Today’s homeowners are challenged with finding a low mortgage rate in Toronto. This makes it harder for homeowners to pay off debts or invest in large projects or renovations. Fortunately, for Canadians over 55 years of age, a reverse mortgage might free up some funds.
At Northwood Mortgage, we serve clients across Ontario through various services, including reverse mortgages. Here, we’ll walk you through the details of a reverse mortgage, how it works, who is eligible, and whether it might be an option for you.
What is a reverse mortgage?
A reverse mortgage is a secured loan for Canadian homeowners 55 or older. The loan is secured against your existing home, providing you with up to 55% of the home’s appraised value.
You may choose to receive a reverse mortgage in a lump sum or paid out over time. It can be used to pay for anything of your choosing, including:
- Home improvement projects
- Debt repayment
- Healthcare costs
- Education tuition
- Standard monthly bills and payments
- New vehicle
Reverse mortgages are attractive because they offer tax-free cash with customizable repayment. If you’re looking for a low mortgage rate in Toronto, you won’t find it with a reverse mortgage. Due to the interest rate and repayment method, these loans are riskier than traditional mortgages, hiking up interest costs.
How is a reverse mortgage calculated?
The maximum amount you borrow can only be up to 55% of your home’s appraised value. Apart from this, there are other factors which impact your assessment, including:
- Home value
- Other borrowers on the loan
- Current interest rates
To receive a reverse mortgage, you must first pay off any existing loans against your home. You may use your reverse mortgage to cover these expenses and use the remainder as you choose.
Repaying a Reverse Mortgage
Repayment of a reverse mortgage is easy in some ways. There are no regular payments. As long as you don’t repay the loan early, you can choose to repay the principal and interest however you choose. This money comes due when:
- You move out of your home
- The last borrower on the reverse mortgage loan passes away
- You sell your home
You must also repay the loan if you default on it for any reason, use the funds illegally, or break a condition in the contract.
Is a reverse mortgage right for me?
There are pros and cons to a reverse mortgage. On the one hand, it offers a lot of financial freedom with no immediate need for repayment. On the other, there are no low mortgage rates in Toronto for a reverse mortgage.
If you are a homeowner of 55 or older, and you’re looking to free up some money to pay off debt or begin a new project, this could be the answer. Speak with a mortgage broker to determine if you qualify.