Your Top 5 Reverse Mortgage Questions Answered
This third article from our reverse mortgage in Canada series takes a closer look at the questions we often receive from our reverse mortgage customers.
As the only provider focused exclusively on Reverse Mortgages in Canada, HomEquity Bank receives many questions from customers throughout every step of the application. From the inquiry stage to the application stage and even once clients have already received their funds, these top 5 reverse mortgage questions are most often asked.
Will the homeowner owe more than the house is worth?
When a reverse mortgage is taken on a home, the homeowner(s) or the heirs to the homeowner(s) property will keep all of the equity remaining on the home (minus the amount taken out in a reverse mortgage loan + interest). The equity remaining depends on many factors:
- The amount borrowed
- The value of the home when the loan is due (current market value)
- The amount of time that has passed since the reverse mortgage was taken out.
In HomEquity Bank’s experience, over 99% of homeowners have money left over when their reverse mortgage loan is repaid.
Are there any fees to apply for a reverse mortgage?
Similar to a traditional mortgage, there are some fees to arrange a reverse mortgage.
- Appraisal fee – This is a fee you pay to the property appraiser.
- Fee for independent legal advice (this is a fee you pay to your lawyer, we can arrange this for you, or you can use your own lawyer) – This fee does not get paid to HomEquity Bank and is for the benefit and protection of the homeowner(s). This fee does not exist on a conventional mortgage.
- Administration fee – This is the only fee that is paid to HomEquity Bank. The fee ranges from $1795 – $1995 (fee varies based on individual circumstances). This fee is paid from proceeds of the reverse mortgage. With a traditional mortgage, there are other fees similar to this such as brokerage fees. A traditional mortgage may also require a property inspection fee.
What interest will I pay for my reverse mortgage loan?
The interest rate for a reverse mortgage can be higher than for a traditional mortgage because a reverse mortgage does not require any regular monthly payments. For more information on what the interest rate will be for each term, please visit: https://www.chip.ca/reverse-mortgage-rates
There are 5 terms to choose from and each term has its respective interest rate.
- 6 Month
- 1 Year
- 3 Years
- 5 Years
- Variable (HomEquity Bank Prime Rate plus a fixed spread – guaranteed for 5 years)
Will the bank own my home?
Just like a traditional mortgage, the bank does not own your home when you enroll in a reverse mortgage. The homeowner retains title and maintains ownership. The homeowner is also required to continue living in the home as the principal resident, pay property taxes and insurance, and maintain the property by keeping it in good condition.
The difference between a reverse mortgage and other home equity loans is that you are not required to make any regular monthly mortgage payments. You can enjoy living in the comfort of your home without the stress of making payments. The best part is that the money is tax-free. Just like any home equity loan, the bank or the lender does not own your home. You maintain complete ownership.
What happens when I move, sell or pass away?
Many people call us to ask us this question since it is very important to understand what happens at the end of a reverse mortgage loan. Below is a clear explanation of what happens if you move, sell or pass away.
The reverse mortgage is a portable loan; therefore, if you are moving or selling, you are given the choice of keeping your reverse mortgage going with you and have it transferred to your new principal residence. However, if you decide you would then like to end your reverse mortgage or if you are moving into a home where you are not the principal owner, below is a list of your next steps.
If you decide to move from your principal residence without selling your home:
- Once you have moved out of the house, you will have 180 days to settle the loan with HomEquity Bank.
- If you are moving to a nursing home or a care facility, you can get 50% off for the pre-payment amount (if applicable).
If you decide to sell your home and end your reverse mortgage:
- Just like a traditional mortgage, you will be required to settle the loan by the closing date.
If only one of the homeowners has passed away, the spouse or the other person on title can continue to live in the home without having to settle the loan. However, once both homeowners have passed away:
- Your executor must advise HomEquity Bank as soon as possible.
- The executor needs to provide HomEquity Bank with the death certificate and a copy of the will.
- The estate has 180 days after the notice of death to settle the loan.
These are among the many questions we often hear from our customers. To find out more about a CHIP reverse mortgage in Canada, Contact HomEquity Bank at 1-866-522-2447.