Reverse mortgages are continuing to gain popularity for homeowners over 55 in Canada. One reason for the increased popularity of the reverse mortgage is simply necessity. For many Canadians who are looking to retire but currently facing high debt load and ongoing expenses, as well as reduced income, it can be a challenge. This is where the reverse mortgage can help.
What is a Reverse Mortgage?
First and foremost, it is important to understand what a reverse mortgage is and who qualifies for it.
Reverse mortgages are designed for Canadians who are 55 and older. The goal is to allow these individuals to tap into the equity of their home to assist in comfortable financial living. However, the difference is that once a reverse mortgage is in place, borrowers are not required to make regular payments. This allows them a considerable inflow of cash, without having to pay off what they owe. The only time payment will be required is when you sell or move out of your home.
The payout of the mortgage at this time would consist of the original principal balance, plus the accrued interest since inception. Hence, it’s a reverse mortgage because you don’t make payments and the balance increases with the accrued interest, as opposed to reducing like a traditional mortgage. Fear not, the equity historically is still maintained or even grows as the appreciation value is generally higher than the interest accrual.
While the focus of a reverse mortgage is on older individuals, this is also a great option for individuals wanting to assist their elderly parents. Instead of selling and moving to a care home or assisted living, some individuals prefer to stay where they are familiar and instead opt for in-home care. A reverse mortgage is a terrific way to access the equity in the home, month by month, to pay for those care costs.
Reasons to Consider a Reverse Mortgage
There are many reasons to consider turning to a reverse mortgage if you are facing financial struggles or are wanting to improve your investment portfolio.
Reverse mortgages are designed to allow you to access up to 55% of your home's equity, thereby allowing you to convert your home equity into cash. This can be done as either a one-time lump sum payment, or you can choose to structure it to receive monthly payouts. The money received through a reverse mortgage can be used to pay off existing debts, gift money to family, expand qualify of life, add safety features to the home, or expand your investment portfolio.
You can also switch your switch your existing mortgage dollar-for-dollar to eliminate payments and increase cash flow.
Benefits of a Reverse Mortgage
The benefits of a reverse mortgage don’t just stop at the ability to cash in on your home’s equity! In fact, these benefits also include:
· No monthly mortgage payments
· No income or credit qualifications
· Very low / little paperwork required
· Title and ownership of property remain in homeowner’s name
· Flexible options to break term early if needed
· Penalty waived in the event of death or care home placement to preserve the estate
Misconceptions About Reverse Mortgages
There are many misconceptions about reverse mortgages that we also want to clear up while we are here.
With a Reverse Mortgage, You No Longer Own Your Home
FALSE. You always maintain title, ownership and control of your home. The reverse mortgage lender simply has a first mortgage on the title.
You Will Owe More Than the Value of Your Home
FALSE. Most reverse mortgages come with a “No Negative Equity Guarantee” the notes as long as the homeowner has met the required obligations, the amount you will have to pay on the due date will not exceed the fair market value of your home.
Reverse Mortgages are Expensive
FALSE. Much like a conventional mortgage, an appraisal of your property and independent legal advice is required for a reverse mortgage and will be a cost to you, similarly to the costs you would incur on a regular payment mortgage. However, beyond this the only additional fees are a one-off closing and administration fee. When compared to the cost of moving to another home, the reverse mortgage is a much more affordable option.
Reverse Mortgages Have Higher Interest Rates
DEPENDS. While interest rates are typically a bit higher than a traditional mortgage, the difference is not excessive. In addition, it is important to remember that monthly mortgage payments are not a viable option for most retired Canadians. In addition, there are many who struggle to even qualify for a traditional mortgage. For these reasons, many retired Canadians are choosing reverse mortgages over conventional solutions.
You Can’t Pass on Your Home
FALSE. Another myth is that your children won’t be able to inherit your home if you utilize a reverse mortgage. This is not the case as your heirs will always have the option of keeping the property by paying off your reverse mortgage after you pass away. Plus, if you have a “No Negative Equity Guarantee” in your reverse mortgage contract, then if the mortgage amount due is more than the gross proceeds from the sale of the property, the lender will cover the difference between the sale price and the loan amount. Therefore, you will never owe more than the fair market value of the home.
Reverse mortgages are continuing to grow as a retirement solution for Canadians who are 55 years or older. This incredible option allows homeowners to unlock their home equity for tax-free funds that improve their cash flow, pay-off higher interest loans and allows them the best results for their golden years. With no monthly repayments, you can enjoy increased cash flow and only have to pay back the loan when you sell.
If you think a reverse mortgage might be the right option for you or your parents, contact a Dominion Lending Centres mortgage professional today to discuss your current situation and how this increasingly popular mortgage option can help.