02 Mar Reverse Mortgage Options
You’ve likely seen the commercials on TV. Retirees, who no longer have enough money coming in each month, are looking for a way to make ends meet. Since they own their own home, they turn to a reverse mortgage to give them a better retirement lifestyle.
But what exactly is a reverse mortgage? According to the Financial Consumer Agency of Canada, it is “a loan that is designed for homeowners 55 years of age and older. A reverse mortgage is secured by the equity in the home, which is the portion of the home’s value that is debt-free. It allows homeowners to obtain cash, without having to sell their home.”
So how can you get a reverse mortgage? The first step is to contact a mortgage specialist, who will answer your questions and walk you through the process. They can also help you complete the application form and gather any necessary documents.
Once you are approved, your lender will let you know how much money you may borrow. In Canada, the maximum is set at 55 per cent of the value of your home. You then decide how much you need, and if you want a lump sum or regular monthly payments. You can also do a combination of the two. Then, the reverse mortgage lender sets up your loan, letting you essentially use the proceeds from your home without having to sell it.
There are several positives to this type of loan. First, the payments from a reverse mortgage are not considered income, so they aren’t taxable. They also don’t affect CPP, OAS or GIS payments, which is helpful for seniors. Another advantage is that even with a reverse mortgage, seniors don’t lose ownership of their homes.
Before taking on a reverse mortgage, it’s also important to be well informed of the downsides. There are a few fees and expenses to set up the loan, which can add up. Then, as homeowners borrow from their equity, interest accrues. Another disadvantage is that interest rates on reverse mortgages tend to be higher than regular posted rates.
Since homeowners don’t have to pay this interest each month, it is applied against the home’s equity. Eventually, when the homeowners sell, the reverse mortgage loan is repaid in full, with interest. That means there may not be much money left over after the sale. But what if you come into some money and decide to repay your reverse mortgage before selling your home? You may be on the hook for an early repayment penalty.
Throughout Canada, this type of loan is gaining in popularity. According to a Globe and Mail article, the number of new reverse mortgages is likely to rise by 25 to 30 per cent per year. But reverse mortgages are not always the best option, even for seniors. If the money is only needed for a short period of time, or monthly payments can be met, another type of loan may be a better choice.
If you’d like to learn if a reverse mortgage is right for you, call me today, or complete my online Instant Mortgage Form. I’ll review your information and contact you with my free, no obligation mortgage advice.