It almost sounds like a fairy tale doesn’t it? You’ve reached that time in life where you’re supposed to kick back and enjoy your life but uh-oh… You suddenly find yourself with too much month, and not enough money! Just when things seem hopeless, you learn that the house you’ve maintained and invested in all these years is finally going to pay you back! Nice huh? Who wouldn’t like monthly checks showing up in the mail?
But this is no fairy tale… Reverse mortgages do exist, and they can be either a wonderful source of low-stress money flowing in or they can turn into a huge mess if you’ve not been properly advised. (Not all reverse mortgages are created equal)
So instead of the usual information dump, I’m going to break this down into a series of commonly asked questions to help bring you up to speed.
What Is A Reverse Mortgage?
A reverse mortgage lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you. However, unlike a traditional home equity loan or mortgage, borrowers do not have to repay the loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage.
You can also use a reverse mortgage to purchase a primary residence if you are able to use cash on hand to pay the difference between the reverse mortgage proceeds and the sales price plus closing costs for the property you are purchasing.
A reverse mortgage is not limited to your primary residence. You can use a revers mortgage to access the equity in an investment property or even a vacation home or cottage.
Who Qualifies For A Reverse Mortgage?
Qualifying is quite simple. To be eligible for a reverse mortgage requires that you be a homeowner 55 years of age or older, own your home outright, or have a mortgage balance that can be paid off at closing with proceeds from the reverse mortgage, have the financial resources to pay ongoing property charges including taxes and insurance, and you must live in the home if it your primary residence.
What Types Of Homes Are Eligible?
To be eligible for the reverse mortgage, your home must be a residential home or a 2-4 unit home with one unit occupied by the borrower. Condominiums and Vacation properties such as cottages are also eligible.
How Is This Different From A Home Equity Loan?
With a first or second mortgage, or a home equity line of credit, borrowers must first have the credit and income to qualify and make monthly payments on the principal and interest. A reverse mortgage is different, because it pays you – there are no monthly principal and interest payments and no income or credit requirements to qualify. The equity in your home and your age are the only two qualification criteria. With a reverse mortgage, you are required to pay property taxes, utilities, and hazard and flood insurance premiums.
How Much Money Can I Get?
With a reverse mortgage, you can unlock up to 55% of the appraised value of your home. The amount varies by borrower and depends on:
If there is more than one borrower and no eligible non-borrowing spouse, the age of the youngest borrower is used to determine the amount you can borrow.
How Do I Receive The Payments?
For adjustable interest rate mortgages, you can select one of the following payment plans:
For fixed interest rate mortgages, you will receive the Single Disbursement Lump Sum payment plan.
What if I change my mind and no longer want the loan after I go to closing? How do I do this?
You can change your mind anytime before signing the final contract with your lawyer. The process of canceling the loan should be explained during the application or discussion process.
Will We Have An Estate To Leave Our Heirs?
When the home is sold or no longer used as a primary residence, the cash, interest, and other reverse mortgage finance charges must be repaid. All proceeds beyond the amount owed belong to your spouse or estate. This means any remaining equity can be transferred to heirs. NO DEBT is passed along to the estate or heirs.
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Please visit the Financial Services Commission of Ontario Directory for more information and to check licensing status at http://mbsweblist.fsco.gov.on.ca/agents.aspx