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Curious About Reverse Mortgages in Canada?
Have you come across the term "reverse mortgage" and found yourself wanting to know more about it?
Maybe you're considering this option to unlock the cash in your home, but you're unsure if it's the right choice for you.
Let's explore what reverse mortgages are, how they work, how you can get one, and what the pros and cons might be.
What Is a Reverse Mortgage?
A reverse mortgage is a type of loan that lets Canadian homeowners age 55+ get up to 55% of the value of their home, tax-free. The best part is, you don't have to make monthly payments.
The loan is secured against your house, and you only pay it back when you and your spouse move, sell your house, or pass away.
This loan is great for people who want to spend their retirement in their own home without worrying about monthly mortgage payments.
It's a good choice for those who want to pay off their current mortgage, clear up debts, make their home better with renovations, or just live a more comfortable life during retirement.
When you have a reverse mortgage you still own 100% of your home. Plus, you can use the money from the reverse mortgage however you want.
How Does a Reverse Mortgage Work in Canada?
Getting a reverse mortgage in Canada is simple.
If you have a mortgage right now, a reverse mortgage can pay that off. Plus, it can give you more money if you need it.
If you don't owe anything on your home, you can get up to 55% of its worth in cash. This money goes straight into your bank account.
The best part? You don't need to make any regular payments!
The loan interest adds up over time. You only pay it back, along with the money you borrowed, when you sell your house or when you pass away.
Qualifying for a Reverse Mortgage
In Canada, if you're a homeowner and 55 years old or more, you might be able to get a reverse mortgage.
How much money you can get depends on things like how old you are, and the value and location of your home.
The property must be your primary residence, and it can be a house or a condo.
If you're retired, this kind of loan could work well for you because it doesn't require employment income to qualify.
Applying for a reverse mortgage is easy. You can do it over the phone, in person, or through our secure online application.
Paying Off a Reverse Mortgage
Paying off a reverse mortgage is just like paying off a regular mortgage. This typically happens when you decide to sell your property.
You can also get a new mortgage to refinance and pay off the reverse mortgage.
Pros and Cons of Reverse Mortgages
Like anything, reverse mortgages have good points and bad points.
On the plus side, they're a simple way for you to get money from their home's value.
You don't need a job or a great credit score.
The money is tax-free and won't mess with your Old-Age Security or Guaranteed Income Supplement.
You can get your money all at once or little by little over time, and you keep owning your home.
On the other hand, there are some things to watch out for.
The interest rates for reverse mortgages can be a bit higher than regular mortgages.
Other potential downsides could include less of your home's value left for your family, and higher set-up fees compare to regular mortgages.
Maintaining and Growing Your Equity With a Reverse Mortgage
Many folks worry that they might lose the value they've built up in their home, called equity, when they get a reverse mortgage.
But, good news! You can keep your home equity the same, or even increase it, with a reverse mortgage.
Let's take a look at an example:
As you can see in the illustration, it is possible to increase your equity with a reverse mortgage.
In this scenario, home equity grew from $388,500 to $461,808 over the 10 year span.
In fact, 99% of Canadians with reverse mortgages still have equity left in their homes after repaying the loan.
The "No Negative Equity" Guarantee
One of the notable benefits and safeguards of a Canadian reverse mortgage is the "No Negative Equity Guarantee."
The "No Negative Equity Guarantee" is a significant safeguard built into the Canadian reverse mortgage system.
This guarantee ensures that the loan repayment amount will never exceed the fair market value of the home at the time it is sold.
In other words, when the reverse mortgage comes due, if the sale of the property doesn't cover the full amount of the loan, the homeowner or their estate won't be held liable for the difference.
This is an important protection for borrowers and their families, providing peace of mind that the debt will not outgrow the homes's value and they will not be leaving a financial burden to their heirs.
Reverse Mortgage Lenders in Canada
There are several reverse mortgage lenders in Canada, including HomeEquity Bank, Equitable Bank, and Bloom. These reverse mortgage companies each offer competitive products tailored to different needs. They are similar but each has some unique traits.
HomeEquity Bank, for instance, offers the CHIP Reverse Mortgage. It was formerly known as the Canadian Home Income Plan and is a popular choice for many homeowners.
Equitable Bank, established in 1970, offers a wide range of mortgage products, including reverse mortgages. They have competitive rates, making them a good alternative to the CHIP Reverse Mortgage.
Bloom, a company specializing in reverse mortgages for Canadians aged 55 and above, was founded in 2019 and is another excellent option to consider.
We have used all three of these lenders for our clients at various times in the past. Each of their mortgage products have some unique aspects and have had small changes over time.
We look forward to presenting your best options and our advice for you soon!
Reverse Mortgage Rates
Given that there are three lenders offering reverse mortgages in Canada, the interest rates are usually quite competitive and friendly.
At any given time, one of these three lenders might offer special promotional rates to attract more customers.
As with traditional mortgages, you can choose between a fixed-rate or variable interest rate. And term lengths can range from six months to five years.
When the term matures you can renew and carry on, or refinance again if your needs or goals have changed.
When you apply now, you will get comparison of all your options and our recommendations.
Reverse Mortgage Costs
There are some costs when you get a reverse mortgage.
But don't worry, these costs can be included in the new mortgage amount, so you don't have to cover them out-of-pocket.
These costs may include:
Appraisal fee - this can be between $350 and $600. This is often required by lenders to determine your home's value.
Legal fees - this is about $1800. This is for your lawyer or a closing company to complete the transaction and provide independent legal advice.
Setup fee - this can be between $995 and $1800 depending on the lender.
