July 17, 2018

Pros & Cons Of Reverse Mortgages

I receive a number of enquiries about Reverse Mortgages and the question is always “is this a good product for someone in retirement?”  Personally, I am not a big fan of Reverse Mortgages but here are the pros and cons to consider.

  1. What is a Reverse Mortgage?  A Reverse Mortgage allows Canadians 55 years of age and older to remove the equity from their home to assist with their financial requirements.  You can take up to 55% equity from your home but the average withdrawal is more like 33%.  There are no monthly payments
  2. Conditions:  If you are married, both people must be over the age of 55 and at least 1 owner must live in the house
  3. What can the money be used for?  a) help seniors remain in their home b) Pay off or consolidate debts  c) Supplement income d) renovations or repairs e) pay for unexpected medical or emergency expenses f) financially assist a family member g) purchase a car, vacation or any other needs
  4. How do I receive the monies?  You can take a lump sum amount of all the money (minimum $25,000) or you can take partial advances (minimum $5,000 for each advance)
  5. Terms:  Fixed 1, 3, 5 years or Variable rate
  6. When does the Mortgage get paid off?  The mortgage is paid when you sell your home or when you have passed away

PROS:

  1. There are no mortgage payments made on this type of mortgage on principal or interest, the interest is compounded each month
  2. No health check to qualify
  3. 100% tax free therefore it does not effect your Old Age Security or Guaranteed Income Supplement
  4. Seniors can remain in their home
  5. Provides cashflow
  6. You may not qualify for an ordinary mortgage

|CONS

  1. As there are no payments on the mortgage, interest compounds on the interest which is very costly
  2. There are only 2 lending institutions offering reverse mortgages
  3. Interest rates are approximately 2% higher than regular mortgages on a 5 year term
  4. You have to sell your home or die in order to payoff the mortgage
  5.  As the interest is compounded, this eats away at your equity and reduces the size of your estate for inheritance
  6. Higher costs to arrange this type of mortgage

If you would like any further information, please contact me!

Colleen Saunders is a 20 year veteran in the mortgage industry, serving Mississauga, Burlington, Oakville and Toronto and offering all mortgage related services such as 2nd mortgages, private mortgages and more.

To contact Colleen, please fill out the form on  www.mortgagesbycolleen.ca  or call 416-459-2406