December 16 2022
While traditional mortgages are the most common in Canada, you may be unaware that there are other options such as reverse mortgages. This is a great way for Canadian homeowners – who are of a certain age – to convert home equity into cash without actually selling their property. Read on to find out how you might be able to turn a portion of your home equity into cash money today!
What is a reverse mortgage?
A reverse mortgage is a financing solution that provides Canadian homeowners ages 55 and older with access to tax-free cash! This type of loan allows eligible candidates to borrow up to 55% of the current market value of their home, and the maximum amount is determined by the homeowner’s age, the appraised value of the home and what the lender can offer. One important thing to note is that in order to qualify for a reverse mortgage, the property must be your primary residence for at least six months to a year. By leveraging the equity of your home, you may be able to finally book that dream vacation, help your kids buy a home or simply use the extra cash to pay for your personal retirement expenses!
What is the process of obtaining a reverse mortgage?
Borrowers can obtain a reverse mortgage by paying off or closing any outstanding loans or lines of credit attached to their home, such as an additional mortgage for a Home Equity Line of Credit (HELOC). The best part is that you can use the reverse mortgage funds to do this! Remember though – all individuals on the home's title must be at least 55 years old to be considered for the reverse mortgage application process.
Not all lenders offer reverse mortgages – it is actually quite rare. That’s why working with a company like Homewise will increase your chances of finding the right lender for your situation. Not sure how much you’re eligible to borrow? Feeling nervous about getting a loan? Our dedicated Mortgage Advisors are here to ease your concerns and answer questions! We work with multiple lenders and provide expert advice while guiding you throughout the entire process.
The pros of reverse mortgages
For some, a reverse mortgage can be an incredibly feasible option — and it can potentially give you a lot of freedom! As a borrower, you are given unrestricted money to maintain your lifestyle and continue living in your current home. Additionally, reverse mortgages do not require regular loan payments and the amount borrowed has no bearing on your Old Age Security (OAS) or Guaranteed Income Supplement (GIS) either. As long as you continue to comply with all mortgage requirements, including tax and insurance payments, you won’t have to pay back more than the value of your property.
The cons of reverse mortgages
Reverse mortgages, like all other loans, have some disadvantages. For one, reverse mortgages have higher interest rates than traditional mortgages and come with additional costs such as home appraisal fees, setup fees, and prepayment penalty fees. You should also know that the only way you can get out of a reverse mortgage is if you sell your home or pass away.
From a long-term point of view, having a reverse mortgage also increases the amount of debt you carry and therefore reduces the amount in one’s estate for beneficiaries. It’s important to be mindful that your estate will then become responsible for repaying the amount that was borrowed plus any interest accumulated.
Some alternatives to reverse mortgages
Reverse mortgages are great for some people, but not everyone. We suggest that you contact Homewise to connect with an unbiased experienced Mortgage Advisor to determine what is right for you. From there, you’ll get expert advice on how to proceed in your specific situation.
Here are some alternative options to a reverse mortgage:
At Homewise, we work with multiple lenders to find a mortgage solution that suits your needs. We want to provide you with all the necessary information and resources so you can make an informed decision. For more information, get connected with one of our Mortgage Advisors today!
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