Reverse Mortgage

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How a Reverse Mortgage works in Canada

The reverse mortgage is a financing option available to seniors in Canada which allows homeowners to utilize the equity amassed in their home as income. A reverse mortgage does not require that any payments be made toward the loan so long as the property owner, or their spouse, continues to reside in the home on which the loan is drawn.

Funds released by a reverse mortgage are tax-free. Reverse mortgage funds do not affect Old Age Security payments, Canada Pension Plan payments, Guaranteed Income Supplements or any other government allotted imbursements, as the funds are not considered taxable income.

Qualifying for a reverse mortgage necessitates 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 per cent of the value of the home based on the following criteria:

  • Ages of the property owner and their spouse
  • Property location
  • Property type
  • Property value as determined by a current property appraisal

The equity that is freed by a reverse mortgage is the homeowner's to receive and utilize as they determine fit. Funds may be issued in one lump sum payment, in several timely advancements, or in a combination of both.

The Canadian home income reverse mortgage means access to funds that can increase your retirement income as you need. Apply moneys toward:

  • Home renovations to increase the accessibility and usability of your home's amenities
  • In-home care
  • Tuition for loved ones
  • Vacationing
  • Investment opportunities
  • Down payment on a second property

Reverse mortgages are available with low interest rates. Payments can be made in open or fixed terms according to your preference. However, to qualify in Canada, any outstanding loans drawn on your home must first be compensated by the funds freed through the reverse mortgage.

Processing costs will include legal fees and home appraisal. These out of pocket expenses should equate no greater than $500 to $1,000. All interest payments attributed to the reverse mortgage will be directly applied to the loan itself. You may select the option to pay all annual interest in one lump sum and qualify for a 0.5 per cent reduction in interest rate the year following.

To accurately determine if a reverse mortgage is the best option to meet your retirement income objectives, discuss the option with a mortgage broker. If your property is consistently appreciating, upon sale of the home, the reverse mortgage can be paid in full and leave more than 50 per cent of its sale value to the beneficiaries you choose, or used to compensate your move to another residence.

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