A reverse mortgage is a financial product that must be carefully planned for. There are safeguards and risks associated with one of these. Homeowners must have all the details, including the circumstances under which they can lose their house. Remember, keeping your mortgage in good standing requires specific considerations, so you can consider a reverse mortgage. Because no regular payments are involved, it’s less likely you’ll lose your house with a reverse mortgage. However, when homeowners neglect to pay the property taxes or insurance or neglect the home, a power of sale or foreclosure process can start.
Even then, lenders usually try to work with borrowers to refinance or restructure the loan.
Understanding Reverse Mortgages
A reverse mortgage is available to Canadian homeowners who are usually 55 or over. It allows them to borrow against the equity they have built up in their homes without selling them or making the standard mortgage payments. They can generally access up to 55% of the current market value of the house.
The money is usually paid out monthly. It’s essential for people looking into a reverse mortgage to understand that no regular payments are needed, but interest does build up on the loan amount.
Generally, this type of mortgage gets paid back after the homeowner passes away, moves out or sells the property. If you’re thinking about a reverse mortgage, remember that you keep the property’s ownership while living in it. That means you’re still responsible for maintenance, insurance and property tax.
To be able to get a reverse mortgage, homeowners need to understand how to avoid losing the property.
Circumstances Leading to Losing Your Home
Defaulting on a mortgage can put you in a position where you can lose the property before the option for a reverse mortgage even comes up. Here’s some of what homeowners need to know to prevent this.
A power of sale process can start when the terms of a regular mortgage agreement are broken. Usually, that’s after the borrower has missed a few payments. Other ways to default on a mortgage include breaching a covenant.
Foreclosures and powers of sale with reverse mortgages are less frequent because there are no regular payments needed. These processes only come into play when homeowners don’t honour the terms of the mortgage agreement.
Those terms can include not paying taxes, purposely damaging the property, or using the property for illegal activities. Failure to have the proper insurance on a home or other properties can also cause a breach of covenant.
Although foreclosure is possible, the power of sale is the most common tool lenders use to recover expenses, interest, and principal. A homeowner’s best option is to steer clear of this circumstance.
Safeguards to Prevent Power of Sale or Foreclosure
Preventing a power of sale or foreclosure will help you be in a position to decide on a reverse mortgage when you have the equity.
Budget
If you’re struggling to pay a mortgage, learning a few budgeting techniques can help. Zero-based budgeting can help you avoid a power of sale or foreclosure. This method assigns money to the biggest priorities, like debt payments, first.
Another excellent budgeting template is the 50/30/20 rule. Using this technique, you allocate half of your income to housing and utilities, 20% to savings, and 30% to wants.
A Private Lender Second Mortgage
Borrowers who are having trouble should talk to their lenders. Getting a second mortgage from a private lender can give you the money to stop a power of sale or foreclosure process. Remember, these are based on your equity, not your credit score.
Having all the information to make an informed decision is essential.
What to Consider Before Getting a Reverse Mortgage
A reverse mortgage needs to be considered carefully. The interest compounds over time, increasing the size of the balance you need to pay back.
This is a mortgage product, so it comes with fees like closing costs. The lender might charge an administrative fee, and you’ll need to put some money aside for the legal fees a lawyer charges.
The house will need to be appraised. Getting a certified, licensed appraiser is best because you’ll need an objective market value assessment. The current condition of the property, as well as its location and age, come into play.
A reverse mortgage must be repaid upon the death of the last surviving borrower, the sale of the property, or if the home is no longer the primary residence like when someone moves to long-term care The heirs or estate needs to be aware of this. One of these products also affects how much equity you have to work with in the future.
Steps to Take if You’re at Risk of Losing Your Home
If you’re close to defaulting on your mortgage, one of the first things to do is contact your lender. Lenders are usually interested in working with borrowers who are having issues. Likewise, if you’re facing a power of sale or foreclosure, talking to an alternative lender can help stop the process.
Jonathan and Ron Alphonso are real estate industry professionals who can help you qualify for and get a private loan, which can include a second mortgage. With the money you get from one of these alternative products, you can stop the power of sale and foreclosure process.
Ron and Jonathan are experts in their field, and you can get more information on what to do if you’re at risk of losing your home at mortgagebrokerstore.com and power of sales ontario.ca. Mortgage Broker Store has many years of experience in supplying alternative mortgages. Both experts are credible and reliable industry sources for major publications like Global News and the Toronto Star.
