How A Reverse Mortgage Might Work

Older, mortgage-free homeowners looking for ways to come up with extra cash might want to consider the benefits of a reverse mortgage.

You’ve worked hard, your house is now yours free and clear and you have some dreams that you’d like to start to fulfill. The professionals at Northwood Mortgage™ will sit with you to chat about how you can get some tax-free money out of your home for whatever you desire. You keep your home!

You should know that to qualify for a reverse mortgage in Canada, you have to be 60 years of age or older. A conventional mortgage or loan requires that you make regular payments, but a reverse mortgage doesn’t. With a reverse mortgage, interest accumulates and equity decreases and if you ever do decide to sell your home, the loan and anything accrued gets paid back then.

Just the way you like it

Eventually you’ll owe more than you borrowed, since interest is being added to your balance. But a reverse mortgage allows you to choose how you receive your money. Do you want it all at once or perhaps spread over time? It’s up to you. Also, if you’d like to pay back the interest and principal entirely, pay the interest month-to-month or on an annual basis, that’s your decision, too.

Considering the positives and the not-so-positives of a reverse mortgage will help you make an informed choice about whether this is the right type of loan for you.

The pros

• You can get the money in one lump sum, 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 cons

• 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, a reverse mortgage will cut back on the amount you intended to leave your beneficiaries;
• Seniors Money Canada and Canadian Home Income Plan 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 and a penalty for selling or moving within three years of getting the mortgage.

A Northwood Mortgage professional will be happy to sit down with you to explain all the details of a reverse mortgage and suggest a plan that’s best for you. Call them today.

Related Links

• Ownership & Estate Protection
• Interest Rates and Set-up Costs