Reverse Mortgages have been available in Canada for over 25 years. There are a number of benefits that are not very well understood. Heard the of term "HOUSE RICH and CASH POOR?" Many older home owners have lots of equity in their homes but are struggling to make ends meet monthly or they just want extra cash to enjoy their retirement and really do not want to sell their homes and move. Do you know anyone like that?
A Reverse Mortgage is a loan available only to homeowners 55 or older, giving them access to the equity in their home without having to sell the home. The amount one can borrow is based upon several factors including age of the home owners and the value and location of the home. Contact Us to see how much you could get tax free from your home.
It is important for us to review your financial situation to determine the best solution for what you want to achieve. A Reverse Mortgage may be one of a number of options available.
Reverse Mortgage v/s Traditional Bank Loan
There are two main differences:
First, unlike a traditional loan, you can get a Reverse Mortgage regardless of your income or credit rating.
Second, you are not required to make any payments on a Reverse Mortgage until you choose to move or sell your home. However, you can make payments on the loan if you choose to do so. You’ll even get a discount on the interest rate if you do. When you do decide to move or sell, the loan is repaid from the proceeds of the sale of the home. After the loan is repaid, all remaining money belongs to you and your estate.
Reverse Mortgage v/s Home Equity Line of Credit
With a Home Equity Line of Credit (HELOC), you must make regular payments on the loan. With a Reverse Mortgage, you are under no obligation to make payments on the loan until you move or sell. This makes Reverse Mortgages extremely appealing to people on a fixed income who cannot afford to, or don't want to, make regular repayments.
Another key difference is that you can be asked to repay your Line of Credit at any time at the lender’s discretion. With a Reverse Mortgage, you cannot be forced to repay the loan until you decide to move or sell. Both Home Equity Lines of Credit and Reverse Mortgages use your house as collateral. But lines of credit provide you with access to cash only for as long as you can service the interest payments. So if your income decreases, you could be forced to sell your home to pay off the loan. But with a Reverse Mortgage, you can never be forced to sell or move. Ever.
Equity Remaining on Repayment
On average, homeowners have well over 50% of the value of their home left to enjoy after repaying the loan. This money belongs to you. The exact amount will depend upon several factors, including: the amount of your loan, the value of your home, and the amount of time passed since you took out the loan.
How Much Can You Borrow?
Some home equity lenders allow you to borrow up to 80% of the value in your home. This is good if you need a lot of money. But, in reality, home equity loans are awarded based on your ability to repay them. So people living on fixed incomes may find they can’t access the full 80%. Reverse Mortgages, on the other hand, let you borrow up to a maximum of 55% of the value in your home. This mximum amount is dependent on your age. The older you, the more you would qualify for. This protects the equity in your home and helps ensure there’s still value left after the loan is repaid. It’s a more conservative approach to lending and it seems to be working. In fact, according to the CHIP Home Income Plan, the leading provider of Reverse Mortgages in Canada, most of its clients still have more than 50% equity in their home when they sell. That’s good news for people who want to have some money to give to their heirs or to finance the next stage of their retirement.
You may qualify for more than you need now. The Home Income Plan makes available the total amount you qualify for and then you can access additional equity later if and when you need it.
You always maintain complete ownership and control of your home at all times. You can never be forced to sell or move or to repay the loan. If a spouse passes away, the surviving spouse is under no obligation to make any payments until they move or sell the home. If you are the sole borrower, and you pass away, the loan is repaid when the estate sells the home. After the loan is repaid, all remaining equity is paid to your estate and/or your heirs.