Reverse mortgages are increasingly popular among older homeowners who are considering staying in their houses while having the option to access an affordable loan. Reverse mortgages don’t usually require payments to be made monthly, this is one of the main reasons why individuals with a fixed source of income find them appealing. Even though the internet can give you false information about reverse mortgages in Canada because it is an unconventional financial product, just like most pieces of information on the internet, it is imperative that you take it with a pinch of salt. A reverse mortgage is a financial tool ideal for retired individuals who are looking to borrow up to 50% of the property’s value. When compared to other borrowing options such as a HELOC, a reverse mortgage will be paid back when you decide to sell your house, move out, default on your loan, or if the titleholder of the property passes away. All the above-mentioned factors will trigger a reverse mortgage payment.
Benefits of reverse mortgages:
- The value of your house may be tied down to your net worth, considering over the years the value has increased. A reverse mortgage gives access to our home equity without you having to see it. Additionally, if you continue to own your house, you will not be asked to sell it, even if the property value decreases. You can continue to stay in the house for the remainder of your life.
- You can access the equity in your house without having to make month-to-month payments which you would usually make on a typical loan such as a HELOC or a mortgage refinance. You will not be required to make any payments until you sell or move out of your house. Payments to this loan are involuntary and it is impossible for one to default on the loan.
- You have the freedom to decide how you want to receive your money. It can be either as a lump sum amount or receive the money at regular intervals. There are no conditions or requirements as to how you wish to spend your money. The reverse mortgage can be used to pay off an existing mortgage to renovate your property or help your loved ones financially.
- Since the income source is technically a loan, it is not an income. The mortgage is available on a tax-free basis. Additionally, any payments that are received from a reverse mortgage are not considered for determining the eligibility for old age security, or any other Canadian pension plan.
- Unlike other types of loans, the income and credit score of the individual are not taken into consideration for a reverse mortgage. However, because of Canadian mortgage rules and regulations, you may be required to submit them.
- With a reverse mortgage, you are guaranteed to not owe more than what your house is worth, if the value of the property decreases, the reverse mortgage lender takes the loss.