- A reverse mortgage enables you to access your home equity
- You can take cash out of your home in a lump sum or in increments on a schedule to supplement your income
- You have to be at least 55 years old in and own your home
- Mortgage Maestro helps you to understand reverse mortgages and get the best financial solution
As the golden years approach, retirement looks more and more attractive. When you’ve worked your whole life, had a long career and enjoyed your family, retirement is the reward. Yet, as homeowners, there are always surprise costs that can cause some stress and we sometimes need to access our home equity. Home equity can give you access to cash to bring more enjoyment and less stress to your life.
Home equity loans can be tougher to get if we are no longer working and are dependent on our pension, savings and RRSPs, or other retirement savings structures. However, there is a way to get access to home equity when we need it most–reverse mortgages.
A reverse mortgage is a loan that enables you to receive up to 55% of your home’s value, minus the cost of accrued interest. Unlike a traditional mortgage that requires the borrower to pay back interest and principal every month for the life of the loan, a reverse mortgage is the opposite. With a reverse mortgage, you don’t have any regular mortgage payments and you don’t need to pay back the loan until you sell your home, move, or pass away.
A reverse mortgage – access to home equity
What’s great about a reverse mortgage is it gives you access to your home equity. As long as you live in your home, pay your property taxes and home insurance, and maintain the property, you can never be forced to move out. Additionally, you can never owe more than the home is worth when it is eventually sold.
At Mortgage Maestro, we have helped so many people get access to their home equity through a reverse mortgage. One retired couple came to us looking to access their home equity, and we were able to help them with a custom solution. Here is their story:
Sarah and Bill are a couple who wanted to celebrate Sarah’s retirement with a romantic trip to Paris. It was something they had always dreamed of, but never had the time to go because of their work and family responsibilities.
They were retired and living on a fixed income, and as Sarah approached her 67th birthday, she really wanted to take her dream trip to celebrate their life. Bill and Sarah could sell their home, downsize and then use the proceeds to travel, but they did not want to move and weren’t ready to give up the memories. The mortgage experts at Mortgage Maestro helped them to get a reverse mortgage so they could continue to live in their home and get the money they needed to pay for their dream trip. They wouldn’t have to repay the loan until they decided it was time to downsize.
With a reverse mortgage, Sarah and Bill made it to Paris and celebrated their lives together in the way they always wanted.
Reverse mortgages are an excellent solution for people like Sarah and Bill who want to access some of their home equity to celebrate life.
Reverse mortgages can be used to:
- Improve your home or make repairs
- Eliminate debts
- Buy a vacation property with the money gained as a down payment
- Help your children or grandchildren
- Supplement your income to reduce taxes and avoid pension cuts
- Take a well-deserved vacation
- Cover healthcare expenses
- Supplement your lifestyle and enjoy your retirement
You can usually take out money as a one-time lump sum or with some cash up front and additional amounts over time.
How to qualify for a reverse mortgage?
In Canada, to quality for a reverse mortgage, you must:
- Own and live in your home
- Be at least 55 years old
- Your home is your principal residence (live in it at least six months a year)
- Have sufficient equity left in your home
- Have enough income available to pay your property taxes and home insurance
When you apply for a reverse mortgage, your lender will consider yours and other applicant’s ages, the location of your home, the type of home and appraised value and the condition of your property. Anyone listed on the property title must also be included in the application.
Benefits of reverse mortgages
Using a reverse mortgage to access your home equity provides you with many benefits. It usually gives you the option to receive a lump sum of cash, similar to a line of credit without needing to maintain any monthly payments. Since this is not taxable, it doesn’t affect any retirement payments you receive from the government like Old-Age Security.
One of the best parts is that you still own your home. This can help to prevent the need to sell your home, and part with all those memories, since the loan is not due until you decide to put your house for sale or move. You can often also choose how and when to receive the money, so this can be a great supplement to your income and cash flow. If you need to get cash to pay for something like a repair or to financially assist one of your children, this type of loan may be the best choice.
It is always good to consider the benefits and drawbacks of any financial agreement before you make a final decision. With a reverse mortgage, you don’t have to pay back any interest until the end of the term, but it will likely be at a higher interest rate than other types of mortgages. The equity in your home will decrease, as the loan accumulates, and after passing away, the estate executor will be responsible to pay back the loan with interest at a set time. This may place an extra burden on grieving family members.
Key ideas when considering a reverse mortgage
Before you decide to take out a reverse mortgage, be sure to understand reverse mortgages well and do the research. There will be some costs involved with setting this up. For example, you will have to get your property appraised, you may also be required to get independent legal advice and there are closing and administrative costs.
The benefit of a reverse mortgage is that you can take the money when it suits you, in any increment, schedule or lump sum that fits your needs, whether you use it right away or set it aside for the future. It is up to you to access your home equity as suits your needs best.
It is also best to get advice. The team of mortgage experts at Mortgage Maestro can assist you in determining if this is the right solution for your needs. They can also guide you through the application process and help you to unlock the equity in your home.
Frequently asked questions
Is a reverse mortgage a good idea in Canada?
A reverse mortgage is another way for homeowners in Canada to access their home equity. The biggest benefit is that you are not required to make monthly payments.
What is the downside to a reverse mortgage?
A downside is the loss of home equity. Since you are not paying down a reverse mortgage, your home will give you less profit when you sell it, and it may limit the amount of money you can borrow. There are often more fees upfront.
Is a reverse mortgage a good idea for seniors?
If you own your home, are older, and do not plan on moving, a reverse mortgage can help to give you access to your home equity and money for your retirement.
What is the best age to take advantage of a reverse mortgage?
A reverse mortgage is available to Canadians over the age of 55 only. The money received is not taxable, but it is good to speak to a mortgage expert to decide when it the most advantageous to you.
Do you still own your home after a reverse mortgage?
The title of your home still stays with you, even when you get a reverse mortgage. You are still the owner until you sell your home.
A reverse mortgage may be a great solution for you. Receiving advice from one of our mortgage experts will ensure you get the best product to access your home equity and to learn how you can benefit from a reverse mortgage. Contact us to learn more.