How a Reverse Mortgage in Canada Works
A reverse mortgage in Canada is another way to get the money out of your home — and you get to stay in the house that you bought with hard work over the years. If you have paid off your mortgage and have moved into retirement, you likely enjoy the freedom from having a mortgage payment each month. However, if you are starting to have worries about the rest of your retirement funding, you may be wondering whether the money you have invested in your home might not do more good in your bank accounts. Some people choose to sell their homes and move into a smaller place because of the upkeep and expense of staying in their former houses. After all, the kids have moved on, and there’s just no reason for all that space.
Canadian Reverse Mortgage Rules
Before you can enter into a Canadian Reverse Mortgage, there are several rules that you have to follow.
1. The loan that you get will depend on how old you are, the value of your house and where the house is located. The lowest amount you can take out is $20,000, and the highest amount is $750,000. To find out your own eligible amount, though, you must conduct an independent appraisal of the property. You can pay for the cost of this appraisal out of the proceeds of your reverse mortgage, though, along with any other closing costs.
2. You have to be at least 55 years old to get a reverse mortgage; if you are married, you both have to be at least 55.
3. You don’t have to take out the whole amount. If you get pre-approved for a certain amount, you can choose to take out less and then access more later if you need it. That way you’re only paying interest on the amount that you get, not the entire amount of approval.
4. When you receive a payment on your reverse mortgage in Canada, the proceeds are tax-free. Also, these payments do not influence your Guaranteed Income Supplement or Old Age Security payments that you might already be getting from the Canadian government.
5. While you do have to pay interest, you don’t make any mortgage payments as long as you or your spouse still lives in the house. You remain on the title, and the house remains in your name, just as with any other mortgage. If you sell the house, the proceeds first go to satisfy the debt. It is possible, though, to transfer a reverse mortgage over to a new home if you so choose.
6. Any equity in the house remains yours. The lender in a Canadian reverse mortgage guarantees that neither you nor your heirs will ever have a debt on the reverse mortgage that is higher than the value of the home. If the heirs cannot satisfy the reverse mortgage, they can take out a standard mortgage on the house in order to pay off the difference, if they do not want to sell the house.
7. While credit is an issue for standard mortgages, it is not an issue with a reverse mortgage. The value of the home is the determining factor, because you are not responsible for making any payments — you’ve already paid off the whole house! The only requirement is the age minimum – 55 years or older.
8. You can use the funds from a reverse mortgage for whatever you want. You can use them to make other investments, to take a trip of a lifetime, to put in some improvements or send your grandchildren to college. The use is up to you, and the tax rules and the inheritance guidelines remain the same, no matter what you choose to use it for.
9. The fees associated with a reverse mortgage are similar to those for standard mortgages. You have to pay for an appraisal, and you also have to pay for independent advice from an attorney, and you also have to pay for the closing costs. However, it is possible to roll the appraisal costs and the other closing costs into your reverse mortgage, so the payments come out of your check instead of your own pocket.
Reverse mortgage lenders in Canada
For more information on how does a reverse mortgage work in canada, give one of our reverse mortgage specialists a call today. Amansad Financial’s network of reverse mortgage lenders is large enough to find one that offers you the terms that you want. If you think a reverse mortgage in Canada might be a good choice for you and your spouse, contact Amansad Financial or get pre-qualified through our fast pre-qualification form.
Home Reverse Mortgage Financing
Home Reverse Mortgage Financing is designed to help people get back some of the equity they have put into their home without ever having to pay it back until they sell the house, pass away or move out of the house full time. For many senior citizens, the largest piece in their investment portfolio is also the largest object they own — their home. For people who have paid off their mortgages and own their house free and clear, the satisfaction of having a title without any more payments to make is huge. This is often what frees up couples to retire, because the largest expense in their budget is finally paid off. However, many people do not invest in enough other securities or retirement vehicles, and so when it comes time to stop working and start living off those investments, they realize that making ends meet will be a difficult proposition. In cases like this, people may be overlooking the largest account of funds that they have. Once again, it’s their home.
