Imagine you could keep your home and borrow against it without onerous monthly mortgage payments.
Sound good? Reverse mortgage lenders HomeEquity Bank and Equitable Bank let you do all that and more.
Commonly known as a CHIP (Canadian Home Income Plan) mortgage, a reverse mortgage can be a retiree’s best friend or chew up your equity over time.
How Does a Reverse Mortgage Work?
A reverse mortgage gives you the freedom to borrow against the value in your home and use the money any way you like.
When you apply for a reverse mortgage in Ontario, you borrow up to 55% of your home’s current market value. It’s called equity release. You get cash up front, while your lender gets paid back when you sell, leave, or die. Until then, your lender uses your home to fund an annuity.
All you have to do is:
- keep your home in good condition
- use it as your principal residence
- pay the property taxes and insurance.
You keep the legal title. You can sell at any time and pay back the mortgage, with interest. Or you can opt not to repay and let the lender recoup their investment by selling your home once you no longer want or need it.
Facts About a Reverse Mortgage
Reverse mortgage payments can be arranged any way you like, as a single lump sum amount, monthly deposits, or both.
Unlike a consumer loan, the mortgage won’t affect your income tax bracket — or federal pension benefits like CPP, OAS, or GIS. No monthly mortgage payments are due and you pay no interest unless you sell, move, or die.
More facts to know before you sign:
- How much you can borrow depends on your age, appraised home value, and lender. Calculate your borrowing limit for a CHIP mortgage.
- You are eligible if you, and all the title holders on your property, are 55 or up and own your home.
- Interest payments are added to your loan. Remember to calculate interest before applying.
- You must use the loan to pay your debts, either immediately or monthly.
- Interest rates are higher than regular mortgages or a home equity line of credit (HELOC), but won’t cost you anything as long as you own your home.
- You pay a home appraisal fee, application and closing fees, and if you sell or move in the first three years, a prepayment penalty.
- Mortgage insurance is added to protect the lender.
- Property title insurance protects you against mortgage or title fraud.
- Your home is your principal residence. You can play in the sun up to six months a year and live in your home the rest.
What Conditions Apply
A reverse mortgage can be used to erase immediate debts or finance your retirement lifestyle. Worried about defaulting on a reverse mortgage? Read How to repay the money you borrow.
As a homeowner, you still have all the usual costs of maintaining a home, such as replacing the roof, repairing the HVAC, or painting the siding. You expected to pay those costs anyways. The good news is most Toronto area homes appreciate by 2% to 4% annually.
Keeping your home up is important because it affects how much you may be offered when you apply. Your home’s type, age and condition can all decide your eligibility for reverse mortgages.
Look at it this way: your home could be your biggest asset. You owe it to yourself to preserve its value.
Your Home Has Value
When you plan long term to own a home, you anticipate expenses.
Air conditioning — a must have for hot, humid summers
Adding a stair lift to your deck
Rehabbing cold tile floors with underfloor heating
A handy walk-in shower to replace your tub
It all adds up.
You could use revolving credit, like VISA or a home equity line of credit (HELOC). You might even refinance your home. Could you pay it off on a pension and how long would it take? See what you can use a HELOC for.
A reverse mortgage pays out outstanding debts, HELOCs, or credit cards secured by your home. You use the money you get from a reverse mortgage to pay these first, then use the balance for anything you wish.
Make home repairs or improvements
Manage health care expenses
Travel with family or friends
Put children through college or university
Help the kids buy a home
Axess Law does a mortgage discharge when you refinance your home using a reverse mortgage.
How Mortgage Interest Works
Instead of declining as they do with regular mortgages, interest costs for reverse mortgages grow as the years go by. That interest is combined with your loan.
When the lender recovers their loan, they calculate the original amount you borrowed and the interest owing. You make no mortgage or interest payments until or unless you sell. No more worries about discharging a mortgage to pay for your lifestyle. What to know before you sign a reverse mortgage agreement.
Reverse Mortgages and Wills
Reverse mortgages are due when the last surviving owner dies, sells, or moves out. Spouses 62 or older can stay in the home if you die. If your property has multiple owners on title, the home stays in your family as long as they are alive.
Once all the owners are gone, your home becomes an estate debt. Your mortgage lender collects when the home is sold (with leftover profits going to your estate) or may ask your executor to pay the loan from your assets. You can bequeath your home to extended family by paying off the mortgage before you die.
Ask us if you have any questions about estate implications. We can draft or update your Will with a reverse mortgage in mind.
Why You Need a Real Estate Lawyer
Whether you’re curious about reverse mortgages or committed, Axess Law has a real estate lawyer anywhere in Ontario who can advise you. See us before you sign. We review your reverse mortgage agreement to ensure you understand all the terms and conditions. 25 top questions to ask a lawyer.
Axess Law offers independent legal advice if you’re sharing a real estate lawyer. Our licensed legal professionals can meet you at any of our offices, in the Greater Toronto Area or Ottawa, or video conference with you anywhere in Ontario 7 days a week. Drop in or call us to review your agreement. When to get independent legal advice.
We can also advise you about updating your Will to include a reverse mortgage. Call ahead and ask to speak to our Wills and estates attorneys.
Affordable Legal Services, Anywhere in Ontario
Access lawyers for less in the Greater Toronto Area, Ottawa, or anywhere in Ontario when you buy, sell, or refinance property. Axess Law’s flat fee real estate lawyers are affordable, and our rates are all inclusive (excluding taxes, disbursements, and third-party charges). Axess Law offers you only the legal services you absolutely need. Your final invoice includes no surprises or hidden charges. Your itemized statement of adjustments is explained when we deliver it, and we answer any questions you have about it.
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