Taking out a reverse mortgage loan: A guide for 55+ homeowners

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Mark Price
October 17, 2022
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The concept of a reverse mortgage is familiar to most people, but few understand how it operates. With the help of a Reverse Mortgage Broker, you can access the value of your house without having to sell it and 55%of the current market value of the property can be borrowed using this financing.

The process of calculating a loan

  • Your age
  • Your home’s appraised value, as determined by a third-party appraiser
  • The type and location of your home

Eligible borrowers

To qualify for a reverse mortgage, a borrower must meet the following criteria:

  • All borrowers on the title of the home must be at least 55 years old.
  • You are a property owner and this is your primary residence.

Lender decision-making criteria

A lender will consider the following criteria when reviewing your reverse mortgage application:

  • The ages of all the people listed as owners of the property
  • The location of the property
  • The home's condition
  • The appraised value
  • Type of residence
  • Evaluation of a borrower's capacity to pay ongoing housing costs, such as those associated with taxes, insurance, and repairs.

Any outstanding mortgages or other secured debts

To qualify for a reverse mortgage, you must first pay off any other mortgages or home-equity loans or lines of credit (HELOCs). At the time of reverse mortgage funding, these items can be paid out with the reverse mortgage funds.

Methods of using the money

You can use the remaining money to:

  • Finance necessary maintenance and upgrades to your house.
  • Observe the typical monthly budget.
  • Make good on your other financial obligations.
  • Travel
  • Assist those you care about.
  • Basically anything you want! The money belongs to you.

Getting the proceeds of a reverse loan

With a reverse mortgage, you have two options for getting
your money:

  • The payment will be made to you in a single sum.
  • You can take out a portion of the money right away, and then return for more if and when you need it.

Paying off a Reverse Mortgage

Reverse mortgages are not like conventional mortgages in that they do not necessitate monthly payments.

When you need to repay the loan.

You will be required to make a repayment if:

  • You've decided to put your home up for sale.
  • You up and leave town
  • The last owner on the home title passes.
  • You default on the mortgage by not keeping up with your property obligations

When a default applies

An event of default on a reverse mortgage exists if:

  • The borrower gives inaccurate information on their mortgage application.
  • The home deteriorates, decreasing it's worth.
  • The borrower defaults on home loan, insurance, or both
  • If the borrower fails to abide by the terms of the Reverse Mortgage, the lender may foreclose.

Repayment after the last borrower passes away

After the final borrower passes away, the mortgage is due in full within 180 days. This provides the family or trustee with time to figure out how they want to repay the loan, whether it be through selling the home and using the revenues to pay it back, refinancing with another mortgage, or using other assets.

Reverse Mortgage financing fees

Reverse mortgage financing costs may involve the following:

  • Interest
  • A setup fee
  • The cost of a home appraisal
  • Legal fees for independent legal advice
  • A charge for prepayment of the loan.

Interest rates vary from onle lender to another so your Reverse Mortgage Brokerr will shop around for the best rates and lowest fees.  Some costs may be rolled into the total loan amount, while others must be paid in full before closing.

When and where to get a Canadian Reverse Mortgage

There are multiple Reverse Mortgage lenders in Canada. Once we have spoken with you and fully understand your financial situation, we will "shop" your application to the best lender for the best rate, lowest fees and best terms. Please contact us 250.212.4424 or fill out our quick online application to find out if a reverse mortgage is right for you.

Reverse mortgage benefits and considerations

You should weigh the benefits and drawbacks of a Reverse Mortgage before making a final decision.

Advantages

  • You don't have to pay back the loan every month.
  • Without having to sell your property, you can access a portion of your equity.
  • Taxes are not deducted from the amount borrowed.
  • The money does not affect Canada Pension Plan (CPP), Guaranteed Income Supplement (GIS)benefits or Old-Age Security (OAS) money a borrower may be receiving
  • You don't need to qualilfy in a stress test rate.
  • Stay as long as you like at your own place.

Disadvantages

  • The advantage of having of not having to make a montlhly reverse mortgage payment, may result in an interest rate that is slightly higher than that of a conventional prime mortgage.
  • This means that the principal amount of the loan will continue to increase.
  • Property taxes are not deducted from the amount borrowed.

What to ask the lender for a reverse mortgage

The reverse mortgage lender should field the following inquiries from you:

  • How will I get the money from the loan?
  • Is there a cost to start?
  • What is the current interest rate?
  • Why might financing fall through?
  • If I sell my house before the allotted time, will I have to pay a fee?
  • How long do I have to make payments on the loan if I decide to relocate?
  • Can I make payments if I wish to?

Conclusion

Canadians aged 55 and up can benefit greatly from a reverse mortgage because it is a powerful solution that can give them greater financial independence in retirement. Inquire as much as you need to in order to feel comfortable with your reverse mortgage lender and the product.

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Mark Price
Director, Mark Price Mortgages

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