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What is Reverse Mortgage?
Unlike a traditional mortgage, a home equity line of credit or home equity loan, with reverse mortgage offers, provided by Loans Geeks you are certain that you will keep the ownership over your property for life, and that the lender will not be able to take it away from you in any scenario. This is only possible because reverse mortgage in Canada doesn’t require any repayments. And one of the main reasons why traditional home equity loans and mortgages are carrying risk of losing a home – is if you fail to make a repayment. With reverse mortgage you don’t need to worry about that.
How does Reverse Mortgage in Canada Work?
Traditional mortgage implies that you will borrow a certain amount and pay it back in installments, over time. With reverse mortgages, that is not the case. Loans Geeks will match you up with a reputable lender, who will either provide you the money in stages, or advance you a lump sum. You will not need to make any monthly payments, but as a result your mortgage will grow as the accrued interest will be added to the loan balance.
Reverse Mortgage in Canada – Advantages
Reverse mortgage in Canada definitely looks like an attractive solution for people who are 55+ and feel cash-strapped. It will allow you to tap the equity in your home, while not having to make any principal or interest payments. The mortgage will only come due in the case of death, if you move out permanently or sell your house.
With more people hitting retirement age, an option to take reverse mortgage is growing more popular. Loans Geeks is here to get you matched with the top-rated reverse mortgage lenders in Canada that can give you best possible rates for your specific location.
The main advantage of reverse mortgage in Canada is that it will give you the financial freedom and flexibility to pay for things that you need to get done, invest in home improvements or travelling, without sacrificing anything.
However, before you opt for reverse mortgage, you need to be certain that this the right financial solution for your particular needs, as there be some cheaper options available. Make sure to get yourself familiar with how reverse mortgage works and what does it entail.
Reverse Mortgage in Canada – Risks
The main risk connected with reverse mortgages is that their interest rates are typically higher than on credit lines or traditional mortgages. At the moment some financial institutions charge 5.9% interest on a fixed reverse mortgage, set for the period of 5 years. To give you a comparison, a traditional mortgage over the same period has an interest rate of around 3.5%.
Because of the high interest, you need to think carefully whether it is the right financial option for you. If you take a reverse mortgage by borrowing $150000 at the current rate of 5.9%, in ten years your debt will be more than $268000. And that money will need to be repaid either after your death or after you sell your home, which will leave your estate with much less cash.
However, if you are a senior with medical or other kind of expenses requiring a lump sum of money, and yet you only have an access to a limited income, a reverse mortgage might be a good solution for you.
Reverse Mortgage in Canada– Expenses
In order to qualify for reverse mortgage, your property will need to undergo an appraisal, which is charged anywhere between $175 and $400. Then you can count on legal advice charges between $400 and $400, and lastly administrative and closing costs that will be around $1500.
In a case that you decide to pay off your mortgage before the due term, you might face additional penalties, usually in the amount of 11 months of interest in the first year, to 4 months of interest in the third year.
In addition to this, on the home’s title a reverse mortgage needs to be ranked first. So if there are any other debts for which you placed the property as a collateral, they need to be moved into a second position, possibly accruing additional charges.
Reverse Mortgage in Canada – Benefits
Still, one of the major benefits of reverse mortgage in Canada is that there are no principal payments, which makes it a good financial solution for seniors who are rich in property, yet don’t have sufficient cash.
In addition to this advantage, the maximum that you will ever need to repay is the fair market value of your property, which means that you will never need to touch other savings to repay your loan, or to default on your payments.
With Reverse mortgage option, provided by Loans Geeks, you will be able to stay in your home for as long as you want, and you will never owe more than a market worth of your house.
You will also be able to choose to pay off your interest on annual basis, which will then qualify you for half point reduction in the interest year for the following year.
Reverse Mortgage in Canada – Alternatives
While the reverse mortgage has its merits, it is always advised to look at all available options before setting for one.
If you use Loans Geeks to get a secured line of credit, it will also provide you with flexibility and lower borrowing costs.
Another option is to sell your home and buy a cheaper one, while saving the difference in cash to pay for different investments or living expenses.
