Extra income is often hard to come by for many older folks. Those who own mortgage-free homes may be thinking about using their home’s equity for a reverse mortgage. There are some things to consider about this type of loan before making your decision.
Firstly, to qualify for a reverse mortgage in Canada, you have to be 55 years of age or older. You can get cash from your home without having to sell it. Unlike a conventional mortgage or loan, with a reverse mortgage, you don’t make payments. Interest accumulates, equity decreases and if you ever decide to sell your home, the loan and any accrued interest gets paid back.
Looking at the positives and the not so positives will help you make an informed choice about whether this is the right type of loan for you.
- You can get the money in one lump sum or gradually or a combination of those two choices. You make that decision;
- You keep your home;
- The money borrowed is tax free;
- No regular payments;
- No medical, income or credit qualifications;
- If interest rates rise or housing values drop, you or your heirs won’t have to worry about any shortfall;
- Extra cash can take the pressure off other possible mounting expenses;
- The amount you owe can never exceed the property value.
- The loans have higher interest rates;
- Equity decreases as interest accumulates;
- Upon your death (and the death of your spouse), your estate has a certain time limit to repay the loan in full. The problem with this is that it sometimes takes longer to settle an estate than the time your heirs have to pay the loan back;
- Of course, borrowing against your home will cut back on the amount you intended to leave your beneficiaries;
- Canadian Home Income Plan (CHIP) and Seniors Money Canada are the only two companies offering reverse mortgages in Canada;
- There are other costs associated with the reverse mortgage such as a home appraisal; application or closing fees; costs for legal advice; a penalty for selling or moving within three years of getting the mortgage.
Whatever your mortgage needs may be, professionals at Northwood Mortgage™ are there to help. With a staff of more than 200, we will be able to answer any questions you may have about reverse mortgages. Northwood Mortgage managers and agents are members of The Canadian Association of Accredited Mortgage Professionals.