Reverse Mortgage Guide
A reverse mortgage is an increasingly popular consumer loan for Canadian homeowners age 55+. It allows these homeowners to tap into the home equity they have built up in their homes. There are no monthly mortgage payments but homeowners are still responsible for paying property taxes, insurance, and maintenance. The repayment of the loan is deferred until the homeowner passes away, sells or moves out of the home. Because there are no monthly mortgage payments and homeowners can receive their home equity as tax-free cash, tens of thousands of Canadian homeowners have taken out a reverse mortgage.
How Does a Reverse Mortgage Work?
To qualify for a reverse mortgage, you must own a home, be at least 55 years old and have enough equity built up in your home. The amount of tax-free cash you qualify for is based on your age and the appraised value of your home. The loan is repaid when your home is sold, or the last of the borrowers moves out or dies.
What Are The Pros and Cons of a Reverse Mortgage?
There are several factors to consider before deciding to proceed with a reverse mortgage. As with any large decision, it’s helpful to have an understanding of the pros and cons associated. Some of them include:
Pros:
- You continue to live in your home and retain title to your home. All you have to do is continue to pay your property taxes, insurance, and maintenance.
- You receive the proceeds of the loan as tax-free cash and you can use the money as you see fit.
- You do not make any monthly mortgage payments until you decide to move or sell.
- A reverse mortgage is a non-recourse loan. Neither you nor your heirs are liable for any amount of the mortgage that exceeds the value of your home, as long as you have paid your property taxes and insurance.
- You choose how you would like to receive the funds – from all at once, to advances over time – there are flexible options.
Cons:
- Because there are no monthly mortgage payments required, interest rates can be higher for a reverse mortgage than other secured lending options.
- The balance of the loan increases over time as does the interest on the loan.
What is the Process of Getting a Reverse Mortgage?
The process of getting a reverse mortgage loan is straightforward and typically entails the following steps:
- Research and identify companies that may be right for you. Fill out an online form or give them a call to start the process.
- Speak to a Mortgage Specialist to discuss your particular circumstances and to have your questions answered.
- Should you choose to proceed, you will get assistance in arranging for an independent appraisal of your home. Once the appraisal is complete, like a conventional mortgage, you will be asked to complete some paperwork.
- Before everything is finalized, we require you to review the information with an independent lawyer of your choice.
- You will receive your tax-free money.
How We Rate Reverse Mortgage Lenders
We independently identify reverse mortgage companies. From there our editors review them in a myriad of ways from impartially secret shopping to checking consumer reviews to validating fees, types of products offered, and time to close amongst other criteria. Our goal is to present objective representations of companies to give consumers informed information to make a decision.
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