Reverse Mortgage Problems
There is a perception among some people that reverse mortgages are bad or that they are a loan of last resort. This may be because of negative press coverage of reverse mortgages elsewhere, which are quite different from those available in Canada.
Additionally, this perception that there are problems with a reverse mortgage could be because of a lack of understanding. After all, reverse mortgages are different from conventional mortgages.
Here are details of some of the most common misconceptions of reverse mortgages, so you can decide if a reverse mortgage is a good or bad idea for you.
Perceived problem #1:Interest rates are really high compared to traditional mortgages
Reality: It is true that, in general, the interest rate on a reverse mortgage will be higher than a conventional mortgage – you pay a slightly higher rate but then you don’t have to make monthly mortgage payments.
The reverse mortgage is not a conventional mortgage. Many retired Canadians cannot afford monthly mortgage payments and a number of them may not even qualify for a regular mortgage, based on income. Reverse mortgages require no regular mortgage payments and qualification is typically easier than with a conventional mortgage.
Perceived problem #2: You can only apply if you’re 62 or over
Reality: While this may be a problem with a reverse mortgage in other countries, in Canada, the CHIP Reverse Mortgage® is available to homeowners aged 55 and over.
Perceived problem #3: The bank takes ownership of your home
Reality: This is a very common misconception. You maintain ownership and full control of your home for as long as you live there.
Perceived problem #4: You end up owing more than your house is worth
Reality: This is also false. We guarantee that, as long as homeowners have met their obligations (paying property taxes and insurance), they will never owe more than their home is worth. That is why over 99% of our customers have equity in their home when they come to pay off their reverse mortgage.
Perceived problem #5: You have to take out mortgage insurance
Reality: This is another reverse mortgage perceived problem that is only true in other countries. When you take out a CHIP Reverse Mortgage®, we don’t ask you to pay for mortgage insurance.
Perceived problem #6: It’s very expensive to arrange a reverse mortgage
Reality: This is also incorrect. As with many conventional mortgages, you will need to pay for an appraisal of your property. Other than that, the only up-front cost is a one-off closing and admin fee of $1,795.
When you compare this with alternatives – such as downsizing – it isn’t expensive at all. To move, you’d need to pay realtor fees (up to 5% of the selling price), removal expenses and legal fees.
Perceived problem #7: You can be evicted from your home if you don’t make payments
Reality: This is not true. You are not obliged to make any monthly payments at all, so you can’t miss any. We only ask that you pay your city taxes and house insurance and keep your home maintained.
It’s not right for everybody – but it is right for some
Some of the reverse mortgage problems outlined above mean that it is not always the right fit for every retired Canadian.
However, if you find that you need a large amount of cash, for whatever reason, and are determined to stay in your home, this might be your best option. And if you can’t afford regular mortgage or loan payments, a reverse mortgage may be your only solution.
For more information on the CHIP Reverse Mortgage®, call us at 1-866-522-2447.