Unlike other sectors of the economy, the purchase and sale of life annuities has exploded since the coronavirus epidemic, which was officially declared a pandemic by the World Health Organization (WHO) on March 11, 2020. Due to the more advisory nature of life loans, as well as the fact that they serve a population that is hardest hit by the effects of the disease, the life loan industry has seen a nice upturn.
Selling for life allows older borrowers to convert their home equity into cash and receive the loan proceeds in the form of a lump sum, installments or a line of credit. No payments are due on the loan until the borrower dies, sells or permanently vacates the home. Unlike a conventional mortgage, the amount owed on a life mortgage will increase over time as the borrower receives payments from the lender and interest and fees are added to the loan.
The amount of money the borrower receives on a life mortgage is based on age, interest rate and home value. Loans are subject to a financial assessment which includes a review of the borrower’s credit history and cash flow. The borrower must have a satisfactory credit history demonstrating ability to pay property charges, including property taxes and insurance.
Almost three years have passed since the start of the COVID-19 pandemic, and as the pandemic continues, many seniors are still feeling financial pressures. Using a life sale is one solution older homeowners can use to relieve their financial stress.
As baby boomers reach retirement age, selling a life annuity becomes increasingly attractive. Not least because many of them are coming to this milestone with incomes and economies hit hard by the pandemic, and at a time when financial markets are producing a lot of instability and disappointing returns.
At the same time, a significant proportion of seniors have finished, or almost finished, paying their mortgage. The temptation to dip into one’s real estate assets is becoming increasingly strong, particularly in the face of the drop in the number of descendants per family, and therefore of heirs.
A large proportion of seniors who have sold a life annuity have done so to raise cash, to maintain a certain standard of living, or to meet needs related to advancing age. Others have also done so to accompany their children in buying a house in these times of recession.
Life annuity purchases have increased because this form of real estate acquisition has become more than interesting for buyers, especially young buyers. Due to the pandemic, the conditions required by sellers have been drastically reduced, because many elderly people needed immediate cash to meet medical care. Remember in passing that people of the 3rd age are those who have been hardest hit by Covid-19. Life annuity sales, boosted by the health crisis, have therefore become attractive.
The sale in life has many advantages. By selling in life, the senior can maintain a decent standard of living. Many seniors experience a significant reduction in income when they retire. By selling in life, you can supplement a reduced income and continue to pay your bills. Instead of leaving your home, selling a life annuity allows you to age in place, and potentially stay close to friends and family.
The purchase in life also has its advantages. For a young person, buying a life annuity represents a long-term investment. By buying a life annuity, you generally pay less than with a classic real estate purchase. Indeed, in the context of a life annuity purchase, the market value of the property is subject to a net reduction. This abatement can sometimes constitute a third of the market price of the property you are targeting. Of course, you will have to wait to take possession of the property, but at the same time, you save large sums of money.