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If you’re over 55 years of age and own your home, then you have the potential to receive financial help via a reverse mortgage. Most of us have seen adverts for this new type of loan on TV and flyers, and you may be wondering whether they’re safe to use, and how they work.
To make sure you have all the information you need to make smart financial decisions, we have broken down everything you need to know about these mortgages, below.
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You can pre-apply for a reverse mortgage here at Smarter Loans and we will connect you with a provider in our network.
A reverse mortgage, also known as an “equity release,” is a financial product designed for Canadian homeowners who wish to access the equity they have built up in their homes. This unique type of loan is secured against the property and provides immediate cash in hand, offering financial flexibility and security for the borrower.
Unlike a standard mortgage, reverse mortgages do not require monthly mortgage payments. Instead, the loan’s principal and interest payments accrue over time, with the loan growing in value rather than shrinking. This structure allows the reverse mortgage borrower to access tax-free cash without worrying about additional mortgage obligations.
Reverse mortgages are considered “life” loans, meaning they last the duration of the borrower’s lifetime or the life of the borrower’s ownership of the home. The loan terminates when the homeowner leaves the property, sells it, or passes away. At that point, the property’s sale covers the loan repayment, including the accrued interest.
Canadian homeowners can choose from several options when accessing their reverse mortgage proceeds. They may opt for a lump sum payment, providing a large amount of cash to cover significant expenses or investments. Alternatively, they can establish a line of credit to draw from as needed, offering control over cash flow and financial planning. Lastly, monthly payments can act as a supplemental income stream, easing the financial burden of living expenses and other costs.
In Canada, the primary lender for reverse mortgages is HomeEquity Bank, offering the Canadian Home Income Plan (CHIP) mortgage. Equitable Bank is another significant player in the market, providing its proprietary Equitable Bank Reverse Mortgage product. Both options allow homeowners to access the value of their home at competitive reverse mortgage rates.
The amount a homeowner can borrow through a reverse mortgage depends on their age and the fair market value of their home. Lenders use a percentage of the home’s value to determine the maximum amount of the loan, ensuring the loan is secured and based on the property’s worth.
While mortgage borrowers are not required to make monthly mortgage payments, they must continue to pay property taxes, maintain their home, and keep home insurance. If a homeowner chooses to repay the reverse mortgage early, there may be penalties involved.
It’s essential for homeowners to seek independent legal advice when considering this type of mortgage. Working with reputable mortgage lenders and advisors ensures a thorough understanding of the mortgage process and its implications, allowing borrowers to make informed decisions about their financial future.
These mortgages are very useful tools if you have built equity in your home but lack regular income. The funds released via this mortgage are tax free, so there are literally no payments to worry about until the home is vacated.
There are no restrictions on how the loan proceeds from these mortgages can be used, offering flexibility for borrowers. Some common purposes for these mortgage funds include:
Utility Bills and Regular Expenses:
A reverse mortgage can help cover monthly expenses, such as utility bills, providing financial relief for homeowners with limited income sources.
Travel Expenses:
The tax-free funds can be used to finance vacations and travel, allowing homeowners to enjoy their retirement years without financial stress.
Home Renovations:
Mortgage proceeds can be invested back into the property for necessary home renovations or improvements, increasing the home’s value and comfort.
New Purchases:
The funds can be used for purchasing items like a new car, furniture, or other desired goods, enhancing the borrower’s lifestyle.
Medical and Care Bills:
Mortgages can cover medical and care expenses, ensuring adequate healthcare and support for homeowners as they age.
Paying Off Other Debt:
The tax-free cash can be used to pay off other outstanding debts, relieving financial pressure and providing peace of mind.
Bridge Financing Until Pension Kicks In:
A mortgage can serve as bridge financing for retirees awaiting pension benefits, such as the Guaranteed Income Supplement, offering financial stability during the interim period.
Canadian homeowners interested in a this type of mortgage should consult with mortgage brokers to explore available options, such as the equitable bank offers. These professionals can provide guidance on mortgage contracts, adjustable rates, and other relevant factors.
By obtaining a free estimate, homeowners can better understand the entire loan process and determine if this type of mortgage is the right solution for their financial needs.
Eligibility for a home equity mortgage is straightforward, but certain factors must be considered before approval. If you’re interested in this financial product, it’s essential to understand the basic requirements and how they influence the loan’s terms.
