What is Reverse Mortgage?

Canadian homeowners age 55 years or older, who have equity in their home and want to access that equity has two options. They could either refinance their mortgage or get a Reverse Mortgage.

For seniors refinancing isn’t as easy as it once was for seniors, especially if they are on a fixed income. Mortgage lenders don’t lend to seniors as much as they use to. In fact, seniors have a harder time than self employed borrowers getting a mortgage. With the price of real estate properties skyrocketing in recent years most seniors who own their home have equity in their home. If they are on a fixed income they could see their debt climbing each year and worry that their disposable income is shrinking each year or worse is being used to pay credit card interest.

Sadly getting a second mortgage or a private mortgage isn’t the answer either as rates for those mortgages are higher and could eat away at their equity just as fast as a 19% interest credit card.

A reverse mortgage is available exclusively to Canadian homeowners 55 years or older and to to help ensure that the loan balance will not exceed the fair market value of the property- the initial loan value cannot exceed 55% of the value of the home (subject to certain conditions).  The plan is usually set up to ensure there will be equity when the homeowner passes away, however no one can predict if real estate market forces will cause house price to fall in the year of  death so thus the need for an Independent Legal Advice.

Lenders require borrowers must seek independent legal advice before being approved for a reverse mortgage and ideally before taking a reverse mortgage you would want to consult with your family

There are some fees associated with the setting up of a reverse mortgage. These fees include legal fees (paid to a lawyer), an appraisal fee (paid to an appraiser) and standard closing costs (depending on the term). In most cases the only out of pocket fee is that of the appraisal ($175-$400). All other fees and costs are financed as part of the reverse mortgage.

Unlike refinancing; a reverse mortgage is like a home equity line of credit. Homeowners are not required to make any payments during the loan period and may only pay interest on the money used. If the borrower to make interest or principal payments you can do so at any time without paying a penalty.

The homeowner is required to keep the property in good maintenance, pay their property taxes and property insurance and condo fees (if applicable.)

To maintain full ownership of their home and will never owe more than the fair market value at the time you move or it’s sold.

There are three ways to receive payments through a reverse mortgage which are not taxable:

  • Receive a lump sum
  • Monthly payments
  • Combination of both

Advantages

  • Option not to make monthly payments on the loan, until you sell the property
  • Ability to ‘withdraw’ cash without selling your home
  • It is TAX-FREE, the money does not reduce your eligibility for Old-Age Security (OAS) or
  • Guaranteed Income Supplement (GIS) benefits

Questions?

Request a Meeting or Call a Sunlite Mortgage agent today at (877) -385-6267 and we will be happy to help you find a great mortgage!

Find out in 2 minutes how you can unlock the value of your home with our FREE Reverse Mortgage estimate

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