Also, keep in mind, if you pay back the loan before the term is up, you might have to pay an early prepayment penalty.
Alternatives to a Reverse Mortgage
Reverse mortgages can be a great choice for some, but there are other options too.
You might consider a regular mortgage or a Home Equity Line of Credit (HELOC).
These could be a better fit for you, especially if your credit is good and you have a steady income.
We will explore all options for you and give our advice.
Another idea is selling your home and moving to a smaller, less pricey one. This could give you quite a bit of money to use. But keep in mind, selling and buying a home can cost a lot. You'll have to pay fees to the realtor, land transfer tax, legal fees and title insurance costs.
Choosing the Right Mortgage Broker
Choosing a mortgage broker you trust is crucial when navigating these decisions.
As your broker, we work for you, not the lender, and we provide multiple options and unbiased advice.
Our goal is to help you find the most cost-effective solution that aligns with your financial goals.
If a reverse mortgage isn't the best choice for you, don't worry. We'll let you know about other good options.
We're here to answer any questions and guide you through the process to ensure you're comfortable every step of the way.
Get started today and explore your options – there's no cost or obligation.
Press the 'Apply Now' button and learn your options in 90 just seconds.
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We tell you what you NEED to hear, not what you WANT to hear!
Your best interest ALWAYS comes first.
We always do what’s best for you!
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We give you the same advice as we’d give our own mothers!
We teach you what to look out for and how to choose the right mortgage.
Hi there! I'm a Accredited Mortgage Professional of Canada (AMPC), and the owner of this mortgage brokerage, Dominion Lending Centres Homestead Financial (License #11711).
I've been helping folks with their mortgages since 1999, with over 2500 successful ones under my belt.
My goal is to offer you honest, clear, and expert guidance for all your money matters.
Remember, I don't work for any bank or lender - I work for you!
Plus, I specialize in reverse mortgages, and I'm very familiar with the offerings from all three Canadian reverse mortgage lenders.
Catherine Evel, Licensed Mortgage Broker and
Accredited Mortgage Professional of Canada
The answer is simple: absolutely nothing!
My guidance and advice on mortgages come at no cost to you.
Similarly, using a Mortgage Broker doesn't cost you anything either.
How is this possible? The banks are the ones who pay us a commission, and they do this only after your new mortgage has been funded.
It's important to remember though, obtaining a reverse mortgage does have its own associated expenses. However, these are not related to my role as your broker.
The only time there may be a broker fee is when we're dealing with private lending. This is because private lenders typically don't pay a commission to brokers.
A reverse mortgage is a type of loan for homeowners aged 55 and above that allows them to borrow money using the equity in their home as security. The loan is only repaid when the homeowners moves, sells the property, or pass away.
The amount you can borrow depends on your age, your home's value, and its location. Generally, you can borrow up to 55% of your home's value.
No. With a reverse mortgage, you don't have to make regular repayments. The loan is repaid when you sell your home or when you and your spouse no longer live in it.
Yes. You keep the title and continue to own your home with a reverse mortgage.
No. Money from a reverse mortgage is tax-free and doesn't affect Old-Age Security or Guaranteed Income Supplement benefits.
Costs may include an appraisal fee, legal fees, and setup fees. These costs can be paid from your reverse mortgage proceeds.
Some lenders offer reverse mortgages without age limits or restrictions. However, typically, reverse mortgages are only available to those aged 55 or older. Apply Now and learn your options if you're under 55.
The process to secure a reverse mortgage typically takes around 30-45 days from application to closing.
No, due to the "No Negative Equity Guarantee," you or your heirs will never owe more than the fair market value of your home. And, 99% of Canadians with reverse mortgages still have equity left in their homes after repaying the loan.
As long as you meet the obligations of your reverse mortgage - such as maintaining your home, paying your property taxes and homeowners insurance - you won't lose your home.
If your spouse is also a co-borrower, they can continue to live in the home without repaying the loan as long as they meet the obligations of the reverse mortgage.
Yes, but the existing mortgage must be paid off using the proceeds from the reverse mortgage.
Yes, a reverse mortgage is not typically impacted by credit because the loan is secured by your home.
You can use the money from a reverse mortgage for any purpose, such as home repairs, healthcare expenses, travel, or just day-to-day living costs.
Most types of homes can qualify for a reverse mortgage, including detached houses, townhomes, and condos. Mobile homes and co-ops might not be eligible.
Yes, a reverse mortgage can be refinanced, but it might not always make sense depending on your circumstances and the costs associated.
A reverse mortgage needs to be repaid when the last surviving borrower moves out of the house or passes away. The heirs then have options to pay off the loan balance, sell the house to pay off the loan, or turn the home over to the lender.
No, the proceeds from a reverse mortgage are tax-free.
If your home decreases in value, it won't affect your reverse mortgage. The "No Negative Equity Guarantee" ensures you'll never owe more than your home's fair market value.
The main difference is that a home equity loan requires you to make regular monthly payments, whereas a reverse mortgage does not require monthly payments.
Yes, you can end a reverse mortgage at any time. However, you'll need to pay off the loan balance, which can usually be done by selling your home or refinancing it with a new mortgage.
Yes, reverse mortgage rates can be slightly higher than those for a traditional mortgage due to the additional risk lenders assume.
Yes, it's possible to use a reverse mortgage to buy a new home. This is known as a Reverse Mortgage for Purchase. We have assisted our clients with doing this many times.
No, with a reverse mortgage, you remain the owner of your home. You are simply borrowing against the equity you have built up in your home.
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