Seniors' largest asset is often the home they live in. There are ways to use this equity to live on. In a reverse mortgage you continue to live in your own home while accessing your equity. Another option is to sell your home and use some of the equity to purchase a life lease. Because purchasing a life lease usually costs less than purchasing another home the rest of your equity would then be available for you to live on.
Some older people have most of their money invested in their home. Once retired, some individuals may find it difficult to meet their living expenses. While the equity built up in a home may provide some needed cash if it’s sold, many older adults do not wish to sell and leave their home. In such cases some older adults may be interested in a reverse mortgage.
Reverse mortgages are not for everyone and may not always be a good deal for the homeowner. Reverse mortgages may have higher interest rates than a traditional mortgage or line of credit and may involve additional fees or prepayment penalties. A lawyer can ensure your interests are protected and that a reverse mortgage is properly set up.
A reverse mortgage is a loan, secured by the equity in your home, and allows you to borrow up to 55% of the value of your home. The funds may be paid to you as a lump sum or by fixed monthly payments. However, unlike traditional mortgages, you do not generally make payments on the loan. Instead interest on the loan accumulates over time and decreases the equity you have in your home. If you sell your home or it is no longer your primary residence, you must repay the loan plus interest. Otherwise you continue to live in your home and have access to the money borrowed. Upon your death, your estate must repay the entire amount of the loan plus interest to the lender.
Life lease arrangements involve a unique relationship between landlord and tenant. Tenants do not own their housing unit, yet they are not covered by the standard protections of The Residential Tenancy Act. It is important to carefully read and understand the terms of any agreement, and to be aware of the rights and responsibilities of each party to a life lease.
The term "life lease" refers to a residential tenancy agreement that combines some of the rights and responsibilities of home ownership with those of a landlord-tenant relationship. Housing complexes that offer life leases are usually designed with older adults in mind, but this may not always be the case.
Generally, living units under a life lease are similar to an apartment building or condominium complex. They may be operated by a private for-profit business, or by a non-profit organization. In many instances, life lease complexes are developed by churches and service clubs. In some communities the Saskatchewan Housing Authority provides seniors affordable housing through the Life Lease Program.
Under a life lease arrangement, tenants pay a contribution or entrance fee in return for a life lease on their rental unit. The life lease provides the tenant with an exclusive right to occupy that unit for life. Paid at the outset of the lease, such fees generally provide some or all of the funds required to build or develop the complex. When an existing unit is leased to a new tenant, the fee may be used to pay the original tenant or their estate a refund upon termination. Interest earned on the entrance fee belongs to the landlord, not the tenant.
Some life lease complexes allow residents to participate in decision-making and administration of the complex, while others do not. Because life lease complexes are usually built with older adults in mind, they may also provide features that are particularly appealing to seniors and not otherwise available. This may be particularly true in smaller urban centres and rural communities.
Older adults often use the equity in their existing home to finance the initial entrance fee for a life lease. Entrance fees are usually less than the purchase price of an equivalent condominium. Since tenants don't own their rental units, they can reduce the responsibility, work and expense of living in a conventional home.
Tenants must pay a monthly occupancy fee, much like tenants under traditional rental agreements pay rent. This monthly fee helps cover common costs, such as utilities, taxes, insurance, management fees, and so on. Generally, tenants who pay a relatively high entrance fee will pay lower monthly fees.
A life lease ends either when the tenant dies or when they decide to move on to different living arrangements. At this time the tenant, or their estate, can sell the life lease. The life lease may contain a clause that the landlord will buy the unit back for an agreed price. In other cases, the tenant may be able to sell the life lease at a profit, depending on the market. Sale to a third party may require the consent of the landlord.
Individuals considering entering a life lease should be aware of the potential for rent increases and other additional costs, procedures for terminating the lease, and the possibility of recovering the initial entrance fee. It is also very important that older adults know whether the facility allows for increased levels of assistance and care, depending on a person's changing needs. Some complexes may offer increased services such as housekeeping, meals, personal care or medical support.
Under the Life Lease Program eligible older adults can purchase the right to occupy a particular housing unit for their lifetime. A life lease can provide many of the benefits of home ownership without all the responsibilities.
Generally a substantial deposit is required – somewhere in the range of $60,000 to $135,000 – in addition to a monthly occupancy fee. The deposit, less any outstanding fees, is returned at the end of the lease. The Saskatchewan Housing Corporation fully guarantees the deposit and operates the program through local housing authorities. This program may not be available in all communities. As with any consumer transaction, it is important to understand the fine print and be aware of all terms, conditions and restrictions.