How does a Reverse Mortgage work?

A reverse mortgage is a long-term financial solution which is designed for homeowners 55 years and over.

It is a loan secured against the value of your home. With a reverse mortgage, you can convert a portion of your home equity into tax free cash.

There are no monthly mortgage payments while you or your spouse live in your home. The full amount only becomes due if you and your spouse move or sell your home. You maintain title, ownership, and control of your home and the remaining equity in your home.

Lending practices are conservative. Depending on your age, location, and property type, you could receive up to 55% of your home’s value. Up to is most important. You may not receive the full 55%. This is a safeguard to ensure that you, the homeowner, will retain the equity remaining when the home is sold.

Although no regular payments are required until the mortgage becomes due, you have the benefit of prepayment privileges. 10% of the amount owing can be paid once per year without a prepayment charge. If you choose to pay your reverse mortgage early, as with any mortgage, a prepayment charge may apply.

If you do decide to move or sell your home, you would pay the initial amount borrowed plus interest accrued. You can however, pay the interest only on a monthly basis, reducing the amount owing at the end of your reverse mortgage. Meanwhile, depending on market conditions, the value and equity of your home may also increase

If either spouse should pass away and one spouse remains living in the home, no monthly mortgage payments will continue. If both homeowners pass away your estate will pay the loan plus accrued interest (if applicable).

One of the primary reservations about a reverse mortgage is the interest rate. As with any loan or mortgage you must pay interest.

With a reverse mortgage the INTEREST ONLY is added to the original loan amount. This may result in you having less equity in your home, although, depending on market conditions, the appreciation of your home could offset the interest.