It did not help that the couple invested millions in a business that has not quite become profitable yet.
Faced with over $26,000 per year in property taxes, the retired couple estimates that they are short approximately $10,000 per month on income versus expenses. They manage by using their $2.5 million-dollar line of credit, but that is almost maxed out.
The obvious choice is for the couple to sell their $6-million-dollar home and move. But, like the 91 percent of the seniors that CBC surveyed, the thought of parting with their waterfront mansion, the home they love entertaining guests in (not to mention love living in), soon became a non-starter. How should they manage their dilemma?
Cameron showed them a cash-flow projection based on paying off their $2.5-million-dollar line of credit with a reverse mortgage. “One of the biggest fears clients have when they explore the reverse mortgage option is that all of their equity will be eroded,” says Cameron. “That’s simply not true in areas with strong luxury sales, as the future home appreciation will take care of this erosion.”
Cameron’s cash-flow projection looked like this:
As you can see, the long-term future growth of the value of the home (using a conservative 3.00 percent over a 10-year period) takes care of the interest and more. After 10 years of never making a payment, the clients will still have over $5 million in equity after they pay back the interest plus the principal.
“With the population aging, home values increasing and seniors not wanting to move, it’s the perfect opportunity to introduce the reverse mortgage concept to my luxury clients as part of their overall retirement plan,” Cameron states, adding that “whether they’re paying down debt, buying a condo in Florida or moving equity into an investment, it’s a win-win for everybody involved.”
About Cameron: Currently, Cameron has expanded to ten offices, of which eight are located in Ontario and two are in Florida. Cameron is now recognised as the first Canadian mortgage broker to open up client-servicing branches in Naples and Miami, Florida. His goal is to service the 500,000 Canadian snowbirds escaping the cold Canadian winters. More information on Cameron and his company can be found at www.ontariolend.ca