The benefits of a reverse mortgage are many. The proceeds of a reverse mortgage can be used for many different things. They can be used to supplement retirement income, repair or modify a home, or pay off existing debts. Some homeowners have a reverse loan for medical care, while others use the funds to cover property taxes. Even if you have a low credit score, a reverse mortgage can be a great way to avoid foreclosure.
What is a reverse mortgage?
Reverse mortgages are a type of loan available to homeowners that use their home as collateral. Similar to a traditional mortgage, homeowners can borrow money from a lender and pay it back over time, but with a reverse mortgage that loan is paid back when the homeowner passes away.
Unlike traditional mortgages, reverse mortgages are only available to individuals 55 and older, and the loan has to be paid off when the last borrower passes away.
Reverse mortgages are growing in popularity among the aging population. Unlike traditional mortgages, a reverse mortgage requires no monthly payments and can be used to pay off existing mortgages, medical bills, and other debts.
How does a reverse mortgage work?
A reverse mortgage is a loan that allows homeowners to convert part of their home equity into cash. The borrower does not have to repay the loan until he or she sells the home or passes away. Reverse mortgages are often called home equity conversion mortgages or HECMs.
With reverse mortgages, borrowers continue to own the property. The reverse mortgage lenders only charge a lien against the property as a mortgage, just like the traditional mortgage lenders.
Reverse mortgage borrowers continue to be responsible for the property tax bills, property upkeep maintenance cost, and utility bills, since they retain ownership of the property (instead of the bank).
Who qualifies for a reverse mortgage?
A reverse mortgage is a loan product that allows homeowners aged 55 and older to convert part of the equity in their home into cash. Reverse mortgages can be a great way for older homeowners to supplement retirement income, pay for long-term care, and more. But the product is not for everyone.
To qualify for a reverse mortgage, borrowers must meet certain loan criteria, including:
- Minimum age limit of at least 55 years old
- Available equity in the property of at least 35%
- Borrowers are owners of the property as registered on the property Title document
There are three different lenders who can quality borrowers for reverse mortgages in Canada. They are namely:
- Equitable Bank
- HomeEquity Bank
- Bloom Finance
It is necessary to speak with a mortgage broker so you know your best option among these three different lenders in Canada.
What are the benefits of a reverse mortgage?
A reverse mortgage can be an excellent way to supplement traditional retirement income and provide a source of income that is tax-free. A reverse mortgage isn’t just for retirees. Borrowers may be employed while qualifying a reverse mortgage. The minimum requirement is to be of 55 years or older in Canada.
The loan is not repaid until the homeowner moves out or dies. Many people are unsure about reverse mortgages and whether or not they are the best option for them. Those who are aware of the reverse mortgage benefits often find that the benefits outweigh the risks. The main benefit of a reverse mortgage is that it allows homeowners to get the money that they need without having to sell their homes. This is ideal for homeowners who live in their homestead and have no intention of moving.
Another benefit of tapping into the home equity through a reverse mortgage is the ability to downsize strategically while creating rental income. This method requires that borrowers use the equity from their principal residence as a down payment to purchase a smaller property for them to downsize. Later, they rent out their bigger house to earn rental income to pay for the mortgage payments of their retirement property after downsizing.
Frequently asked questions on reverse mortgages in Canada
What is the downside of a reverse mortgage?
The benefit of a reverse mortgage loan is that while you are alive you are tapping into the equity in your home. There is a downside to this, however, and that would be that your heirs receive less than if they were to inherit after you have passed away.
A smarter solution to compensate for the equity taken out through a reverse mortgage is to use the equity for a rental income property. The net rental income helps to pay back the equity into the property, which helps to retain most of the equity for their heirs as an inheritance.
How do you pay back a reverse mortgage?
A reverse mortgage can be paid back by payment of a lump-sum amount at any time. You can also sell your home for a lump sum payment at any time.
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