How Reverse Mortgages Work
Reverse mortgages give older adults, 55 and up, freedom to borrow against the value in your home and use the money however 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. Lenders such as HomeEquity Bank or Equitable Bank use your home to fund an annuity. They get paid back when you die, sell or leave.
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, sell at any time and pay back the mortgage, with interest, whenever you like. Or you can opt not to repay and let the lender recoup their investment by selling your home after you pass on.
Tax-free Payments Save You Cash
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.
The Facts About Reverse Mortgages
- How much you can borrow depends on your age, appraised home value and lender.
- 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.
- 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 a repayment penalty if you sell or move in the first three years.
- 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 Home Ownership Costs
You still have all the usual costs of owning a home, such 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?
A reverse mortgage pays out outstanding debts HELOCs and 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.
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. And 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 lender collects when the home is listed and sold. If it sells for more than the loan and interest, anything left after fees goes to your heirs. Or your estate trustee can pay out the mortgage from your estate assets, keeping the home in your extended family.
Axess Law drafts Wills and estates for any situation you can think of.
Legal Advice on Reverse Mortgages – Toronto or Ontario
Whether you’re curious about reverse mortgages or committed, Axess Law has a real estate lawyer (Toronto, GTA or Ottawa) to advise you. Let us review your reverse mortgage agreement before you sign.
If you have questions to ask a real estate lawyer Ontario, we get back to you quickly. We offer independent legal advice if you’re sharing a lawyer. Our licensed legal professionals can video conference online anywhere in Ontario, 7 days a week.
Axess Law has open law offices in Toronto, Scarborough, Etobicoke, Mississauga, Vaughan and Ottawa. We can meet with you day or evening, at your convenience.
Use our easy online booking form to make appointments at times that work for you. Call toll free to 1-877-402-4207 from outside Greater Toronto Area or dial our 647-479-0118 lawyer line. Click here to learn more about Axess Law’s real estate law services.