Reverse mortgages are increasingly popular among older homeowners 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 information on the internet, you must take it with a pinch of salt. A reverse mortgage is a financial tool ideal for retired individuals looking to borrow up to 50% of the property’s value. 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 factors mentioned earlier will trigger a reverse mortgage payment.
Benefits of reverse mortgages:
- Your house's value may be tied to your net worth, considering the value has increased over the years. 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 place 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 must make payments once you sell or move out of your house. Prices to this loan are involuntary, and one can't default.
- There are no conditions or requirements as to how you wish to spend your money. You have the freedom to decide how you want to receive your money. It can be either a lump sum or receive cash at regular intervals. 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 received from a reverse mortgage are not considered to determine eligibility for old age security or any other Canadian pension plan.
- Unlike other types of loans, the individual's income and credit score are not considered 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 not to owe more than what your house is worth; if the property's value decreases, the reverse mortgage lender takes the loss.