Canada is a diverse country that many people call home, including families of different sizes. About 10.5 million families were living in Canada in 2021. Although the country provides various opportunities for individuals to earn money and support their families, financial constraints can still exist in many households.
Whether you’re struggling to make ends meet after retiring or looking to treat your family to a vacation, the lack of funds can create barriers in your daily life. Many Canadian families choose to apply for a reverse mortgage once they become eligible to access their home equity and turn it into cash-free tax.
There are many benefits of a reverse mortgage Canada residents can enjoy. When you figure out the basics of a reverse mortgage, you can determine if it is a suitable option for you, depending on your eligibility and plans regarding your home.
What Is a Reverse Mortgage?
A reverse mortgage is a loan that allows Canadian homeowners to receive funds from their home equity. The exact amount you can borrow depends on your home’s value. But most homeowners can obtain up to 55 percent of the property’s current value.
You aren’t required to pay back a reverse mortgage until you move out of the home, sell the property, or the borrower dies. This reduces the pressure of making monthly payments and allows borrowers to repay the loan when they are financially ready or willing to move. But, you are still required to maintain your property and pay the taxes and insurance.
Who is Eligible for a Reverse Mortgage?
You need to fill out an application to be considered for a reverse mortgage. To be eligible for this loan, you must be a homeowner of at least 55 years old. If you live with someone who is also listed on the home’s title, they must also be at least 55 years old for you to qualify for a reverse mortgage.
According to the Financial Consumer Agency of Canada, when more than one person is on the home’s title, your lender may ask you and the other individual(s) to get independent legal advice and prove that you have received this advice.
Although obtaining a reverse mortgage isn’t complicated, a lender considers a few factors: the age of the home title holders, the location, the home’s condition, and the property’s appraised value.
What Are the Benefits of a Reverse Mortgage?
If you’re retired and living with a limited income, you might face challenges maintaining your lifestyle due to rising living costs like many other Canadians. A reverse mortgage might be the answer to your problems due to its benefits.
Don’t Need to Repay the Loan within a Short Time
You don’t have to repay the loan as long as you live in the home. You will be expected to pay off the loan if you move out of the home, sell the property, or if the borrower dies. Since you don’t have to repay the loan immediately, it reduces the financial burden of arranging funds every month and allows borrowers to enjoy the money they obtain.
No Control Over How You Use the Funds
There are no limitations as to how you can allocate your funds. You can use the funds as an additional source of income, pay off other debt, purchase another property, or cover other personal expenses. This flexibility allows eligible borrowers to obtain funds to reduce financial constraints whenever necessary.
Payment Options Are Flexible
Whether you prefer to receive the funds at all once or in monthly deposits, the choice is yours. You can decide the payment method depending on why you’re borrowing the funds. For example, if you need supplemental income to support your lifestyle, you can receive monthly deposits. But if you’re borrowing money to renovate your home, you can obtain the funds as a lump sum at once.
No Additional Monthly Expenses
The funds you receive from a reverse mortgage are tax-free, and you’re not obligated to make monthly payments. Although interest will accumulate, you’re not required to pay them every month. You only have to pay off the loan and interest when and if you sell your home or move out. This saves you from adding another bill to your monthly expenses.
How Can You Apply for a Reverse Mortgage?
Obtaining a reverse mortgage is relatively simple if you qualify for the loan. You have to follow a few steps to complete your application and receive the funds. Two financial institutions that offer reverse mortgages in Canada are Home Equity Bank and mortgage brokers.
A mortgage specialist will walk you through the process and determine which product suits your situation.
After discussing your expectations and eligibility with the mortgage specialist, they will schedule a home appraisal meeting to determine the property’s value.
Determine Qualified Amount
Once the home appraisal is complete, a mortgage specialist will confirm the amount of funds you qualify for depending on your age, the age of other individuals on the home’s title, the type of home, property location, and the home’s condition.
Confirm Loan Amount & Choose Interest Rate Option
When you determine the amount of funds you qualify for, you can determine how much you want to borrow. You also can decide on your interest rate option, which can be fixed or adjustable. Before finalizing an amount or type of interest, create a money management plan to improve and maintain your family’s finances.
Seek Independent Legal Advice
You may need to consult a lawyer to obtain independent legal advice, especially if other people are listed on your home’s title. You can ask your lawyer to review your documents before signing the final form.
Receive the Funds
After you fill out the application and take care of the legal aspect, your mortgage specialist will contact you when your reverse mortgage funds are available.
Make the Most of Your Reverse Mortgage
After educating yourself about the process and benefits of obtaining a reverse mortgage, use the funds wisely to make the most of the loan. A reverse mortgage can be a blessing in disguise when you need a financial boost to improve your living standards or reduce money-related stress!