The equity in your home can be very useful if you need to access a large sum of money. Homeowners will tap into their equity to make home improvements, consolidate debt, or pay for unexpected bills. One type of equity release is referred to as a reverse mortgage. Our expert Mississauga mortgage brokers team is here to explain how a reverse mortgage works and what requirements need to be met.

 

Reverse Mortgages

A reverse mortgage allows you to borrow as much as 55% of your home’s current value. How much you are able to borrow is determined by the following:

  • How old you are
  • The appraised value of the home
  • The lender that you use

A reverse mortgage loan is paid back when you sell the home, move out of it, or if the borrower passes away. Monthly repayments are not required. However, the longer that you wait to pay the loan back, the more you will end up paying interest fees. It also means that you could have less equity in your home.

 

Reverse Mortgage Eligibility

Age – You must be a homeowner in order to qualify for a reverse mortgage loan. You will also need to be 55 years old or more. Anyone who is listed on the title of the home must be 55 years or more as well.

Legal advice – some lenders may require that all parties have independent legal advice and may ask for proof of this.

Residency – you can only secure a reverse mortgage on a primary residency and must have lived in the home for at least 6 to 12 months.

 

What Lenders Will Look At 

Your lender will consider the following for all individuals who are on your home’s title:

  • Age
  • Condition of the home
  • Type of home
  • Appraisal value

 

How Reverse Mortgage Work

You will need to pay off any lines of credit or loans that are secured by your home, such as HELOCs and mortgages. The funds that you receive from a reverse mortgage can be used to pay these off. The remainder of the funds can be used however you wish. Reverse mortgages can be paid as a lump sum or over a specified period of time. You should speak with your lender first to see if you will be required to pay any fees. While there are no regular monthly repayments to be made, you can pay towards the interest and principal at any point.

You can apply for a reverse mortgage from a mortgage broker, such as ourselves.

 

Reverse Mortgage Pros

  • No regular monthly repayments are required
  • Allows you to use your equity as cash rather than having to sell the home
  • The money that you borrow is not taxed
  • It won’t impact benefits that you may be getting, such as Guaranteed Income Supplements or Old-Age Security
  • There are options regarding how and when you receive the funds

 

Reverse Mortgage Cons

  • The interest rates can be higher than a conventional mortgage loan
  • As interest on the loan accumulates, your home equity can go down
  • If you pass away, the estate will have a certain time frame to repay the outstanding balance. In a very few instances, the time required to repay the loan is shorter than the time it takes to settle the estate.
  • Reverse mortgage costs tend to be higher than a conventional loan

If you are considering taking out a reverse mortgage loan or want to look at other options, give our top Mississauga mortgage brokers a call today. We’ll help find the right mortgage product for your needs.