10 Myths About Reverse Mortgages in Canada
|A Reverse Mortgage enables homeowners 62 and older to convert part of the equity in their homes into cash without having to sell the home, give up title, or take on a new monthly mortgage payment. The homeowner continues to pay the property taxes and insurance, live in and maintains the home.The Reverse Mortgage is aptly named because the payment stream, or lump sum, is “reversed”. |
Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to you.
The interest on the loan is added to the loan balance each month so the balance will increase over time. All proceeds exceeding the current mortgage payoff may be used any way you desire. People just like you have used the cash to help pay day-to-day or medical expenses, send their grandchildren to university, take a nice vacation, provide a living legacy either to family or a charitable institution or just to keep a line of credit for emergencies. The dollar amount you can receive depends upon the appraised value of your property, your age, and the interest rate of the loan.
Some additional facts about a reverse mortgage include:
You may also purchase a home with a Reverse Mortgage.
This is often done when a homeowner wants to buy a home with cash. The Reverse Mortgage purchase will pay from around 50% to 70% of the cost allowing the home purchaser to retain monies from the sale of their existing home or savings. The retained monies can help supplement retirement income, remodel the new home, be used for travel or any of a host of things that cash in the bank can provide. As of 2019, applicants for a Reverse Mortgage must qualify financially for the loan. The qualifying process is much the same as with a forward mortgage with the requirement that you show means to meet your existing living expenses, bills, and to be
able to pay your taxes and insurance.
Government-regulated products are available
You can never owe more than the home is worth at the time of sale
No repayment is required until the home is sold or the last living owner permanently moves out or passes away. Their are protection for you as the homeowner because the loan can never exceed the value of the home. Even if you end up owing more than the home is worth due to a drop in values or because of a long life, neither you nor your heirs will ever owe more than the appraised value.
Reverse Mortgages are often misunderstood or there is a bad connotation based on rumor, or even facts that may have been in effect many years ago. There are regulations in place to protect you as the homeowner because the loan can never exceed the value of the home. Even if you end up owing more than the home is worth due to a drop in values or because of a long life, neither you nor your heirs will ever owe more than the appraised value.
Here are some of the Myths about Reverse Mortgages:
Myth l: I cannot get a reverse mortgage if I have an existing mortgage.
If your house isn’t paid off, the money you receive from the reverse mortgage must first be used to pay off any existing mortgage. This is the most common reason most homeowners 62 years and older take out a reverse mortgage.
Myth 2: If I take out a reverse mortgage the lender will own my home.
Homeowners still retain title and ownership to their homes during the life of the loan,and can choose to sell the home at any time. As long as the borrower continues to live in and maintain the home and property taxes and homeowners insurance are paid, the loan cannot be called due.
Myth 3:There are restrictions on how I can use the money I receive.
The cash proceeds from the reverse mortgage can be used for virtually any purpose and borrowers should be cautious of lenders attempting to cross sell other products. Many seniors have used reverse mortgages to pay off debt, help their kids, make ends meet or to have a financial reserve.
Myth 4: Only low-income seniors get reverse mortgages.
Although some seniors may have a greater need than others for the monthly proceeds or lump sum funds reverse mortgages offer, most simply prefer to be free of monthly mortgage payments. Without monthly mortgage payments, many homeowners find they can maintain their existing quality of life and build their savings to help with future expenses. A growing number of people who have no immediate need are taking out these loans so that they have a financial cushion for future expenses.
Myth 5: If I outlive my life expectancy, the lender will evict me.
Reverse mortgage lenders put no time limit on how long the borrower(s) can stay in their homes. Since homeowners still own the property, lenders cannot evict them as long as the borrower continues to live in and maintain the home and property taxes and homeowners insurance are paid.
Myth 6: My government benefits will be affected.
A reverse mortgage generally does not affect regular CPP or OAS benefits. To be sure, we recommend that potential borrowers consult their benefits administrators or financial advisor.
Myth 7: There are no objective advisors available to seniors trying to decide if a reverse mortgage suits their needs.
Borrowers should work with independent mortgage brokers and financial advisors. They can get an independent recommendations to help them make the right decision for their unique situations.
Myth 8: My children will be responsible for the repayment of the loan.
lf the borrower or their estate wants to retain the property, the balance must be paid in full. However, as long as the borrower or their estate sells the property to pay off the debt, there is no recourse if the loan balance exceeds the home's value at maturity. Any equity remaining in the property after the reverse mortgage is retired belongs to the borrower or their estate.
Myth 9: Reverse Mortgage lenders take advantage of seniors.
Seniors who have been victims of reverse mortgage lendirrg schemes are extreme exceptions and typically victims of unsavory lenders. As a consumer, you shouldonly work with reputable lenders. Protect yourself by conducting as much research as possible by consulting government agencies and financial advisors.
Myth l0: I’ve heard that I won’t qualify for a reverse mortgage because of my limited income.
It is now a requirement to financially qualify for a reverse mortgage. The requirements are not as strict as a traditional mortgage but will require proof that you will be able to maintain your household and current bills and continue to pay your taxes and homeowner's insurance.