What is a reverse mortgage?
A lot of people have heard about reverse mortgages before but are unaware of how they actually work.
A reverse mortgage is a unique product that does not require monthly payments or a downpayment up front and the good news is that there is no catch.
The alarm bells must be sounding off now – surely there must be a catch!
However, a reverse mortgage is simply a different way of structuring your mortgage where a homeowner can access their home equity now before they have to sell their home later.
In essence, the estate has to repay the entire amount owing when the homeowner passes away or when they sell the home.
Who qualifies for a reverse mortgage?
To qualify for a reverse mortgage, you must be at least 55 years of age or older and you must be a homeowner.
Payments are never required during the duration of your reverse mortgage and you can access up to 55% of the value of your home.
One of the biggest draws for this type of mortgage is that the equity you access is completely tax-free.
The amount of equity you can access is dependent on the value of your home and your life expectancy (see the example below).
How does it work?
Before you can get a reverse mortgage, you must pay off any outstanding loans or lines of credit – but in saying so, you can do this with the money that you acquire from your reverse mortgage.
Those who qualify for a reverse mortgage will be able to access their equity in the form of a lump-sum or in installments.
As your home appreciates in value over time, so too will your home equity (see above) – this reduces the risk for the lender who will make the appropriate calculations to make sure there is a positive outcome on the estate.
If there does happen to be a negative outcome on the estate, the lender will eat that cost.
Therefore a reverse mortgage protects the lender’s investment, gives the homeowner access to the money they need, and frees loved ones from leftover debt.
What are the benefits of a reverse mortgage?
If you no longer qualify for a traditional mortgage or line of credit, a reverse mortgage could be a great option for you.
You can use the equity loan to pay for home repairs and improvements, or to pay for monthly bills and living expenses, or you can even use it to help a loved one purchase their home, however you see fit.
A reverse mortgage can be beneficial for seniors who need more financial support than they’re getting from Old Age Security (OAS) and the Canada Pension Plan (CPP).
If government assistance isn’t enough to cover healthcare expenses or renovations involving the installation of expensive care products like stairlifts, for instance, a reverse mortgage can be the cushion you need.
A reverse mortgage is an excellent product for homeowners that are 55 years of age and older that are looking to tap into their home equity.
I can help show you all of your options when it comes to your reverse mortgage to help you come up with a plan for your future.
One of the biggest benefits working with a mortgage broker is that you get tailored service specific to your financial needs.
If you have any questions regarding life insurance, or anything relating to mortgages, feel free to give me a call and I’ll gladly help wherever I can.