What is a reverse mortgage?
Reverse mortgages have experienced huge growth over the last few years. This is partly due to the startling reality that almost a third of Canadians are going into retirement with no savings. Reverse mortgages are increasingly being used to boost retirement income. But what is a reverse mortgage, exactly?
A reverse mortgage is a loan that allows you to access some of your home’s equity. Many retired Canadians are house rich but cash poor; they’re struggling financially while sitting on an investment worth hundreds of thousands of dollars. A reverse mortgage allows you to cash in some of that investment, in the form of tax-free money in either a lump sum amount or regular advances – all depending on what suits you and your needs.
To help you better understand, here's a video explaining what a reverse mortgage is.
Why is it called a reverse mortgage?
With a conventional mortgage, borrowers take out a loan to buy their home and pay back the lender over a period of time. With a reverse mortgage, the lender makes payments to the borrower (the roles are reversed). The amount you receive is tax-free and you don’t have to make any scheduled repayments of principal or interest.
If you’re interested to learn more about how a reverse mortgage works, we’ve got you covered here.
Getting a reverse mortgage is like staying in a nice hotel
To help explain this financial solution better, you can think about getting a reverse mortgage like staying in a nice hotel or resort.
When you check into a hotel, you provide a credit card that is used as collateral (security that proves you will pay your bill). You get to enjoy your room, the swimming pool and other amenities, room service and meals in the hotel’s restaurant, and you don’t pay a cent until you leave.
With a reverse mortgage, your home is used as collateral, allowing you to access some of the equity in it. You get to use the money from the loan to improve your lifestyle, pay off debts, go on vacation or renovate your home. And the best part is, you don’t have to pay back a cent until you move out or sell your home.
In a hotel there are people who will happily do lots of things for you, from bringing you the morning paper, to cooking your breakfast and doing your dry cleaning. With a reverse mortgage, you’ll have the extra funds to pay for snow clearers, gardeners and house cleaners, as well as dinners out at your favourite restaurants.
In the same way that a credit card allows you to stay in a nice hotel suite rather than a tiny motel room, a reverse mortgage allows you to stay in your home rather than having to sell or downsize.
Cashing in equity without having to move out
With 93% of Canadians determined to retire at home, while dealing with rising debt and an increased cost of living, a reverse mortgage is one of the best ways to stay in the home you love. You get to boost your retirement income without having to downsize.
Just as you can extend your stay in that nice hotel, thanks to your credit card, your reverse mortgage allows you to stay in your home longer.
As with a conventional mortgage, the bank doesn’t take over ownership. You stay on title and own your home until you decide to move out or sell.
How do I qualify for the CHIP Reverse Mortgage®?
You need to be 55 or over and own your home. The amount you’ll receive will depend on your age and gender, as well as the value of your home and its location. If you’re curious to find out how much tax-free cash you could qualify for, try our reverse mortgage calculator now!
What happens to the equity in your home?
By taking out a reverse mortgage, you get to have access to some of the equity in your home now, when you need it, without having to sell or move. Like with a hotel stay, you get to enjoy all the benefits of the extra money now and don’t have to pay for it until you choose to leave.
As with any mortgage, your equity will be the value of your home less the amount of your loan. If you choose not to make any interest payments, the amount you owe will be calculated based on the time you stay in your home and the interest rate of your reverse mortgage.
The chances are that your home will also increase in value (on average, Canadian homes have increased in value by over 5% annually over the last 18 years).
For example, let’s say you take out a reverse mortgage of $200,000 and your home is worth $800,000 (leaving $600,000 in equity). Over five years, if house prices were to increase by just 3% every year, your home’s equity would rise from $600,000 to $650,300.1
Plus, HomeEquity Bank guarantees that you will never owe more than your home is worth when you decide to sell it. In fact, 99% of homeowners have money left over once their loan is repaid.
Will I still be able to leave an inheritance?
By tapping into some of your home’s equity now, the amount that you may have planned to leave for your children will be reduced, but for many people this is a small price to pay for being able to stay in their home and have financial independence.
Some of our customers even take out a reverse mortgage to provide an early inheritance, which allows them to give a substantial amount of money to their children at a time when they need it, rather than many years from now. This also allows them to see the impact this inheritance can make.
How much could I take out with a reverse mortgage?
Use our reverse mortgage calculator to work out how much of a reverse mortgage you could qualify for, or call a HomeEquity Bank reverse mortgage specialist now at 1-866-522-2447.
1 Based on an annual increase in value of 3%, the home’s value would be $927,419 after five years. Based on HomeEquity Bank’s five-year rate of 6.74% (as of Nov. 2018), the loan would be at $277,118 after five years. $927,419 - $277,119 = $650,300 in equity. House prices are not guaranteed to rise every year, however, and could fall in value.
How it Works?
If you're like many other 55+ Canadians, much of what you own fits into two categories - the equity in your home ...
Reverse Mortgage Videos
Watch these videos from HomeEquity Bank and learn more about CHIP Reverse Mortgage