Senior Canadians who have paid off their mortgages on their properties are sometimes left with real estate but not enough cash. This means that despite having a valuable asset, seniors are struggling with cash flow. Thankfully, reverse mortgages can help Canadians leverage their home equity and access additional cash.
➤ What is a Reverse Mortgage?
A reverse mortgage is a loan that uses your primary home as collateral. It allows you to convert a certain amount of your home’s value into tax-free cash that you can use for a variety of reasons. You can typically get up to 55% of your home’s value, but the maximum amount you qualify for depends on your age, the appraised value of your home, and the lender you choose to work with.
➤ How Much Can You Borrow through a Reverse Mortgage?
Mortgage Paid Off
Current House Value
Maximum You Can Borrow Through a Reverse Mortgage (55% of $600,000)
➤ Who is Eligible for a Reverse Mortgage?
Reverse mortgages are only available to homeowners who are 55 years of age or older. You must also meet certain requirements. You can only get a reverse mortgage on your primary residence. Generally, you must live in your primary residence for at least six months each year to qualify. Also, everyone listed on the home’s title must be included on the mortgage application.
➤ How is interest calculated on a reverse mortgage? (How is interest calculated on a reverse mortgage?)
The interest on a reverse mortgage is usually higher than a traditional mortgage. Interest is charged on the balance due each month, meaning you’ll accrue interest on the principal balance in addition to the interest charged each month. You will likely have less home equity in your home at the end of the mortgage.
➤ To Pay off a Reverse Mortgage (To Pay off a Reverse Mortgage)
A common way to pay off a reverse mortgage is to sell the property. The proceeds from the sale can be used to pay off the loan amount in full, and you can keep the remaining equity in the property after paying off the mortgage.
➤ If the Borrower Dies
If the borrower dies, your heirs will be responsible for repaying the loan. Again, the most common way to repay a reverse mortgage is to sell the house and use the sale proceeds to pay off the reverse mortgage amount.