If you are retired or close to retirement and finding yourself short of money then a reverse mortgage might be the answer, but make sure you do your homework before you take out this type of loan.
What is a Reverse Mortgage?
A reverse mortgage is a loan secured against the value of your home. In Canada you have to be a homeowner’s aged 55 or over to take out a reverse mortgage. You can convert up to 55% of your home’s value into tax free cash to use as you wish. With a reverse mortgage you retain ownership of your home and there are no monthly payments required. The loan is only repaid when your home is sold when you either move out or the last borrower dies.
Reverse Mortgages are surging in Canada at about 25% per year as older people are finding themselves without the income that they need for their retirement and this is a source of additional income for them. Outstanding balances on reverse mortgages have more than doubled in the four years up to 2019 and now stand at $3.12billion, although this is less than 1% of the residential mortgages that have been issued, they are growing at a much faster pace.
At present the big banks do not offer reverse mortgages they can only be taken out with two lenders – the leading provider is Canadian Home Income Plan (CHIP) from HomeEquity Bank which has offered reverse mortgages since 1986, the second is the PATH Home Plan from Equitable Bank available in BC, Alberta and Ontario. Some Credit Unions in BC and Ontario also offer reverse mortgages.
In order to qualify for a Reverse Mortgage in Canada, these factors are taken into consideration:
How to access the money
You can usually take out the money from your loan either as a one-time lump sum or by taking some up front and the remainder over time. You need to ask your lender what options are open to you and if there are restrictions or fees.
A reverse mortgage may sound like a great idea but is it the best option for you?
2021 Tax Changes That you Need to Know About
Personal Finance Resolutions for 2021
Tips to Avoid the Post-Holiday Finance Blues
Need Money? Should you Withdraw from your RRSP?
Financial Literacy Lessons Should Begin Early in Life
Paying Digitally? – Tips to Stay on Top of Your Finances
Planning for the Future of Your Business
Covid-19 Now is the Time to get Serious About Your Financial Wellness