To be eligible for a reverse mortgage, you must:
If you meet the basic requirements, lenders offering these mortgages will consider additional factors to determine whether to approve your application. These factors include:
These factors influence the likelihood of approval and the amount you’ll be able to borrow. The maximum allowed borrowing amount is 55% of your home’s value.
A reverse mortgage is a loan that lets you access your home’s equity without making monthly payments. The loan advance is typically provided at a fixed interest rate, although some lenders may offer adjustable rates.
It’s crucial to understand the terms of your reverse mortgage, including any prepayment charges if you decide to repay the loan early. Additionally, be aware that if the borrower dies or sells the home, the loan must be repaid, usually through the proceeds of the home’s sale.
When exploring reverse mortgage options, work with lenders who specialize in these products, such as HomeEquity Bank and Equitable Bank. They can provide guidance on reverse mortgage interest rates, down payment requirements, and other essential factors to consider.
By understanding the eligibility criteria and working with reputable lenders, you can make an informed decision about whether a reverse mortgage is the right solution for your retirement savings and financial needs.
At the moment, there are several reputable reverse mortgage providers in Canada, including Bloom Finance Company, Equitable Bank, and HomeEquity Bank (CHIP). These providers offer mortgages that allow Canadians aged 55+ to access the wealth they’ve built in their homes.
The reverse mortgage works by securing a loan against the value of your home, which can be received as a lump sum or as monthly payments. Interest accrues on the amount of the loan as it is received, and the loan is tax-free cash. When applying for a reverse mortgage, you will need to provide personal information, financial documentation, and documentation pertaining to your home. Equitable Bank requires the home in question to be worth more than $250,000, while HomeEquity Bank requires the home to be valued at more than $150,000.
It’s important to note that while these mortgages can provide financial flexibility, they come with higher adjustable interest rates than traditional mortgages and other types of loans. Additionally, you must pay off any existing mortgage or other outstanding debts on the home before securing a reverse mortgage.
At the moment, there are several reputable reverse mortgage providers in Canada:
This lack of providers does mean that there is less competition in this space than in other areas of financing, and so interest rates are higher than with traditional mortgages and some other types of loan.
Getting a reverse mortgage is an easy process with just a few simple steps:
Step One: Pay off any other outstanding debts on the home (such as HELOCs or other mortgages). You may use the reverse mortgage to help you cover these debts – the key is that, when in place, it is the only loan secured against the property.
Step Two: Apply for a reverse mortgage with your chosen lender, such as Equitable Bank or HomeEquity Bank (CHIP) who offer reverse mortgage loans throughout Canada. They will want to see personal information, financial documentation, and documentation pertaining to your home. The reverse mortgage interest rate is higher than traditional mortgages, but the loan is tax-free cash that you can use as you wish.
Step Three: Decide how you want your funds. You can opt for either a single lump sum payment or a small amount upfront, followed by monthly mortgage payments. The lump sum amount will depend on the value of your home and the reverse mortgage rates offered by the lender. Interest accrues on the loan amount as it is received, so opting for monthly mortgage payments means less interest over the life of the loan. It’s important to note that you must pay property taxes and keep the home in good condition during the loan period.
You also have the option, if you so choose, of repaying the loan in partial payments over time. If you do not do this, and choose to wait until the mortgage closes, you should know that the amount owing at the end of the loan’s life will be greater than the amount initially borrowed (because of the interest). With a CHIP reverse mortgage or other reverse mortgage loans, you can access the equity in your home and continue to live in it without having to make mortgage payments.
All of the above probably has you wondering what happens as the value of your home fluctuates with the property market. If you have an Equitable Bank reverse mortgage the amount of the loan is calculated based on the value of your home, so any change in home value will affect the amount of money you can borrow. However, the reverse mortgage lets you stay in your principal residence, and you can continue to live there without making mortgage payments.
There are calculators available to give you a more specific picture, but essentially you only need to be aware of two scenarios:
If this happens, your reverse mortgage is not affected. The only effect of an increase in property value is a change in the amount of equity you have in the home. As the property value increases, the proportion of the property mortgaged becomes smaller, and so your share of equity increases. However, over time, the amount of interest accrued on the mortgage also increases, making the loan larger. So the crucial number to consider is the difference between the rate of your home’s appreciation and the interest rate on your mortgage. It’s worth noting that some lenders, like HomeEquity Bank, offer the lowest reverse mortgage rates and interest only payments.
