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November 2, 2021Reverse Mortgages 101: How Does a Reverse Mortgage Work?
Reverse mortgages are a fantastic lending option for qualifying seniors with sizable home equity – there’s no better person to borrow from than yourself. Learn more about how reverse mortgages in Canada work in our quick guide below!
What is a reverse mortgage loan?
We get a traditional mortgage to help us buy a home, but it’s not the only home loan on the market.
A reverse mortgage is a simple loan that homeowners can take against their home equity – the cash they’ve invested into the house thus far. These loans are meant to help seniors with most of their savings tied up in their homes. Because the value of your home has likely grown significantly over the years, it accounts for a large portion of your total net worth, but one you can’t touch unless you sell…… or get a reverse mortgage! A reverse mortgage provides an easy way for seniors to enjoy their home equity as usable wealth without giving up the security of their home.
Borrowers can get a lump-sum, fixed monthly, or quarterly installments against their home’s value and don’t require any loan payments. But, how do lenders get their money back if borrowers don’t make payments?
Borrowers repay the loan either when they sell the house, move out of the home, or pass away. How much money can I get?
The loan size depends completely on your home equity because lenders will rarely loan you more than 55% of your home’s value.
Do I qualify for a reverse mortgage in Canada?
Like any other financial loan, reverse mortgages have some requirements you need to fulfill to get approved by the bank.
To qualify for a reverse mortgage on your home, you must be a Canadian homeowner over the age of 55. If you live with a spouse, they must also be over 55.
Along with age and ownership status, lending institutions consider a few different factors for a reverse mortgage:
- Your home’s location
- Dwelling type (detached, semi-detached, condo, and more)
- Your home’s condition
- Your total home equity
The amount you repay will never be above the fair market value of your home, so if home prices suddenly drop significantly, you will only have to pay up to that value – whether the initial loan exceeds that number or not.And if your home increases in value over time, the appreciation belongs to you and your estate.
So your reverse loan will never be a financial burden to you or your loved ones in the case of your passing and can still be a generous financial gift for your loved ones.
Can I repay a reverse mortgage early?
You sure can! Though you’ll never be forced to repay early, you can pay the principal and interest in full whenever you’d like.
Getting a Reverse Mortgage
Ready to look into reverse mortgage solutions? Call Deborah’s Reverse Mortgages at (905) 870-5726 to get started and learn more about our range of financial solutions.