Because it is possible to transfer reverse mortgages, people can even move into another dwelling, use the sale of the first house to cover the costs, and move into a second house without paying much at all out of pocket. The lack of any requirements for qualification in terms of credit or income, combined with the guarantee that the borrower never has an obligation more than what the house is worth in terms of fair market value, makes a reverse mortgage the right choice for many senior citizens.
So how does it work? You and your spouse must be at least 55 years of age, and assuming that you have built up enough equity in your home to provide a sizable enough loan to make the fees make sense, you can take out a reverse mortgage on your home. Unlike a conventional mortgage, home equity loan or HELOC (line of credit), you don’t ever have to make a single payment assuming that you stay in the home. The size of the debt does increase over time, as interest on the principal amasses. However, the home value guarantee means that even if you pass away 20 years after taking out that reverse mortgage, and you never paid a dime of interest or principal, when your heirs sell the house at fair market value, they will have enough money to satisfy the loan, leaving the rest of your estate intact.
Better yet, you remain on the title of your home as the owner. You also decide how to take the loan. The bank gives you a maximum amount, but you don’t have to take it out. You choose how much to take out, and how to take the money. Some people choose a lump sum up front, while others arrange planned payments that provide a regular income, and others choose a hybrid of those two options. You don’t have to borrow the maximum amount, so you only have to take out what you need.
One similarity between the reverse mortgage and a home equity loan or home equity line of credit is that all of those types of financing are borrowing against the equity that you already have in the house. However, the interest rates on a reverse mortgage are generally higher than the other two types. For people who have ongoing income at a high enough level and just need the cash for something temporary, such as a cruise, a medical procedure or college tuition, an equity loan or equity line of credit might be a better idea. However, the reverse mortgage provides the ultimate in emotional security to the borrowers, because they never have to make a payment. You do have the option to make payments once a year, at the anniversary date of the loan, but if you do not, there are no adverse consequences.
How to Qualify for Reverse Mortgage
This article on How to Get a Reverse Loan Mortgage covers the process of obtaining a reverse mortgage loan for your house. It is quite easy to Qualify for reverse mortgage in Canada. As long as you and your spouse are both 55 years of age or older and have enough equity built up in your home to make the loan worthwhile with the closing costs and other fees added in, then qualification is not an issue. You don’t have to make any payments on the loan until you pass away, move out permanently or sell the house, so your credit is not at issue.
How to get a Reverse Loan Mortgage
If you have a considerable amount of equity in your home — or if you now own the house free and clear — you have a significant amount of money tied up in an investment. While owning property definitely makes a solid contribution to your portfolio, there are few things that are less liquid than a house. So if you end up needing to supplement your pension or retirement income, a reverse mortgage is a good way to start accessing the money you’ve socked away in your house without the risk of ending up homeless before you and your spouse pass away.
When you go to apply for a traditional mortgage, you go through a lengthy grilling from the bank. The lender wants to see your income history, your credit report and verification that you have your own down payment to make on the purchase. Going through your accounts and assets tells your bank a lot about you, but the process can be grueling and time-consuming, as you move from your initial all the way until closing. Even for the most qualified home buyers, this process can involve a great deal of anxiety and frustration.
There are some key differences between a reverse mortgage and other types of mortgages. With a conventional mortgage, you give the lender payments each month, and when the term comes to an end, you generally owe less than what you borrowed. With a line of credit mortgage, you only make payments on the interest, which means the principal is exactly the same when the loan term comes to an end. With a reverse mortgage, you don’t make any payments, but you then owe more than what you took out, because interest accrues. If you choose, you can make an annual payment on the anniversary of the loan to minimize the effect on your estate, but you do not have to.
One reason why banks are so flexible with reverse mortgages is that the asset, rather than the borrower, is the basis on which the loan is being made. You already own the house, and the debt gradually gives progressively more equity in it to the bank. The amount for which you qualify with a reverse mortgage is calculated so that you will never owe more than what the sale price would be. This is good because it leaves your heirs with some net equity should they have to sell the house and pay the reverse mortgage off after you pass away. Over time, home values generally appreciate, which means that your investment is slowly gaining value, even as you build up interest expenses with it.
