How a Reverse Mortgage works in Canada
A reverse mortgage is a financing option available to seniors in Canada. This option allows homeowners to utilize the equity amassed in their home as income.
Reverse mortgages does not require that any payments be made toward the loan. For this to happen, the property owner, or their spouse, has to reside in the home on which the loan is drawn.
Funds released by a reverse mortgage are tax-free. Funds from reverse mortgages do not affect Old Age Security payments, Canada Pension Plan payments, Guaranteed Income Supplements or any other government allotted payments. Because those funds aren’t taxable income, they have no impact on those other payments.
Qualifying for a Reverse Mortgage
Qualifying for reverse mortgages means that both the homeowner and their spouse are over the age of 60 and still reside at their property. A Canadian home income reverse mortgage can release up to 40 percent of the value of the home. This is based on the following criteria:
- Ages of the property owner and their spouse
- Location of the property
- Type of Property
- Value of the property as determined by a current property appraisal
The equity used in a reverse mortgage can be used however the homeowner sees fit. Even better, the money is available in a lump sum, in several advancements, or a combination.
The Canadian home income reverse mortgages mean access to funds that can increase your retirement income as you need. Apply money toward:
- Home renovations to increase the accessibility and usability of your home’s amenities
- In-home care
- Tuition for loved ones
- Investment opportunities
- Down payment on a second property
Reverse mortgages are available with low interest rates. Even better, you can make payments in fixed or variable terms. In order to qualify in Canada, there can’t be any loans against your home.
Costs of Reverse Mortgages
Processing costs will include legal fees and home appraisal. These out of pocket expenses should equal no greater than $500 to $1,000. Keep in mind that interest rates attached to the reverse mortgage get added to the loan.
You can also pay back the loan however it conveniences you. That can mean selecting the option to pay all annual interest in one lump sum and qualify for a 0.5 percent reduction in the interest rate the year following.
To accurately determine if a reverse mortgage is the best option to meet your retirement and personal income objectives, discuss the option with a mortgage broker. Reverse mortgages can be paid in full and leave more than 50 percent of its sale value to the beneficiaries you choose. It can used to compensate for your move to another residence if it continues appreciating.