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Canada’s capital is home to nearly a million people, 61.2% of whom own their own home, and 26.7% of whom are over the age of 55. This means there are many thousands of Ottawa homeowners who are eligible for a reverse mortgage as a way to access affordable cash.
But what exactly is a reverse mortgage, and how do they work? Let’s find out! On this page you will find the top reverse mortgage providers in London and all about how they work. Let’s begin!
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.
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. The loan closes out when the homeowner dies, sells the property, or pays the loan back.
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.
At the moment, there are only three reverse mortgage providers across all of Canada:
2. HomeEquity Bank (CHIP)
3. Equitable Bank
Ottawa’s average property price sits at $629,112, and it is one of Ontario’s most important urban centres, so many of the homes in the city will meet the requirements for a reverse mortgage from both lenders.
Getting a reverse mortgage is fairly easy:
Once you have a reverse mortgage on your home, there are some basic rules you must follow to stay in line with the loan’s stipulations. These are:
If you fail to meet any of these conditions, you will default on the loan.
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.
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.
Given the specifics of reverse mortgages, it’s worth knowing a little about Ottawa’s property market and its typical homeowner:
There are only two reverse mortgage providers in Ottawa: HomeEquity Bank and Equitable Bank.
Anyone in Ottawa who is 55 years or older and owns their own primary residence can get a reverse mortgage. If you co-own your home, both owners must be 55 or older.
You can borrow up to 55% of your home’s value with a reverse mortgage (which averages $346,012 in Ottawa).
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.
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.
Interest accrues on your loan as it is received – so opting for monthly payments means less interest over the life of the loan. This is one way you can make your reverse mortgage a little cheaper; another is by repaying the loan in partial payments over time.
Changing property prices will only affect your reverse mortgage when you come to close it. There are two scenarios. If your property value increases, your reverse mortgage is not affected. If your property value decreases, then repaying your loan becomes harder.
However, reverse mortgages usually come with a negative equity guarantee, which means that 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.