A reverse mortgage is basically for seniors starting from the age of 55 years up. Over the years a reverse mortgage as a product gained bad reputation due to being misunderstood. A lot of myths and conceptions grew around it despite the many advantages and benefits it brings to our seniors.
In this article I am going to debunk some of the myths and misconceptions going around about reverse mortgages. At the same time I will show why it is ideal an ideal financial solutions. What are reverse mortgage pros and cons?
Pros And Cons Of Reverse Mortgage For Seniors
There are pros and cons with a Reverse Mortgage, but let’s tackle the myths that surround Reverse Mortgages, and then we’ll get to the pros and cons of a Reverse Mortgage product.
There are myths, stories and misinformation on the Internet about many things, but our topic of concern today are the myths of the Reverse Mortgage product in Canada.
The first myth is: the Bank owns your Home. It is simply not true.If someone said to you when you get a regular mortgage, that the bank will own your home, you would probably scoff at them and laugh because it’s just not true. We all know it. The same goes for Reverse Mortgage. A Reverse Mortgage is securitized against your property and title remains in your name at all times.
The second myth is: the unpaid interest will erase the many years of equity that has built up in the property. Keep in mind the maximum loan to value on a Reverse Mortgage is 55% of the appraised value, which is very conservative lending.
This ensures you will have access to the cash you want and the security you need. The property will never drop below the amount of the Reverse Mortgage.
The next myth is: the Reverse Mortgage is a financing solution of last resort. This myth has been circulating for decade. With more seniors retiring each year enjoying more longevity than previous generations, they are also retiring with less funds to maintain their pre-retirement lifestyle. Therefore, a Reverse Mortgage is a viable option to be considered in the overall plan of retirement.
Now that we have busted the myths, let’s look at the pros of a Reverse Mortgage.
First of all you need to be 55 years of age and be a Canadian homeowner. The Reverse Mortgage product enables you to convert up to 55% of your homes value into tax free cash. YES, let me repeat that… TAX FREE CASH.
If the sound of TAX FREE CASH doesn’t get you excited with no strings attached, you may as well signoff and go for a walk because you won’t be interested in sticking with me on this topic.
You maintain ownership of your home and there are no monthly mortgage payments required. The loan is repaid when you choose to move or sell.
The funds of a Reverse Mortgage can be used for whatever needs you require. You can take out your tax free cash as a lump sum payment or you can have it deposited into your account on a monthly basis. You may want to renovate your home, take a dream vacation, assist family members with their financial needs, top up your pension monthly income – whatever it is the choice is yours.
Let’s talk about the downside of a Reverse Mortgage.
If you are looking at a Reverse Mortgage as a financing option and you are not 55 years of age, or your spouse is not 55 years of age, you will not be eligible at this time to pursue a Reverse Mortgage.
If you do not own a home you will not qualify for Reverse Mortgage. The older you are the more equity you will receive from your Reverse Mortgage. The sweet spot age for a reverse mortgage is approximately 72 years of age or older. The older you are, the more tax free cash you will receive with a Reverse Mortgage.
You may view having to maintain the property in satisfactory condition to be a con. This is required to maintain the increased in value of your property over time. Having a Reverse Mortgage doesn’t mean you can neglect taking care of your home. You also are responsible for paying your property taxes and condo fees if applicable. You are also responsible to carry the proper insurance on your home.
At this point your interest is probably piqued about a Reverse Mortgage and you are asking yourself what are the next steps to find out if this is a financing solution for you? You may have a traditional mortgage currently under home or you may even have a line of credit on your home which is essentially a lone security against your home with a monthly interest payment obligation.
In some cases, a home equity line of credit may be the perfect solution for you and your spouse. A line of credit is also a Demand loan which can be called in for repayment within 30 days if you or you suppose passes away. Imagine, while grieving the loss of your spouse, the bank calls you and tells you your line of credit must be paid back immediately. As I mentioned earlier, a Reverse Mortgage is never called in for repayment even if you or your spouse passes away. It is only to be repaid when you move or sell your home.
How much equity is needed to get a Reverse Mortgage? The value of your home is determined by an appraiser. From this appraised value your home equity is derived by subtracting any outstanding secured debts against the home such as another mortgage or a line of credit. Your age, marital status, and location of your home are taken into consideration to give you a final number.
If you check the boxes of being a Canadian homeowner, 55 years of age, you have equity in your home and your home is a minimum of $150,000 in value, you would be eligible for a Reverse Mortgage. You can have a Reverse Mortgage take over a traditional mortgage or if your property is free and clear you can take a Reverse Mortgage out on that and you can also use a Reverse Mortgage for a new purchase.
Doesn’t Reverse Mortgage just keep getting better and better?
You can always switch from a Reverse Mortgage to a traditional mortgage if you wish. There may be a penalty to do so but the option is there for you if this is necessary.
If you would like more information and a FREE consultation, with no commitment form you, please contact me. Isn’t about time your house started paying you back?
What Is 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.
How Much Is A Mortgage Advisor?
When using the services of a mortgage advisor, when it comes to how they get paid. There are out of pocket costs for the set up and closing of your mortgage and property, however, which you should be aware of well in advance of your closing. But as far as how much a mortgage advisor costs, well we have to back track a little bit and get an understanding of the way that the mortgage industry works.
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.
Are there Closing Costs on a Reverse Mortgage?
Yes, there are closing costs on a reverse mortgage just like there are closing costs on a traditional mortgage or on a line of credit. The reason for this is the lender requires the borrower to have independent legal advice also known as ILA for their benefit and protection. This cost can vary depending on your location and the lawyer you choose, and the fee is approximately $500-$1000.
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.
If you would like more information or a free consultation to see if a Reverse Mortgage is a fit for you, you can contact me below, and as a Certified Reverse Mortgage Specialist I would be more than happy to review your financing options with you and provide you with Expert Advice to Guide You Home.