What is a Reverse Mortgage?
Reverse mortgages have become a popular talking point over the last year. Presented as a safe solution for Canadian homeowners – aged 55 and older – who would like to access their equity without the usual income and credit qualifying, and without the requirement of monthly payments. Let’s explore the details.
Why would someone choose a Reverse Mortgage?
- Help downsize – want to keep a nice nest-egg of cash by supplementing their down payment with a reverse mortgage
- Help people “stay in place” – upgrading homes for accessibility, etc.
- Help people retire expensive debt that has accumulated
- Help you travel around the world in style – creating the travel plans of your dreams.
- Help family members in need – the pandemic has left a lot of people in challenging situations.
How is this better than a regular mortgage or a secured line of credit?
A reverse mortgage is just different.
When we speak with someone we examine all options. Reverse Mortgages are much less onerous to qualify for, no payments required, and carries on for as long as you or your partner remain in the home. Reverse mortgages never require a re-qualification.
What about those stories about people losing their houses – are they true?
This is definitely ‘the myth’ that needs to be debunked.
The story comes out of the USA, and was evidenced in the financial crisis of 2008. The Canadian banking system, our rules and regulations, our mortgage industry operate very differently. No – you cannot lose your home. You, or whomever is looking after your affairs – are required to pay off the mortgage when the last person on Title no longer lives in the property. Often this is done through an orderly sale of the real estate. What’s more, you are guaranteed to never owe more than the property is worth – even if you live in it past your 140th birthday!
Can the bank “call” the loan?
The simple answer is, no; there are no payments. However, the owners have to maintain their property tax payments (or can tap into property tax deferral programs) and their condo fees, if applicable
Who pays this mortgage back?
The owners or whomever is looking after their affairs – but only when the LAST person on Title no longer lives in the property – and the payoff is an orderly and reasonable process. Alternatively, if the owners win the lottery, they can pay it off early. The choice is yours.
What if there is not enough money?
This is guaranteed to never happen. The lender guarantees that you will never owe more than your home is worth. It is in the contract.
Can the lender refuse to renew the mortgage at the end of the term?
The option exists to choose a one, three or five-year term, and have that set interest rate for the selected period. At the end of that term, there is an “interest rate reset” – from the choices available at the time. There will always be a reset; never a denial. There is also an “open” option; this may be of interest in the event of an imminent sale.
Interestingly, this is where a Reverse Mortgage mirrors a standard mortgage. A standard mortgagor is not obligated to renew a mortgage – most will, provided the payments are being made. Keyword here, payments.
What will happen to my mortgage if I move?
The mortgage can be moved, too.
Can I have a Reverse Mortgage on my rental property?
Yes, you can. The only stipulation is that you have a Reverse Mortgage on your principal residence first.
Can I use a Reverse Mortgage to buy a property to live in?
Absolutely. Be sure to express this desire in your conversation with our team.
I don’t need a whole bag of money at once. What then?
The nice thing here, is that the funds don’t have to be disbursed all at once. You can do an initial draw, and then do draws at intervals up to the limit. That limit can also increase over time as age increases and as the property value increases.
Pros and Cons of a Reverse Mortgage
Before you decide to get a reverse mortgage, make sure you consider the pros and cons carefully.
- No regular loan payments
- Turn some of the value of your home into cash, without having to sell it
- Do not have to pay tax on the money you borrow
- This money doesn’t affect the Old-Age Security (OAS) or Guaranteed Income Supplement (GIS) benefits
- You continue to own your home
- Options as to when and how you receive the money, are available
- Interest rates are a bit higher than many other mortgages types
- The equity you hold in your home may go down as you accumulate loan interest
- After your death, your estate is responsible to repay the loan and interest within a set period of time
- There may be less money in your estate to leave to your children or other beneficiaries
- Costs associated with a reverse mortgage can be higher than a regular mortgage
With the right advice, which will help you fully understand your options, a reverse mortgage can put you back in control.
Schedule a conversation with me and the Gentles Team today, and get the assurance that your mortgage will help you achieve your unique financial goals.