Mortgage Blog

Reverse Mortgage - A Viable Solution for You or a Loved One

September 13, 2022 | Posted by: Sharon Patton

Reverse Mortgage - A Viable Solution 

Despite a slowing housing market at the end of the first quarter, Equitable Group reported reverse mortgage growth of over 262%. This unique financial product allows Canadian homeowners 55+ to access the equity in their home and convert it to tax-free cash. Let's look below at what a reverse mortgage is, how to qualify, and the benefits of choosing this as a solution. 

 

What is a Reverse Mortgage? 

 In Canada, a reverse mortgage is a type of loan that is secured against a homeowner’s principal residence. While it bears some similarities to a regular amortizing balance mortgage, there are a few key differences.

Here are the differences: 

  • No required monthly payments

  • No maturity date

  • Applicants must be 55 years of age or older

  • Applicants must own their house/residence

  • Additional fees, including a one-time setup fee

  • Interest accrues on outstanding principal and interest


Ways you can use a Reverse Mortgage: 

  • Relieve financial pressure

  • Increase cash flow

  • Buy a vacation property

  • Home renovations/improvements

  • Early inheritance

  • Assist a family member or friend

  • Healthcare expenses

  • Alleviate debt

  • Preserve investments

  • Travel

 

How does a Reverse Mortgage benefit you over selling and renting? Let’s look at the numbers.

 5 years rent @ $2,200/month is $132,000

5 years annualized interest on $136,000 Reverse Mortgage is $42,500

5 years market appreciation on your property at 3% is $120,000 on an $800,000 property 

Your net appreciation with a Reverse Mortgage vs. rent is over $77,000

 

When it comes to deciding, a reverse mortgage has a lot to do with getting tax-free cash when you need it, with no required payments but having interest accrue over time. Depending on your financial needs, the trade-off of accumulating interest can be an acceptable one; you can enjoy your lifestyle, cover expenses, avoid more costly options like selling off investments, and all the while retaining ownership in the home where you’ve gathered so many memories. You can also manage the accumulating interest with flexible repayment options, and your home could even increase in value over time, which could offset a portion of the interest.

If a Reverse Mortgage sounds like a solution that might be for you or a loved one, let’s chat today. 

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