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Northwood mortgage Reverse Mortgages

Reverse Mortgages

A reverse mortgage lets you borrow money by using your house as collateral. This option gives you access to about 55% of the current appraised value of your home if you’re ever in need of cash.

In return, interest and fees are added to your loan balance each month, causing your mortgage loan balance to increase and home equity to decrease.

Unlike a traditional mortgage, you only pay back the reverse mortgage if you move from your home – because of death or selling the home. Although you’re not required to make regular payments, you must continue paying homeowner’s insurance and property taxes, in addition to keeping the property in good condition.

What is a Reverse Mortgage and How Does it Work in Ontario?

If you owe money on your home but are considering a reverse mortgage, qualifying for it means trading your current mortgage loan for a larger loan. Some of the money borrowed via the reverse mortgage will be used to pay off your current mortgage. This option can free up cash flow. This option can still free up the money you were previously using to make monthly mortgage payments so you can spend it on other things.

Homeowners can access up to 55% of the current appraised value of their home based on their age and that of their spouse, interest rate of their loan, and on the location and type of home, which affects it’s value. Generally, you will enjoy a higher borrowing limit (principal limit) if:

  • Youre over 55
  • Have lower interest rates
  • Have a higher valued home

There are three main options for receiving your reverse mortgage funds:

1. Lump sum with fixed interest rate

The borrower can withdraw all the available amount at once. 

2. Line of credit with an adjustable interest rate

Allows for limited withdrawals during your first year, with the remaining funds being accessible in the second year. It costs less than other options due to only paying interest and fees on the money you plan on using. This allows you to continue to grow any unused credit.

3. Monthly payout with adjustable interest rate

Limits your withdrawals during the first year, with the remaining funds being accessible in the second year. You receive a monthly payout that supplements your income. You can choose between:

  • Term – fixed monthly payouts for a given number of years
  • Tenure – continuous fixed monthly payouts provided they don’t exceed a maximum mortgage amount indicated in your loan documents

You will incur interest and fees only on the amount you’ve drawn so far, which lowers the cost. The growth in your unused credit is factored into your monthly payout amount. Keep in mind that this option can be combined with a line of credit. Be aware of these rates before going for a reverse mortgage.

Reverse Mortgage – Pros

Pros

  • You can use the funds for any expense
  • Older borrowers have a higher borrowing limit
  • Funds are not taxed as income.
  • Funds can be received in a lump sum or over time
  • No regular payments are required.
  • The full amount only becomes due when the home is sold, or both home owners are deceased.
  • Clients have the option to repay the principal and interest in full at any time. Upon repayment, an interest rate differential may apply (maximum of three months’ interest).

Cons Penalties

  • Reverse mortgages are expensive, since you owe not only the amount borrowed, but interest and fees as well
  • The amount you owe increases over time, and it gradually reduces your home equity
  • Penalties

Why Trust Northwood Mortgage™  For Your Reverse Mortgage  Needs?

A reverse mortgage may be the right solution for you, but it’s important that you learn about the reverse mortgage basics and browse the current interest rates for reverse mortgages in Ontario before making the decision.

At Northwood Mortgage, we have a qualified team of agents and brokers specializing in reverse mortgages. Our agents and brokers will first understand your needs and assess your current situation before searching for the best reverse mortgage rates that will maximize your funds and help you plan for your future and retirement.

  • Can any homeowner over 60 get a reverse mortgage?
    No. People who still owe a lot of money on their existing mortgage may not have sufficient equity to pay off their current mortgage with a reverse mortgage. In such a situation, a reverse mortgage may not be a viable solution for your cash needs.
  • What should I do if I’m planning to sell my home?
    If you want to sell your home while having a reverse mortgage, perhaps to downsize or move into a retirement home, you should keep in mind that your equity will likely be lower due to the interest and fees added to the loan. That said, there is a chance that the value of your home may have risen over time, allowing you to gain back some equity. Once you sell your home, you will have to repay the loan in full, leaving you with an amount equivalent to the current equity of your home.

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