A Reverse Mortgage is a loan product secured by a principle residence enabling the homeowner to access the equity of the home and not make traditional mortgage payments on the loan. According to a recent study, 93% of Canadians want to remain in their home as they age. Access to traditional lending becomes limited for seniors as the income isn’t always there to support the lender guidelines.
What Is A Reverse Mortgage?
A Reverse Mortgage is a loan product secured by a principle residence enabling the homeowner to access the equity of the home and not make traditional mortgage payments on the loan.
According to a recent study, 93% of Canadians want to remain in their home as they age. Access to traditional lending becomes limited for seniors as the income isn’t always there to support the lender guidelines. With a Reverse Mortgage the interest is added to the Reverse Mortgage loan each month in lieu of the payment. The home is essentially paying the homeowner back for the years they have been paying the mortgage off.
A Principle residence can either be a single family home or a condo for consideration for a Reverse Mortgage. Your income isn’t a determining factor nor is your credit bureau, so Isn’t it about time your home starting paying you back?
In Canada you must be at least 55 years of age to apply for a Reverse Mortgage and the maximum equity available is 55% of the value of the principle residence.
In Canada we have two lenders that provide reverse mortgages to seniors. Both lenders have the same age requirement to apply for a reverse mortgage which is 55 years of age…
A house will yield more equity than a condo. Whether you are single or married will also determine your equity available and your age is also a factor. If you are married you will receive more equity and the older you are the more equity with you will receive on your Reverse Mortgage.
A Reverse Mortgage can refinance an existing traditional mortgage and consolidate other debts or a Reverse Mortgage can be used to purchase a new property, as long as it will be the principle residence for the borrower. The cash taken out of your home in a Reverse Mortgage is tax free and does not affect your pension income or your government supplemental pension income.
With conservative lending guidelines of 55% of the appraised value of the property, this ensures the borrower won’t pay back more on the Reverse Mortgage when the property is sold. Only at the time of sale is the borrower required to repay the Reverse Mortgage or when the borrower passes away. If 2 spouses are on title of the property and one spouse passes away, the Reverse Mortgage will not be called in for repayment.
The remaining spouse can live in the home stress free. A line of credit is a demand loan which can be called in for repayment if one spouse passes away. A line of credit also requires minimum monthly interest payment in contrast to the no payment for a Reverse Mortgage. There are a few disadvantages to a line of credit which I will address in separate question.
The responsibility of paying the property taxes, homeowner insurance and maintaining the property is up to the borrower. These are the only ongoing costs of the Reverse Mortgage. The initial costs of setting up a Reverse Mortgage include the appraisal cost and the closing costs with a lawyer, Independent Legal Advice is required. It is also important to remember again, the title to your property always remains in your name.
There are 4 different products under the Reverse Mortgage umbrella. The 2 most popular types are the Lump Sum Equity take out or the Income Advantage product. The lump sum gives you just that…a lump sum deposit from your equity and the Income Advantage is a monthly deposit easing your monthly cash flow.
After a consultation with a Certified Reverse Mortgage Specialist, the borrower will have a clear path to reaping the benefits of a Reverse Mortgage. Currently there are 2 lenders in Canada who provide Reverse Mortgages, one is HomEquity Bank, formerly CHIP Reverse Mortgages, and the other is Equitable Bank.
Both lenders are ‘Schedule A’ banks giving the homeowner the protection under the Bank of Canada Act. HomEquity Bank also provides a No Negative Equity Guarantee*. Further assuring you will not repay your Reverse Mortgage more than the value of your home.
Seniors today are retiring with more debt than ever and do not want to change their standard of living. There are many reasons why seniors will opt for a Reverse Mortgage, here are a few to get you inspired. You can take care of your finances, reduce credit card debt and other liabilities to improve cash flow without touching your investments, or purchase a vacation property or embark on a new passion or hobby, or maybe take the family on a once in a lifetime dream vacation.
You can gift loved ones an early inheritance allowing them to purchase property. Or you can Renovate your current home as you desire, downsizing can be costly and you maybe you have to move out of your neighborhood, renovating and updating can be a perfect alternative with a Reverse Mortgage.
You can also use your Reverse Mortgage to bring in a personal care team so you don’t have to leave your beautiful home and lifting the burden of family caring for you as you age.
Who is not eligible for a reverse mortgage?
You are not eligible for a reverse mortgage if you do not meet the minimum age requirement of 55 years of age, and if you do not own your principle residence with a fair amount of equity in it you will not be eligible for reverse mortgage. It doesn’t mean you won’t ever be eligible just means at this current time you are not eligible.
What Do I Need To See A Mortgage Advisor?
This varies depending on the individual policies and procedures. For us, the best place to start is with a 20 minute phone call. You do not need anything. If we get to it, the most skill testing question we will be asking you is what is your SIN. The rest of the information you should have available at the tip of your tongue. During this initial call we are often able to address 99% of your questions or concerns.
Can you get a reverse mortgage on a condo in Canada?
Another factor is the location of the property the type of dwelling on the property and the overall marketability of the property. So let’s start with the location of the property. The location of the property must be in an urban centre, it cannot be a rural property or an agricultural zoned property. It must be the applicants’ owner occupied principle residence and this can either be a single family home, an apartment style condo, a high rise condo or a town home.
Is It Better To Get A Mortgage From A Bank Or Mortgage Company?
This is a great question – is it better to get a mortgage from a bank or mortgage company. There are benefits and short comings with any mortgage product, be it from a mortgage company, or from a bank. The key is, understanding your situation. Being crystal clear on your goals, not only for the short term, but medium term and also the long term. Once you are crystal clear on your goals, you also want understand your demographics.
Can a family member be added to a reverse mortgage?
Other family members such as your children even though they may be adults they are not eligible to apply for a reverse mortgage or be on title of your reverse mortgage if they do not meet the minimum age requirement of 55. If you happen to pass away and your property has a Reverse Mortgage on it and you have left your property to other family members, they will not be able to assume the Reverse Mortgage as they will not meet the required criteria at this time.
What Makes A Good Mortgage Broker?
There are a lot of qualities that can be mentioned here, to determine what makes a good mortgage broker. Like most of these questions, context is important. Above all, the sign of a good mortgage broker, is the mortgage broker who listens to you and tries to understand your goals, and your needs. A good broker, also takes the time to explain his or her role, and set expectations. A good broker will be direct with you, never beat around the bush.
How does a reverse mortgage work if you own your home?
If you already own your home reverse mortgage works by taking a part of your home equity and using it to pay off your current mortgage, assuming you do have one. Since you don’t have a mortgage debt to pay off, you’ll collect the whole loan proceeds if you buy your home free and simple.
How A Mortgage Broker Can Help?
A mortgage broker is a legally approved licensed specialist who has connections with various lenders and mortgage products. They have the knowledge of many types of mortgage products and rates and offer you a wide variety of options to choose from. You can compare between various lenders, rates and other factors and choose wisely.
What happens when you sell your home with a reverse mortgage?
When you sell your home with a reverse mortgage the title company will send the required payoff amount to your reverse mortgage lender once your house has sold. Ascertain that the reverse mortgage loan is fully paid off with the proceeds and that your lender account is closed. Any extra money will be given to you.
What Questions Should I Ask A Mortgage Broker?
The top 2 questions that I would recommend asking a mortgage broker, or anyone that you are speaking to who is offering you mortgage advice (this includes your bank, your friends, your parents). What type of mortgage did you get, and why? What was your thought process, or strategy behind selecting your mortgage product? What strategy are you recommending for me, and why (what is it based on).
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