The Home Equity Lender Guarantee

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Mark Price
October 17, 2022
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When a homeowner is 55 years or older in Canada, they may qualify for a Reverse Mortgage, a special type of loan that allows them to access the equity in their property without making regular payments toward the loan's principle or interest. This is a fantastic option for retirees who have amassed significant money in their home, called equity, but don't have adequate monthly cash to enjoy their retirement years and could benefit a supplemental income.

There are still some people who have false ideas about Reverse Mortgages and the benefits. Reverse Mortgages have evolved significantly over time, and the modern variety of the product features robust safeguards for the borrower. The Home Equity Lender Guarantee is one such safeguard.

As long as you keep up with your mortgage payments and other contractual obligations (such as those for property taxes and homeowner's insurance), you are assured that you will never owe more than the current market value of your house when it comes time to pay off your mortgage.

If you're looking into getting a reverse mortgage, this article will shed light on the usefulness of this product feature.

No Monthly Mortgage Payment Required

Since there is no obligation to make monthly payments on a Reverse Mortgage, interest will continue to accrue. It's true that your mortgage balance will rise, but that doesn't mean your equity will fall. You can see an from our chart of how, in most circumstances, home equity continues to rise overtime even with a reverse mortgage in place due to price growth on our Product page.

Home Value vs Home Equity

Simply put:
                             
                                    Home Equity = Home Value – Reverse Mortgage Balance

infographic about home value

So for example, if your home was worth $500,000 and the reverse mortgage balance were $200,000, you would have $300,000 of equity in your home.

Negative Equity

The amount of equity in your home may possibly turn negative in the extremely unlikely scenario where the reverse mortgage balance were to finally catch up to the home value, for instance, if the real estate market would crash and the home prices were to decline dramatically in your area.

Using the example above, if after 20 years the mortgage balance had grown to $400,000, but the value of the home dropped to $350,000, using the formula above

                                             Home Equity = $350,000 – $400,000 = ($50,000)

Consider the Consequences of Removing the Home Equity Guarantee

With other products, such as HELOCs, the borrower might be responsible for paying the lender the $50,000 in negative equity if the mortgage balance were to surpass the value of the home. Seniors who lack the income or cash flow to pay that bill may face serious financial difficulties as a result, or even be forced to sell their home. This issue has been resolved by Reverse Mortgages thanks to the Home Equity Lender Guarantee.

Home Equity Lender Guarantee

As unlikely as a total collapse of the real estate market, home owners can have peace of mind due to The Home Equity lender Guarantee as it protects the home owner should the outstanding amount of a reverse mortgage be more than the current market value of the home at the time of the sale.  The value of your property would serve as a total amount on how much you would ever have to pay back.

Relaxation, Even if It's Only Occasionally Needed

Reverse Mortgages almost never result in negative equity due to the following factors:

  • Initial loan amounts are low when compared to the estimated value of the home(capped at 55 percent)
  • Because of the general upward trend in housing prices across Canada, property values have been appreciating at a faster rate than mortgage balances.

However, the ability to "set it and forget it" is reassuring too many people who have taken out a reverse mortgage. When it comes time to repay the reverse mortgage, they and their heirs will never be left holding the bill. This should put your mind at ease.

Should You Consider a Reverse Mortgage?

Many Canadians are surprised to learn how much money they have thanks to the increase in the value of their homes. They are enhancing their standard of living in retirement by using the equity in their homes to finance things like:

Call us at 250-212-4424 or leave your contact information on this page and one of our knowledgeable Customer Advocates will call you to discuss how a Reverse Mortgage could help you gain access to the wealth you've built up.


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Mark Price
Director, Mark Price Mortgages

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