The reverse mortgage market has been increasing steadily in Canada over the past few years, and it’s no wonder. Canadians over the age of 65 have more than doubled in the last 30 years, and are set to double again in the next 20. This growing population of “retirees” are healthier than they have ever been, and they are living longer than ever. With our demographics changing so rapidly, it’s no wonder many people are asking: how can I live the life I want to live, with the years I have left?
Enter the reverse mortgage.
What is a reverse mortgage? Quite simply, a reverse mortgage lets you take a loan based on the equity of your home. Where a traditional mortgage is lending you money based on your home’s value, which you then pay off, a reverse mortgage allows you to free up to 55% of the capital from your home. There are no monthly payments, but you are required to pay your property taxes and home insurance, and keep your property well-maintained.
Where can I get a reverse mortgage?
Currently HomeEquity Bank is the only bank in Canada that offers the CHIP Reverse Mortgage as well as a secondary product, Income Advantage. These two products are options for homeowners unlike anything else out there. Instead of borrowing money to purchase a house, they will lend you money if you already have purchased one (as long as you qualify).
What are the qualifications for getting a reverse mortgage?
- You must be a homeowner, 55 or older
- You must live in the home for 6 months of the year min(primary residence)
- If the title of the property is registered to more than one person, you must be registered as joint tenants, not just as tenants in common. If the property is joint tenants, the interest of a deceased owner automatically gets transferred to the remaining surviving owner. If it is tenant in common the deceased tenant’s property interest belongs to his or her estate.
- Although you do not need to have an income to qualify for the borrowed amount as there are no payments required, you will have to stay up to date on paying the property taxes, fire insurance and strata fees (if applicable). The income you have coming in will have to be enough to adequately cover those associated fees.
Do I have to make monthly payments?
No. With this product there are no monthly payments, and you are not required to have an income. You can retain more of your income and never worry about default or foreclosure. but there are some costs still associated that you will need to budget for:
- Annual property taxes and insurance
- A home evaluation to qualify
- One time legal fees
Sounds great! What’s the catch?
- Get up to 55% of the value of your home
- Access funds to pay for short term medical emergencies or home reno’s
- No need to tap into savings/investments that may be costly or needed for future
- Receive your money tax-free
- Stay in your home – no need to sell in order to subsidize your retirement
- Maintain full ownership and control
- Free yourself from monthly mortgage payments until you choose to move or sell
- Qualify for much more money than a traditional equity line of credit. Approvals are based on age and property
- Income buffered. Changes in interest rates don’t affect the client’s monthly cash flow since there are no payment required.
- Prepayment penalties are waived upon death and reduced by 50% if the borrower(s) are moving into a care home.
- Borrowers will never owe more than the fair market value of the home at the time it is sold
- Fees can be higher than traditional Mortgages or Lines of Credit.
- As home equity is used, there is less to leave your heirs. You are still able to leave your home to your heirs but they would need to pay off the loan. In most cases, the property is sold to pay off the loan.
- There are some penalty fees involved if you need to break the mortgage.
- If the housing market never goes up, and the client lives in the home long enough, there is a chance the client could exhaust all the equity in the home to fund their retirement.
- If you do not fulfill your obligations of the loan including paying property taxes, home insurance, maintaining the property etc., the loan becomes due.
Reverse mortgages can be a great way to pay off debt., healthcare related costs, income supplements, living expenses, travel expenses or helping out a family member. Conservative house appreciation of just 2.5% to 3% per year over time will typically make up for the accruing interest on the reverse mortgage leaving clients with plenty of equity in the end. Reverse Mortgages are offered by HomeEquity Bank, a Schedule 1 Canadian Bank that is regulated but the Federal Bank Act.
Reverse mortgages are not for everyone but they can be an excellent option in many situations. It is best to speak to a Mortgage Professional that can educate and assist you in making the best decisions for your retirement.