What is a reverse mortgage?
I’m getting this question a lot lately as folks look for ways to make their home work for them. A reverse mortgage is a way to access the equity in your home, turning it into tax-free money to do with as you wish.
I’m not kidding.
If you are a Canadian homeowner over 55 years old, a reverse mortgage is a great way to access your home equity. Your home equity becomes cash that you can access without a monthly mortgage payment, giving you financial security and freedom for your future.
How Reverse Mortgages Work
A reverse mortgage allows you to access up to 55% of your home’s appraised value. Depending on the type of product you’re eligible for, you can access this equity through a lump-sum amount or as a lump-sum with advances over time.
You do not have to make regular mortgage payments as long as your home is your primary residence. All you have to do is keep making your regular property taxes, home insurance, and keep your home maintained.
So when do you pay back the loan? When you move or sell your home.
Because home values have historically increased over time, by the time you are ready to leave your home, its sale value will be enough to cover the balance of the reverse mortgage. According to one of my lenders, Home Equity Bank, 99% of their CHIP Reverse Mortgage clients have equity remaining in their home after the loan is repaid!
What Can You Use Your Reverse Mortgage Funds For
The funds from your reverse mortgage can be used in any way that you need. Here are a few ways that some Canadians have used their reverse mortgage funds:
Cover unexpected life expenses, like medical costs,
Pay off high-interest credit cards,
Pay for in-home care or medical expenses,
Take a vacation and travel the world (we’ll soon be able to!),
Gift it to your children or grandchildren as an early inheritance,
Purchase a new owner occupied property
What Are The Benefits of a Reverse Mortgage?
In my opinion, a reverse mortgage can be a great product for those that qualify. You can take advantage of the equity you’ve worked hard to build, while also:
Maintaining full ownership of your home,
Customizing how you access your funds with a one-time lump sum, amount or quarterly/monthly instalments that can even include a lump-sum,
Protecting your investment portfolio for an extended period of time (if you invest the money),
Accessing tax-free funds that do not affect your OAS or CPP.
Eligibility
The following factors are assessed to see if you are both eligible and qualify for a reverse mortgage in Canada. Like all mortgage products, a reverse mortgage can be customized to what you
Eligibility:
A Canadian homeowner,
Homeowners must be at least 55 years or older,
A minimum appraised value of $150,000*
*Other reverse mortgage types may require a higher appraised value.
Qualifying Factors:
Where your home is located,
The type of home (condo, townhouse, detached, etc.),
The appraised value of your home,
The condition that your home is in.
What Are The Associated Costs of a Reverse Mortgage?
The costs associated with a reverse mortgage include current interest rates and fees, which vary, so it is essential to discuss these before signing any paperwork. Other costs for reverse mortgages can include:
Appraisal - Required. Costs between $300 - $500 for most properties
Independent Legal Advice - Required. Costs between $500 - $1,500
Property Taxes - Required. Must be up-to-date and can be paid through mortgage proceeds.
Is a Reverse Mortgage for Me?
You should review your financial situation before deciding on if a reverse mortgage is right for you. I would also highly recommend working with a mortgage broker, like myself, and a financial advisor. We can help you put together a plan that’s going to support your financial goals and desires.
If you are thinking of getting a reverse mortgage today, I am here to help. I have over 23 years of experience in the mortgage industry and would love to help you navigate the mortgage process.