Things that you must know about reverse mortgages in Canada [Guest Blog]

A reverse mortgage is a special type of mortgage, which is especially designed to meet the changing monetary requirements of an older clientele. Reverse mortgages are widely popular amongst Canadian senior citizens. To them, a reverse mortgage is an easy, flexible, safe and feasible option for accessing some portion of their home-equity that they may use to fulfill their financial needs. The best thing about Canadian reverse mortgages are that it won’t require any regular payment schedule, unlike traditional online mortgages. Moreover, there is no limit on the tenure of a reverse mortgage in Canada.

Eligibility criteria for Canadian reverse mortgage

There are a few criteria that a person must meet to qualify for a reverse mortgage in Canada.

•    The person or both the spouses (if married) should be at least 55 years old
•    The person should live in Canada and own a home

Facts about Canadian reverse mortgages

Here are some important facts about reverse mortgages in Canada.

•    Loan amount – The amount of loan that a senior can take out depends on her age, home value and location of the home. The minimum amount of reverse mortgage is 20,000 USD and the maximum amount of reverse mortgage is 750,000 USD.

•    Associated expenses –Therefore, the borrower needs not to pay any closing cost from his/her pocket. It is directly deducted from the reverse mortgage funds.

•    Pre-approval of higher amount – In Canadian reverse mortgage, a borrower may get pre-approval for a higher amount even if the individual doesn’t require it right now. The individual can take out a small amount as advance and then the balance amount whenever required.

•    Tax deduction – Money taken out through Canadian reverse mortgage is absolutely free of tax. The borrowers are not required to pay any tax toward their reverse mortgage amount.

•    Effect on government benefits – Reverse mortgage in Canada doesn’t affect Guaranteed Supplement Government benefits or Old Age Security benefits that the borrower is already getting.

•    Devoid of monthly payments – As long as the borrower and/or his or her spouse stay in the home, he/she doesn’t need to pay any monthly payment toward the reverse mortgage.

•    Ownership – Reverse mortgage is different from selling a property. Canadian reverse mortgage ensures that the property will be held in the name of its owner (the borrower), like conventional online mortgage.

•    Protection of the estate – Reverse mortgage ensures that the borrower or the successors won’t be charged more than the actual appraised value of the property.

In Canada, a reverse mortgage loan is popularly known as a home income plan. Canadian Seniors, who want to preserve their investments for potential growth and income, can consider reverse mortgage as an effective option.

2 thoughts on “Things that you must know about reverse mortgages in Canada [Guest Blog]

  1. This is what I do. There are a couple msenonciptiocs on other answers that I’d like to correct.This loan is for people aged 62 and over. It allows them to draw on some of the equity in their homes without having to make a mortgage payment for as long as they live in the house. When they permanently leave the home or sell it, the mortgage is due. Until that time, they pay their homeowner’s insurance and real estate taxes but nothing to the lender. Credit and income, and naturally health, have no bearing on this loan. Those things will not determine eligibility or the rate of interest. The qualifications are that all owners are over the age of 62, there’s enough equity, generally 50% but the older you are the less equity is required, and that the house is an allowable type. We can do it on 1 to 4 family homes, most condos, manufactured houses as long as they meet all the FHA requirements. We can’t do it on mobile homes, and probably never will because they are personal property not real property. Right now we can’t do co-ops, but the Housing Bill of 2008 will probably change that as well as the maximum value the FHA allows on the Home Equity Conversion Mortgage. That’s the one most people will get. There may be some other changes from the new law. It was signed a couple weeks ago and HUD is determining the implementation now. Although I talk to people every day who tell me what the changes will be, the banks don’t know yet and won’t until HUD tells us.You do not sell your house to the lender. This is a mortgage. In England they have a Reverse Mortgage Scheme (they use the word scheme very differently outside the US not with the negative connotation we give it) in which the lender does buy the home and the person lives there for as long as they want. But in the US, it’s just a different type of mortgage. The loan amount will be based on the age of the youngest owner and the value of the home, as well as a couple other factors that are too involved to try to explain here. Someone who is 62 will get considerably less than someone who is 92.You cannot lose your home to foreclosure, because there are no payments to make as long as you live there. The mortgage will be called in the case of the death of the last borrower, non-payment of taxes or home owner’s insurance, or if you let the place deteriorate, although we don’t have any mortgage police checking up on you. These are the same circumstances that any type of mortgage would be called. When the home is sold by the borrowers, the mortgage is paid at closing. If the circumstances are such that the loan amount exceeds the market value of the home, the bank absorbs the lost. This is called a non-recourse loan. We’ll take the market value price of the home, but you can’t sell a $100,000 house to Cousin Joe for $40,000. On any other mortgage we would foreclose, and you would still owe the rest of the money. The heirs have the same options they would have on a home with any type of mortgage pay with existing funds, refinance into their own names with adequate income and credit, or sell the home and pay from proceeds. Excess proceeds are theirs, but they don’t make up the difference if there’s a shortfall of proceeds.You cannot outlive the mortgage. There are various ways to access your funds. 1) You can get a lump sum. 2) You can get a monthly check for a set amount of time. 3) You can get a monthly check for as long as you live in the house, no matter how long that is. Even if you were there long enough to use up every penny of your equity, we’d still send a check every month while you live there. 4) You can have a credit line. 5) You can combine these ways too. You get a chunk of money to buy a new car, then put the rest in the credit line. Any combination is possible based on what makes sense for you. The term of this loan is as long as one of the borrowers remains in the house.Some lenders allow people who are not 62 to be on the warranty deed but not be borrowers. In some states they can be on the warranty deed only if over 60. But if there’s one borrower and two owners, if that borrower dies or permanently leaves the home, the mortgage is due.Sorry this is so long, but it’s not a cut and paste.

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