What is a Reverse Mortgage?
A reverse mortgage is a useful financial tool available to Canadians who are 55+ and older to access the equity in their home as tax free Cash with a payment free option.
A reverse mortgage is a useful financial tool available to Canadians who are 55+ and older to access the equity in their home as tax free Cash with a payment free option.
One of the primary benefits of a reverse mortgage is that there are no regular principal or interest payments required. A reverse mortgage allows you to access upto55% of your home’s value.
What typically determines on how much you qualify for is based on the property type, home value, your age, and property location.
Interest is added to the balance as long as you keep the loan, and you only need to pay the balance when you stop to occupy the home permanently.
Borrowers only need to maintain property taxes, home insurance and maintain your home in good condition.
Majority of Reverse mortgage providers in Canada are from Home Equity Bank, Equitable Bank and Bloom Finance.
Purpose Of Funds
Reverse mortgages can be used for any number of things, including:
- Finance, Refinance, purchase (owner occupied principal residence)
- Paying off existing debts (towards existing mortgage, Credit cards etc.)
- Home Renovations
- Boosting retirement income and overall standard of living
- Paying for travel or leisure experiences
- Financing health and live-in care expenses
- Purchasing a new home
- Help your loved ones with a living gift (down payment for children/grandchildren)
- Funds can be disbursed as a lump-sum , monthly advances, or combination of both.
Home Ownership and Eligibility
The reverse mortgage borrower always remains the owner of the home and retains title.The borrower of a reverse mortgage must be at least 55 years old, and maintain ownership of your primary residence. Factors that determine how much you qualify for would be: Your Age, appraised value of your home, location, property type.
You would need to meet with a lawyer for Independent legal advice before funds are advanced to you.
Frequently Asked Questions (FAQ’s)
Will there be any Equity Left in my home to pass along to your children?
After your reverse mortgage loan is paid off, the equity in your home always belongs to you. While the balance of the mortgage grows over time with no payments being made, over a long period of time, the equity in your home is maintained or higher, with increased home values.
Will the Bank own the home?
No. The homeowner retains the title and maintains ownership of the home. It’s required for the homeowner to live in the home, pay taxes on time, have home insurance maintain the home in good condition.
Can you get a reverse mortgage with bad credit and limited income?
Yes you can. Although encouraged to have good financial history, there a multiple options with a reverse mortgage to get you access to equity in your home.
What if a borrower has an existing mortgage ?
An existing mortgage would need to be replaced with the reverse mortgage in 1st position, along with other secured debts.
What is the maximum Equity can that can be accessed?
You can access up to 55% of equity in your home value based on your age, property type, appraised value and location. The older you are – more you qualify for.
If the reverse mortgage quote does not qualify you for the full amount required, often you can add additional funds (on which payments would be made) along with a reverse mortgage to pay off existing debts.
What if a homeowner cannot afford payments?
There are no monthly payments required on the reverse mortgage loan as long as homeowner is living in home.
Should a reverse mortgages only be considered as a loan of last resort?
No. More financial planners are recommending a reverse mortgage product to supplement income or pay off existing debts for clients 55+ and older instead of selling and downsizing, or taking out a conventional mortgage or line of credit.
Who gets to keep the profit if home value appreciates?
The client get to keep the appreciation in home value as they are the homeowner and title belongs to them.
Can you make prepayments?
Yes you can. Although no regular principal or interest payments are required you can make monthly interest payments and usually pay up to 10% of the principal amount on renewal without penalties. After 5 years from initial advance and within 30 days you can pay the balance in full without a penalty.
Steps to Obtain your Reverse Mortgage
- We have a phone meeting to explain the product and how it works and see if it would be the right fit for you, how much you qualify for based on information about yourself and your home. If you wish to proceed at this time I will order your appraisal.
- While waiting for the appraisal report, please scan and email me 2 pieces of ID, and other documents required to have your approval in place.
- Once the appraisal report is received , it would take approximately 2 days for the banks underwriters to review the report and advise me the amount you have been approved for.
- Once approval is received, I would connect with you to re-confirm the amount wanted for the advance and interest rate option you prefer. I would make arrangements to send your disclosure approval package to you and schedule an appointment so everything is explained in detail.
- During our scheduled telephone appointment I would ensure you fully understand and are comfortable with terms, conditions and costs associated with your loan. Finally we would select a lawyer to obtain Independent legal advice and have your signed your commitment documents sent back to me.
- Your preferred lawyer would receive the instructions from the reverse mortgage bank in about 3-5 business. Once you meet with your lawyer in person typically funds are available in a couple of days.