Some people might worry about the effect of market fluctuations on the value of your home when the term comes to an end. In Canada, the reverse mortgage is guaranteed so that the balance of the loan will never be greater than the home’s fair market value. So even if you have a reverse mortgage with a term of 20 or 25 years, when the time comes for you to move out or sell (or if you pass away), the sale of the home will satisfy the demands of the mortgage. Even with the recent collapse in home values during 2008 and 2009, lenders in the present market feel that a reverse mortgage is worth the risk.
If you think that a reverse mortgage might be the right idea for your financial situation, think about whether the fees will work. The fees for a reverse mortgage are similar to that of a traditional mortgage; approximately $1500. You don’t have to pay this at closing, but it is deducted from the gross advance and therefore reducing any out of pocket expenses.
Amansad Financial has can help you decide the best way to boost your liquidity during retirement. We have access to secure you the right reverse mortgage source, and we also have other creative ways to give you and your family the security you need — and the security you deserve, after a long life working to support your household. We can discuss your situation and help you choose the right package of products for your financial security.
Reverse Mortgage Qualification Requirements
It is important to know the requirements for a reverse mortgage before getting started. First, both you and your spouse (if you’re married) have to be 55 or older. You also have to agree to a minimum loan of $20,000 (or a maximum of $750,000).
When you start the process, the lender requires an independent appraisal of your property. This tells the bank what the value of the house is so that they can determine the eligible amount of the loan. You don’t have to pay for this appraisal up front, though, as the costs can come out of the mortgage proceeds at closing.
After you find out the available amount of the reverse mortgage, you may decide that you don’t need that much money, so you may want to leave a significant proportion of the eligible equity in the house. Many people who take out a reverse mortgage go ahead and gain approval for the maximum while only borrowing less. Even though the approval remains open, they may never take out the full amount. If you do this, you only pay interest for the amount that you actually receive, as opposed to the amount for which the bank approved you.
Once you receive money, you don’t have to pay taxes on it; it’s not considered taxable income. Also, if you’re also getting Guaranteed Income Supplement or Old Age Security benefits from Ottawa, those will continue unchanged. The proceeds from the reverse mortgage do not have any effect on your government benefits.
As time goes by, the reverse mortgage does increase in size, even if you don’t take out extra principal, as the interest for the money accumulates. However, you don’t have to make any payments on this mortgage as long as either you or your spouse continues to live in the house on which the mortgage was made. This is good news because even if one of you ends up having to move into assisted living, as long as the other makes the home his or her primary residence, no repayments on the mortgage are necessary. Also, your name(s) remain on the title, just like they would if you were paying a traditional mortgage on the house.
So when does the mortgage get paid? It comes due if you both move out, although you can transfer it to a different property. If you both pass away, the lender guarantees that the debt cannot be more than the value of the home, so selling the house would satisfy the existing balance of the mortgage and then some. The average reverse mortgage leaves more than half of the equity in the house after the proceeds going to the reverse mortgage payout have been disbursed.
How to get a reverse loan mortgage in Canada
If you think that a reverse mortgage would help your financial needs, Amansad Financial has relationships with a number of different lenders that can provide you with the assistance that you need. The first step would be a consideration of how much you need, followed by an appraisal of the property to see how much you can get. If you decide to put some of the proceeds into investments, then the interest that the loan charges becomes a tax deduction, so this can be a helpful tool for you.
After the appraisal comes back, then you decide whether or not you want to go ahead and close the reverse mortgage loan. Amansad Financial’s network of lending relationships is large enough to find one that offers you the terms that you want. Give one of our reverse mortgage specialists a call today, and we will go over your specific situation and make a recommendation tailored to your needs.
If you think that a Home Reverse Mortgage Financing might be the answer to your liquidity problems after retirement, talk to Amansad Financial Services We have helped many people resolve their concerns about how to make ends meet during the time of life when they are supposed to sit back and enjoy life, and we look forward to talking to you as well. Signup Below to get started:
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