WHAT IS A REVERSE MORTGAGE? It is a type of mortgage that allows you to unlock up to 55% of the value of your home (tax free).
You own 100% of your home and can remain in it for as long as you live.
Interest is simply added to the balance over time and becomes payable when you move out, sell your home or pass away.
The only obligations you have while the mortgage is outstanding are paying your property taxes, your home insurance and keeping your home in good condition.
Reverse mortgages have been in Canada since 1986.
Your credit score and income are not a huge factor to lenders because of the large amount of equity in your home.
YOU WILL NEVER BE FORCED TO SELL YOUR HOME. EVER. NO MATTER WHAT ANYONE TELLS YOU.
In Canada, the senior population is growing twice as fast as the rest of population in Canada.
Most Canadian seniors live in owned homes and due to the increase in home values I the last couple of decades, we see many seniors sitting on a large amount of home equity.
We are also seeing Canadian seniors facing increased financial challenges, such as inadequate income and lack of retirement savings.
Receiving monthly income from a reverse mortgage isn’t considered income by the CRA so largely doesn’t impact government benefits like CPP and OAS.
How much you qualify for is dependent on 4 key factors. Your age, the home location, the property type and the home’s value. 55% is the maximum amount available, not what everyone gets. The amount you qualify for is based on the 4 factors listed. In reality, the amount you can qualify for is between 10 and 55%.
A big concern is keeping your home equity (if you elect not to make payments on your mortgage). Let’s say you took out a reverse mortgage for half the value of your home.
Your home would only need to appreciate about half the value of your interest rate for you to not to lose any equity. For example, lets say you take out a reverse mortgage of $200,000 on your home valued at $400,000. And the interest rate was 6%. (just for this scenario) Your equity would only need to increase by 3% per annum for you not to lose any equity. For example, the accruing interest at 6% would be $12,000 per annum. If your home valued at $400,000 and goes up by 3%, that’s a $12,000 increase so you lose no equity in your home.
It would be wise to speak to your family about a reverse mortgage because at the end of the day, they could be affected. Let’s say you become incapacitated or pass away in 10 years. At that time the home would be sold so the lender recoups the accrued interest, which in the above scenario would be in the vicinity of $120,000. ($12,000 per year x 10 years.)
As much as you don’t have to pay anything while the mortgage is in place, this isn’t free money. The lender is charging interest even though you see it or pay for it.
The advantages of a reverse mortgage include:
The disadvantages of a reverse mortgage are:
It may be wise to think of a reverse mortgage as a lifetime mortgage. With regular mortgages people are looking to pay them off, usually in about 25 years. And you can move your mortgage from dozens of lenders throughout the life of your mortgage.
With a reverse mortgage, you can pay it off but as you age, and as your income drops, it can become difficult. Thus, removing or replacing a reverse mortgage is not very common. Plus, there are dozens of “traditional” lenders doing regular mortgages but just a handful of reverse mortgage lenders.