REVERSE MORTGAGES

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REVERSE MORTGAGES

Reverses Mortgage and offered by several Institutions in Canada.  One of the best know is CHIP Reverse Mortgages however they are all pretty much the same.

The Reverse Mortgage is geared towards borrowers aged 55 years or older who need to access cash flow by using the security in their homes but cannot qualify for a traditional mortgage based on income etc. No Mortgage payment are required over the life of the mortgage.

Benefits of the A Reverse Mortgage

The Reverse Mortgage is designed for Canadian homeowners age 55 years and older who want to live retirement on their terms. If you’re like most Canadian homeowners 55+, much of what you own fits into two categories – the equity in your home and the money you have saved.  It is likely that the value of your home has grown over the years and makes up a large portion of your net worth. And while it is positive that your home has built value – this value is not accessible unless you decide to sell your home. The Mortgage allows you to access up to 55% of its value without having to sell your beloved home. And best off all, you don’t have to make regular mortgage payments until you eventually move or sell. Additionally, the money you borrow is tax-free and it does not affect the Old-Age Security or Guaranteed Income Supplement (GIS) benefits you may be getting. As the homeowner, you are required to maintain your home and remain current on property taxes and homeowner’s insurance. To recap, the Reverse Mortgage is suitable for people who don’t want to move but would like to improve their monthly cash flow. With the Reverse Mortgage you always remain on title and retain ownership and control of your home.

How can you use the Mortgage Funds?

The money received from the reverse mortgage can be accessed in one lump sum or in planned advances – it’s your choice! If you have an existing mortgage or home equity line of credit, the funds received must first be used to pay off the existing loans secured by your home. The remaining cash can be used for whatever you like – here are some example of how customers of the CHIP Program have used their money:

  • Pay for home improvements or repairs
  • Cover your regular expenses
  • Pay for travel
  • Pay for healthcare expenses
  • Pay-off existing debts
  • Help your children with an early inheritance

 Qualifying for the Reverse Mortgage:

  • A Canadian homeowner
  • Age 55 or older
  • The home must be your primary residence

Please note: If you have a spouse, both of you must be at least 55 years or older and you must both be listed on the application

When you apply for the Mortgage the following will be considered:

  • Your property type, condition and appraised value
  • The location of your property
  • You and your spouse’s age

In general, the older you are and the more equity you have in your home when you apply for the mortgage, the more money we should be able to lend you.

Repayment of A Reverse Mortgage

You are not required to make any payments on the Reverse Mortgage until you choose to move or sell your home. You are however, required to ensure that your property taxes and homeowners’ insurance are kept up to date. When you do decide to move or sell, the loan is repaid from the proceeds of the sale of the home. After the loan is repaid, all remaining money belongs to you and your estate. On average, customers have over 50% of the value of their home left to enjoy after repaying the loan. The exact amount will depend upon several factors, including: the value of your home, the amount of your loan, and the amount of time that has passed since you took out the loan.

What Are the Pros and Cons of the Reverse Mortgage

There are several factors to consider before deciding to proceed with a Reverse Mortgage. As with any big decision, it’s helpful to speak to family and friends and fully understand the pros and cons of the reverse mortgage in Canada.   Some of the pros and cons include:

 Pros:

  • You receive the reverse mortgage funds as tax-free cash and you can spend the money anyway you like!
  • You stay in the home you love and maintain ownership and control of your home. All you must do is maintain your property and pay your property taxes and homeowners insurance.
  • There are no monthly mortgage payments required until you decide to move or sell your home.
  • The Reverse Mortgage is a non-recourse loan which means that at the time of repayment, you (or your estate) will never owe more than the fair market value of your home – if you have maintained your property taxes and insurance.
  • It is your choice how you receive the funds from the Reverse Mortgage. You can receive it all at once in a lump sum or in scheduled advances over time – its up to you!

Cons:

  • Because there are no monthly mortgage payments required, interest rates for the Reverse Mortgage tend to be higher than that of a traditional mortgage option.
  • The balance of the loan increases over time as does the interest on the loan.