What is a Reverse Mortgage?

A reverse mortgage, sometimes called “equity release”, is a loan that allows you to get money from your home equity without having to sell your home. It’s somewhat like getting a cash advance on the value of your home. The amount must be repaid in full when you or your estate actually sells the home.

If you are older, have debt problems, low income or few savings, but have a high-value home, this quick loan could let you keep your home while maintaining a quality lifestyle. Here’s how it works :

Who is eligible

• You must be the owner of a home that is your primary residence;
• You must be over 55 years of age.

The loan

You can get 10%-40% of the value of your home. For example, if your home is valued at $250,000, you could get $25,000-$100,000.

There are no fees or interest payable before the end of the loan, i.e., no monthly payment. However, you have to repay the loan and pay fees and interest on the loan maturity, usually :

• When you move;
• When you sell your home;
• At the time of your death or that of the last borrower.

Repayment is usually made with the funds from the sale of the residence.

Be careful, the longer the period without payments, the more interest accrues on the loan. This means that there will be a much lower balance remaining for you or your estate after the repayment.

The benefits of a reverse mortgage

There are several benefits to a reverse mortgage :

• You do not have to make regular payments;
• You retain ownership of your home. You don’t have to sell it to access some of its cash value;
• You increase your retirement income and can enjoy a better quality of life;
• There is no minimum income requirement to access this type of loan.

Disadvantages of a reverse mortgage

The reverse mortgage is a short-term solution that is not free. In the end, with this loan, you will pay more interest than with most other mortgage products. You will also pay many legal and administrative fees.

But above all :

• By postponing interest payments, you reduce the amount you will be leaving for your heirs;
• When you die, your estate will have to repay the loan and interest within a specific period.

In conclusion, the reverse mortgage should never be your retirement plan. It’s best to plan your retirement savings so you are in a good situation when the time comes. Reverse mortgages are a last resort if you have financial concerns and are elderly, as they impact what you can leave as a legacy.

Are you concerned that you’ll have debts during retirement? Contact one of our Licensed Insolvency Trustees. It’s free and confidential.