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Heather Contant Mortgage

Kelowna, BC V1Y 9S6, Canada


Pros and Cons of a Reverse Mortgage In Canada

by | Reverse Mortgage Canada

Pros and Cons of a Reverse Mortgage

There are pros and cons with a Reverse Mortgage, but let’s tackle the myths that surround Reverse Mortgages, and then we’ll get to the pros and cons of a Reverse Mortgage product.

Reverse Mortgage Myths

There are myths, stories and misinformation on the Internet about many things, but our topic of concern today are the myths of the Reverse Mortgage product in Canada.

The first myth is: the Bank owns your Home. It is simply not true.

If someone said to you when you get a regular mortgage, that the bank will own your home, you would probably scoff at them and laugh because it’s just not true. We all know it. The same goes for Reverse Mortgage. A Reverse Mortgage is securitized against your property and title remains in your name at all times.

The second myth is: the unpaid interest will erase the many years of equity that has built up in the property. Keep in mind the maximum loan to value on a Reverse Mortgage is 55% of the appraised value, which is very conservative lending. This ensures you will have access to the cash you want and the security you need. The property will never drop below the amount of the Reverse Mortgage.

The next myth is: the Reverse Mortgage is a financing solution of last resort. This myth has been circulating for decade. With more seniors retiring each year enjoying more longevity than previous generations, they are also retiring with less funds to maintain their pre-retirement lifestyle. Therefore, a Reverse Mortgage is a viable option to be considered in the overall plan of retirement.

The Pros of a Reverse Mortgage

Now that we have busted the myths, let’s look at the pros of a Reverse Mortgage.

First of all you need to be 55 years of age and be a Canadian homeowner. The Reverse Mortgage product enables you to convert up to 55% of your homes value into tax free cash. YES, let me repeat that… TAX FREE CASH.

If the sound of TAX FREE CASH doesn’t get you excited with no strings attached, you may as well signoff and go for a walk because you won’t be interested in sticking with me on this topic.

You maintain ownership of your home and there are no monthly mortgage payments required. The loan is repaid when you choose to move or sell.

The funds of a Reverse Mortgage can be used for whatever needs you require. You can take out your tax free cash as a lump sum payment or you can have it deposited into your account on a monthly basis. You may want to renovate your home, take a dream vacation, assist family members with their financial needs, top up your pension monthly income – whatever it is the choice is yours.

The Downside of a Reverse Mortgage

If you are looking at a Reverse Mortgage as a financing option and you are not 55 years of age, or your spouse is not 55 years of age, you will not be eligible at this time to pursue a Reverse Mortgage.

If you do not own a home you will not qualify for Reverse Mortgage. The older you are the more equity you will receive from your Reverse Mortgage. The sweet spot age for a reverse mortgage is approximately 72 years of age or older. The older you are, the more tax free cash you will receive with a Reverse Mortgage.

You may view having to maintain the property in satisfactory condition to be a con. This is required to maintain the increased in value of your property over time. Having a Reverse Mortgage doesn’t mean you can neglect taking care of your home. You also are responsible for paying your property taxes and condo fees if applicable. You are also responsible to carry the proper insurance on your home.

At this point your interest is probably piqued about a Reverse Mortgage and you are asking yourself what are the next steps to find out if this is a financing solution for you? You may have a traditional mortgage currently under home or you may even have a line of credit on your home which is essentially a lone security against your home with a monthly interest payment obligation.

In some cases, a home equity line of credit may be the perfect solution for you and your spouse. A line of credit is also a Demand loan which can be called in for repayment within 30 days if you or you suppose passes away. Imagine, while grieving the loss of your spouse, the bank calls you and tells you your line of credit must be paid back immediately. As I mentioned earlier, a Reverse Mortgage is never called in for repayment even if you or your spouse passes away. It is only to be repaid when you move or sell your home.

How much equity is needed to get a Reverse Mortgage? The value of your home is determined by an appraiser. From this appraised value your home equity is derived by subtracting any outstanding secured debts against the home such as another mortgage or a line of credit. Your age, marital status, and location of your home are taken into consideration to give you a final number.

If you check the boxes of being a Canadian homeowner, 55 years of age, you have equity in your home and your home is a minimum of $150,000 in value, you would be eligible for a Reverse Mortgage. You can have a Reverse Mortgage take over a traditional mortgage or if your property is free and clear you can take a Reverse Mortgage out on that and you can also use a Reverse Mortgage for a new purchase.

Doesn’t Reverse Mortgage just keep getting better and better?

You can always switch from a Reverse Mortgage to a traditional mortgage if you wish. There may be a penalty to do so but the option is there for you if this is necessary.

If you would like more information and a FREE consultation, with no commitment form you, please contact me. Isn’t about time your house started paying you back?

Reverse Mortgage For Retirement

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