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Toronto is home to some of the country’s most expensive property, with prices some 127% higher than they were just 10 years ago. This has not only priced many new buyers out of the market, but it also means that those who have owned their own home for some time have large amounts of equity locked in.
For this latter group, there are various ways to access cash tied up in property, without the hassle of selling, and one of these is via a reverse mortgage. Let’s learn about how reverse mortgages work in the Toronto market.
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 required 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. It also means you can access the value of your home without having to sell it.
Reverse mortgages are very useful if you have built up equity in your home, but lack regular income or need a large influx of cash. The funds released via a reverse mortgage are tax free, so there are no payments to worry about until the home is vacated. And there are no restrictions on how you can use funds from a reverse mortgage. Commonly, people use them for:
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:
Once you have a reverse mortgage on your home, there are some 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.
At the moment, there are only three reverse mortgage providers across all of Canada:
2. HomeEquity Bank (CHIP)
3. Equitable Bank
As Toronto’s average house price sits at $1,059,200, almost all Toronto reverse mortgage applicants will meet the home value requirement for both providers very easily.
Given the specifics of reverse mortgages, it’s worth knowing a little about Toronto’s property market and its typical homeowner:
There are only two reverse mortgage providers in Toronto: HomeEquity Bank and Equitable Bank.
Anyone in Toronto 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 $582,560 in Toronto).
Reverse mortgage 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. As well as this, there will be mortgage origination fees and legal fees associated with the loan.
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.
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.