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Around 1.5% of all mortgages taken out in Canada are reverse mortgages, but with only two lenders and many alternative ways to access cash, Canadians are understandably confused about this type of loan.
So here’s everything you need to know if you’re hoping to benefit from the equity in your home.
A reverse mortgage is a form of loan that in effect ‘releases’ the equity you have built up in your home. As with normal mortgages, the loan is secured against the property in question, but as opposed to a normal loan term, a reverse mortgage lasts the duration of your life. And, importantly, there are no repayments, for principal or interest, at all during the loan’s life.
At the moment, there are only three reverse mortgage providers across all of Canada:
2. HomeEquity Bank (CHIP)
3. Equitable Bank
Mississauga’s average property price is $962,697 (and even higher, $1.4 million, for detached homes), so the majority of reverse mortgage applicants in this area will meet the home value requirement for both providers very easily.
Eligibility for a reverse mortgage is simple:
If you meet these basic requirements, you are technically eligible for a reverse mortgage.
However, as with other types of mortgage, financial factors will be taken into account to see whether your chosen lender wishes to lend to you.
The lack of reverse mortgage providers does mean that there is less competition than in the traditional mortgage market, and so interest rates are higher than you might expect. Rates can vary depending on your circumstances and your chosen mortgage term, but they start from around 3.5% (fixed rate). Variable rates are also available.
And, 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:
It’s recommended that you budget around $2,500 to cover these costs.
Getting a reverse mortgage is a fairly easy process:
If you are approved, you can choose to take your mortgage funds either as a single lump sum, or split between a small upfront payment and subsequent monthly payments.
Not everyone is eligible for, or wants to get, a reverse mortgage, and fortunately there are some other options available to help homeowners benefit from the equity in their homes:
For those who do wish to pursue a reverse mortgage, there are some ways to make this a more affordable option:
Mississauga has a dynamic and increasingly expensive property market. Here are some facts about typical homeowners and properties in this urban area:
You can borrow up to 55% of your home’s value with a reverse mortgage. This averages $529,483 in Mississauga.
Reverse mortgage interest rates start at about 3.5%, but do vary depending on the term of the loan and some other factors.
Reverse mortgages can be taken out on any privately owned home, as long as it meets the lender’s criteria and is the borrower’s primary residence. If the property has multiple owners, then all of the owners must meet the lender’s requirements.
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, reverse mortgages do not affect benefits, as income from a reverse mortgage is tax free.
If you own your home with your spouse, the reverse mortgage is maintained after they pass away. For the reverse mortgage to close, both spouses need to pass away or vacate the home.
This depends on how the reverse 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.