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You can’t turn a TV on these days without seeing an advert for reverse mortgages, but only around 1.5% of all mortgages taken out in Canada come in this specialized form. So what’s all the hype about? Let’s take a look at why this type of mortgage is becoming more common across Ontario, and how they work.T
When applying for a reverse mortgage, it is important to find an institution that is both trustworthy and highly reviewed, to ensure that you get a reverse mortgage that will work for you.
Smarter Loans offers you a list of Ontario’s top reverse mortgage providers, to help you get the best financing for your situation.
Check out the table of reverse mortgage lenders in Ontario below, and see what they are currently offering. If you’re not sure which lender might work the best for you, we can help you find the right provider.
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 that’s where the similarities end.
So here’s where it gets interesting: as opposed to a normal loan term, a reverse mortgage lasts the duration of your life, and there are no repayments, for principal or interest, at all during the loan’s life. You do not pay anything for the loan until it terminates. Because of this, it acts exactly reverse to a standard mortgage – accruing value over time, instead of growing smaller.
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. These factors include:
At the moment, there are only three reverse mortgage providers across all of Canada:
2. HomeEquity Bank (CHIP)
3. Equitable Bank
As Ontario’s average house price sits at $594,000, most reverse mortgage applicants will meet the home value requirement for both providers very easily.
Getting a reverse mortgage is a fairly easy process. First, you must check you are eligible for one. Then, you must pay off any outstanding debts against the home (including HELOCs and other mortgages). You are allowed to use a reverse mortgage to help pay off these debts, but they must be closed out at the time the reverse mortgage comes into effect, so that the reverse mortgage is the only loan against the property.
Once you have met these basic conditions, you can pick a lender and apply for your reverse mortgage. As with other types of mortgage, there is a fair amount of paperwork to go through, including lots of documentation regarding the property you are mortgaging and your personal finances. Once 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.
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. It’s important to note that interest accrues on your loan as it is received – so opting for monthly payments means less interest over the life of the loan. One way you can make your reverse mortgage a little cheaper is by choosing to repay the loan in partial payments over time.
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:
Given the specifics of reverse mortgages, it’s worth knowing a little about Ontario’s property market and its typical homeowner:
There are only two reverse mortgage providers in Ontario: HomeEquity Bank and Equitable Bank.
Anyone in Ontario who is 55 years or older and owns their own primary residence can get a reverse mortgage. If you co-own your home, all owners must be 55 or older.
You can only borrow up to 55% of your home’s value with a reverse mortgage (which averages $326,700 in Ontario).
Reverse mortgage interest rates start at about 3.5%, but do vary depending on the term of the loan and some other factors. As well as this, there will be mortgage origination fees and legal fees associated with the loan.
There are quite a few misconceptions about reverse mortgages, which often make them seem less preferable to other financing options. Some of these misconceptions include:
