Reverse mortgages have gained significant popularity among Canadians who desire to age in their own homes while bolstering their income amidst the ongoing affordability crisis.
What is a reverse mortgage?
A reverse mortgage is a financial product available to Canadian homeowners aged 55 or older that allows them to access the equity in their homes without the requirement of making regular mortgage payments. It provides a way for retirees or older adults to unlock the value of their home to supplement their retirement income or meet financial needs.
What can a reverse mortgage be used for?
A reverse mortgage can be a valuable financial tool for several reasons:
Supplement Retirement Income: For many retirees, their home is their most significant asset. A reverse mortgage allows them to tap into their home equity to supplement their retirement income, providing financial flexibility and reducing reliance on other income sources.
Covering Expenses: Aging often comes with increased healthcare costs, home repairs, or other unexpected expenses. A reverse mortgage can help homeowners address these financial needs without the burden of monthly mortgage payments.
Aging in Place: Many older adults prefer to stay in their own homes and communities as they age. A reverse mortgage can provide the necessary funds to make home modifications or accessibility improvements, allowing seniors to age in place comfortably and safely.
Debt Consolidation: Reverse mortgages can be used to pay off existing mortgages or debts, reducing monthly financial obligations and providing greater financial stability.
How does a reverse mortgage work?
To qualify for a reverse mortgage, you must be a homeowner aged 55 or older and have significant equity in your home. In Canada, there are several reverse mortgage providers such as Equitable Bank, Home Equity Bank, and Bloom Financial. Each provider may have their own criteria for lending. The amount you can borrow is based on your age, the appraised value of your home, and the location of your property. With a reverse mortgage, you can receive a lump sum amount, periodic payments, or a combination of both. The borrowed funds are tax-free and can be used for various purposes, such as paying off existing debts, covering living expenses, home renovations, or healthcare costs. Unlike traditional mortgages, reverse mortgages do not require monthly principal and interest payments. Instead, the interest accrues over time and is added to the loan balance.
The full loan amount, including the accrued interest, is typically repaid when the homeowner sells the home, moves out, or passes away. With a reverse mortgage, you retain ownership of your home, and you can continue to live in it as long as it remains your primary residence. However, you must maintain the property and stay up to date with property taxes, insurance, and any other obligations associated with homeownership.
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If there are no monthly payments, how does a reverse mortgage get repaid?
The reverse mortgage becomes due and payable when certain triggering events occur, such as selling the home, moving out permanently, or passing away. At that point, the loan must be repaid, usually from the proceeds of the home sale. If the home value exceeds the loan balance, the remaining equity goes to you or your estate.
I’ve been approved for a reverse mortgage. What’s next?
Because reverse mortgages are a unique and more complex product than a traditional mortgage, the closing process for a reverse mortgage varies from a traditional mortgage closing such as a switch or refinance. The process essentially involves two lawyers. Borrower’s Lawyer (sometimes known as ILA Lawyer). ILA stands for Independent Legal Advice, which is a regulatory requirement for every reverse mortgage. The lawyer representing the homeowner is responsible for reviewing and explaining the terms and conditions of the reverse mortgage to the homeowner. They ensure that the homeowner understands the implications and risks associated with the mortgage. The lawyer also assists the homeowner in completing the necessary documentation and may conduct a title search to verify ownership and any outstanding liens or mortgages on the property.
The lender will also have their lawyer or law firm representing and protecting the lender's interests by ensuring that the mortgage documentation is accurate and legally binding. They review the terms of the mortgage, coordinate the disbursement of funds, and ensure that all necessary documents are properly executed. Typically, the homeowner is responsible for covering the legal fees for both their lawyer and the lender's lawyer. An estimate of those costs are generally provided by the lender or your mortgage broker during the application stage for a reverse mortgage.
Choosing your reverse mortgage lawyer
The homeowner is responsible for choosing their Independent Legal Advice (ILA) lawyer in the closing process. When choosing an ILA lawyer, it is important to mind the following to ensure your reverse mortgage closes seamlessly:Does the lawyer have experience with reverse mortgages? Since reverse mortgages are a specialized product, not every lawyer may have experience with understanding the terms and conditions of a reverse mortgage. Ask if your lawyer has specific experience with reverse mortgages.How does the ILA process work? Some lawyers will offer a virtual option to meet with you and other borrowers and explain the documents, while some require a visit to their office. Depending on your personal preferences, choose a lawyer who offers a clear and convenient process. What are the fees? Ensure you get a detailed outline of all fees, disbursements, and taxes that are involved in obtaining an ILA. Is the lawyer friendly and responsive? Finalizing a reverse mortgage is a big decision and you will likely have lots of questions. Ensure you have a good personality fit with your lawyer prior to hiring them and that all your questions are answered promptly and professionally.
Choosing Deeded for closing your reverse mortgage
Deeded’s network of friendly lawyers has considerable experience with reverse mortgages, working with both homeowners and leading lenders. Our virtual process is streamlined with the homeowner’s experience in mind and provides for a seamless and smooth closing process for Canadian reverse mortgages. To get a quote, simply click here or call us at +1 (855) 456-4335
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