What is a Reverse Mortgage?
Reverse mortgages allow older homeowners to use the equity they’ve built up in their home to borrow back a percentage of its current value (up to 55%). This percentage is based on several different factors including age, the appraised value of the home, the lender, and current market trends.
How is a Reverse Mortgage Paid Off?
Payments on reverse mortgages are not required until the loan is due (either at the time the home is sold or upon the death of the homeowner/borrower). While this sounds like a great deal it is important to note that the longer the duration of the loan, the more interest will be owed at the end of the term. This can negatively affect the equity in the home and make it less valuable to the homeowner when it is eventually sold.
Is Everyone Eligible for a Reverse Mortgage?
Not everybody is eligible for a reverse mortgage. To be eligible, the applicant must:
- Own their home, which must be their primary residence
- Be at least 55 years old if single
- Both be at least 55 years old if the home is owned with a partner/spouse
- Both be on the mortgage application if the home is owned with a partner/spouse
- Pay off the current mortgage once the reverse mortgage is issued
How Do You Qualify for a Reverse Mortgage?
There are several things the lender will consider for reverse mortgage applicants including:
- Location of the home
- The appraised value of the home
- The type of home
- The condition of the home
Which Lenders Offer a Reverse Mortgage?
There are currently only 2 reverse mortgage lenders in Canada:
- HomeEquity Bank, which offers the Canadian Home Income Plan (CHIP) available across Canada
- Equitable Bank, which offers the PATH Home Plan through mortgage brokers in Alberta, British Columbia, and Ontario
My next post will answer questions such as how to access the money once qualified, fees and restrictions, and a list of pros and cons for reverse mortgages.