What is a Reverse Mortgage?
A reverse mortgage is a loan that allows you to turn a portion of your home equity into cash without having to sell your home. The maximum amount you will be able to borrow will depend on your age, your home’s appraised value and the lender.
With this long-term financing solution, you will have access to a dependable source of tax -free funds without the stress of having to make any payments until the loan is due. This is usually when you move out of your home, sell or the last borrower dies.
How do I know if I qualify?
You must be at least 55 years old
The home you’re using to secure a reverse mortgage must be your primary residence. This usually means you live in the home for at least six months a year.
Your home is a detached or semi-detached house, condo or town-home
Your home must be in a major urban centre located in Alberta, B.C. or Ontario
If you presently have any other financing registered against your home, you must pay it off when you get a reverse mortgage. You can use the new mortgage funds for this purpose so this new mortgage can be in first place.
How much can I qualify for?
The lender will require your age, and the age of your spouse if they are registered on the title of your house, where you live and your home’s condition, type and appraised value
The youngest applicant must be at least 55 years old
In general, the older you are and the more home equity you have when you apply for a reverse mortgage, the more money you could get. Current market trends will also impact the allowable amount.
What documents will I need to apply?
Most lenders will likely ask for confirmation you have received advice on whether this product is right for you from a lawyer called “Independent Legal Advice”
Up to date statements for any current financing or other debts currently registered against your home. Again, these will have to be paid out in full prior to advance of the new reverse mortgage
Verification you have sufficient income available to cover property related costs such as property taxes, insurance, condo fees if applicable and utilities
A home appraisal which will be required and arranged by your Mortgage Broker
How can I access the mortgage funds?
You can take all of the mortgage funds upfront as a one time advance or you can schedule recurring advances at anytime for up to 20 years.
You will need to decide if you would like a fixed or adjustable rate term
Over time, could I owe more than the home is worth?
Based on the initial calculations as to how much can be advanced, the amount you will owe on the due date will not be more than the fair market value of the home
Fair market value is the amount that would be paid on the open market on the applicable date to buy the property
As you will not be making regular payments, you will owe more interest on a reverse mortgage the longer you go to the due date
What are the costs of a reverse mortgage?
Higher interest rate than for a traditional mortgage
A home appraisal fee
An initial setup fee
A prepayment penalty if you pay off your reverse mortgage before it is due
Legal fees for closing costs and independent legal advice if required
The costs will vary depending on the lender you choose to work with. Some fees may be added to the balance of the new mortgage, while you may have to pay for others up front.
What else is important to be aware of?
Compare the costs of the other alternatives to a reverse mortgage such as a personal loan, line of credit or credit card
Perhaps it makes more sense to sell your home and either buy a smaller one or rent a home or an apartment.
Look into assisted living or other alternative housing
Do have a conversation with a financial adviser and your family before getting a reverse mortgage. Make sure you understand how a reverse mortgage works and how your home equity may be affected over time.
This money does not affect the Old-Age Security (OAS) or Guaranteed Income Supplement (GIS) benefits you may be getting
You still own your home!
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