If property prices take a tumble (or if property prices are stagnant and your mortgage’s interest accrues past the value of your home), you may be concerned about repaying your loan. A reverse mortgage requires that your home value is more than a certain threshold, such as $150,000 for HomeEquity Bank. However, these mortgages usually come with a negative equity guarantee: if, when the mortgage is closed, you owe more back than the home is worth, you (or your beneficiaries) are protected from this shortfall. You will never have to repay more than the fair market value of your home. Additionally, some lenders allow prepayment changes, which means you can pay more money towards your reverse mortgage to reduce the amount of interest that will accrue over time. If you have enough savings, you can also make a down payment to reduce the amount of the loan.
Once you have a reverse mortgage on your home from lenders such as HomeEquity Bank (CHIP) or Equitable Bank, it’s important to understand how most reverse mortgages work and the stipulations of the reverse mortgage contract. The reverse mortgage lets you convert your home equity into tax-free cash, but there are rules you must follow to stay in line with the loan’s requirements. These are:
When you have a reverse mortgage from lenders such as HomeEquity Bank (CHIP) or Equitable Bank, it’s important to understand how reverse mortgages work and how the loan is repaid. The amount of the loan is calculated based on the appraised value of your home, and you can choose to receive the loan as a lump sum or as monthly payments. Reverse mortgages let you access your home equity, giving you more money to spend on your retirement or other expenses.
There are a couple of ways to close a reverse mortgage:
The amount of time you, or your estate, have to repay the loan varies by lender and circumstance. It’s worth noting that some lenders, such as HomeEquity Bank, offers reverse mortgages with no prepayment charges, allowing you to pay off the loan earlier without incurring additional fees. A reverse mortgage specialist can help you understand the terms of your loan and work with you to determine the best repayment strategy for your needs.
As with any mortgage, there are fees when taking out a reverse mortgage. These should be included in your financial calculations, and if necessary added to the loan amount. Typical fees include:
This depends on the loan you take out, the interest rate, and the lender’s fees. It also depends on how long you have the loan for. The longer the loan lasts, the more interest it accrues, hence costing you more. HomeEquity Bank and CHIP reverse mortgage offers reverse mortgages, which are secured loans against the appraised value of your home, allowing you to access your home equity.
Reverse mortgages can be taken out on any privately owned home, as long as it meets the lender’s criteria (usually a minimum value of $150,000), and as long as it is the borrower’s primary residence. If the property has multiple owners, then all of the owners must meet the lender’s requirements.
The amount you can borrow depends on the value of your home. With a CHIP reverse mortgage or HomeEquity Bank reverse mortgage, the upper limit is 55% of the home’s value.
You still own your home when you take out a reverse mortgage; just as with a traditional mortgage, the loan does not impact your ownership. The loan is simply secured against the property.
No, they do not affect benefits, as income from a reverse mortgage is tax free. It’s worth noting that a reverse mortgage is a loan, and as such, it is not considered income.
If you own your home with your spouse, the reverse mortgage is maintained after they pass away. For the mortgage to close, both spouses need to pass away or vacate the home.
This depends on how the mortgage is closed. If you close it or repay it prior to your death, then it will have no more effect than repaying any type of loan. If the reverse mortgage is automatically closed after you pass away, then your estate repays the loan. This naturally reduces the sum of money left to your beneficiaries, but rest assured: if property prices fall, they will not be stuck paying the cost of your loan out of pocket. With HomeEquity Bank reverse mortgage or CHIP reverse mortgage, your home equity can be a valuable resource for your retirement planning.
A reverse mortgage allows you to access the equity in your home, giving you more financial flexibility during your retirement years. With a CHIP reverse mortgage or Equitable Bank reverse mortgage, you can borrow money against the appraised value of your home. The amount of the loan is based on your age, the appraised value of your home, and the lender’s fees.
The loan does not have to be repaid until you sell your home, move out, or pass away. At that time, the loan, plus interest and any fees, must be repaid. If you have a CHIP reverse mortgage or HomeEquity reverse mortgage, you or your heirs can choose to repay the loan at any time without penalty.
Reverse mortgage funds allow you to convert your home equity into cash, which can be used to pay for medical expenses, home renovations, travel, or any other expenses you may have during retirement. With a CHIP reverse mortgage or Equitable Bank reverse mortgage, you can access up to 55% of your home’s value. You still own your home, and the loan is simply secured against the property.
Overall, a reverse mortgage can be a valuable tool for seniors who want to access their home equity without selling their home. HomeEquity and CHIP reverse mortgage offer reverse mortgages, which can be a helpful way to access your home equity and supplement your retirement income.
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