A reverse mortgage is a loan that is designed for homeowners 55 years of age and older.  If you have a spouse, the age qualification applies to both of you.  It is secured by the equity in the home, just like an ordinary mortgage.  It allows homeowners to obtain funds without having to sell their home.

Unlike a conventional mortgage, you don’t have to make any regular or lump sum payments on reverse mortgages in Canada.  Instead, the interest on your reverse mortgage is added to the balance owing, and the balance grows over time.  If you sell your home or it is no longer your principal residence, then the mortgage must be repaid, along with the interest that has accrued.

A reverse mortgage is not available as a second mortgage, so if you already have a mortgage and you would prefer to have a reverse mortgage, you must first use the proceeds to pay out any other existing mortgages or secured lines of credit.

The benefits are obvious: there is no qualification process (credit or income) and there are no payments required.  It is a means to tap into the equity of your home without having to sell it.  Furthermore, the money you borrow is tax-free, and it also doesn’t affect the Old Age Security (OAS) or Guaranteed Income Supplement (GIS) benefits you may be receiving.  Funds can be advanced all at once in a lump sum, or in periodic increments that provide you with a regular income.

On the other hand, reverse mortgages typically carry a slightly higher interest rate than best market rates available to borrowers that qualify on the basis of income and credit.  Also, the equity in your home could decrease if the balance of the mortgage is accumulating faster than the home is appreciating in value.  Finally, the closing costs of a reverse mortgage, while similar to those of a regular mortgage (appraisal, legal, etc) also involve a fee payable to the lender.

Regardless of market fluctuations, reverse mortgages in Canada come with a guarantee that the mortgage balance owing will not exceed the market value of the home, protecting you, your heirs and your estate.  The borrower is still the owner of the home and remains on title.  There is also an option to ‘transfer’ the reverse mortgage to a new property, if it qualifies.

Find out if a reverse mortgage is the right product for you by contacting Rebecca anytime.