Mortgage rules and strict qualifying guidelines have not only pushed many potential home buyers off the market, it has also made things hard on the Seniors who are taking more debt into retirement. For many Seniors this debt is getting harder to manage on a fixed income.
A Home Equity Release or Reverse Mortgage can be the right solution for many of them.
While it is true that the interest rate on these mortgage products are a bit higher than a conventional mortgage, the benefits may outweigh the added cost of borrowing.
The common misconception is that the bank takes over the title of the property and the client will not own the home. This is not true.
Below are some of the benefits to the borrower
- Access to a dependable source of funds
- The title of the property stays in the borrower(s) name(s)
- No stress of monthly mortgage payments to the lender
- Tax-free cash-flow for the borrower
The main differences between a Reverse Mortgage and a Conventional Mortgage are
- Reverse Mortgage is a long-term financing solution for the borrower(s)
- No payments until mortgage is due
- Mortgage full repayment is due when the property is sold, transferred, borrower(s) default, moves, or the last remaining borrower passes away
- Eligibility is determined by the borrower’s age, and based on the appraised value of the home
- There is no maturity date and therefore no need for renewals, and there is no amortization
- Reverse Mortgage allows borrower(s) to take an initial advance, a single lumpsum advance or recurring advances
The qualification process for Reverse Mortgage is also more stream-lined and easier.
- Borrower(s) need to seek Independent Legal Advice and provide proof they have done so
- If there are existing debt(s) against the property they need to provide proof of those debt(s)
- Verification that the borrower(s) can cover the property-related expenses such as property tax, condo fee and utilities (usually proven via their pension income)
- Home Appraisal
- Power of Attorney (If applicable)
Below are some Frequently Asked Questions
Will the bank own my home upon receiving the equity release mortgage?
No, you are not transferring ownership to the bank upon receiving the equity release mortgage
How much equity will we have left?
At any time, the remaining equity will depend on the difference between the home’s current value and the amount owing on the mortgage.
Can the bank sell or foreclose our home?
As long as you meet the mortgage obligation there is no concern about losing your home to the bank, just like a standard mortgage.
What options do we have for receiving the funds?
You can take the mortgage proceeds as an initial advance, or take a large sum upfront and the remaining amount as single and/or recurring advances.
Is a credit bureau report required?
Yes, it is required for each applicant.
Could we owe more than the value of the home?
As long as you meet the mortgage obligation, the amount you owe on the due date will not be more than the fair market value of the home.
Are Equity Release Mortgage rates higher?
As there is no payment required, Equity Release Mortgage rates tend to be higher than standard mortgages. However, there are both fixed and variable rate options available.
What if we already have a mortgage on the property?
If there is an existing mortgage, it must be paid off so that the Equity Release Mortgage can be registered as the first mortgage. Proceeds from the Equity Release Mortgage can be used to help pay any existing mortgage, outstanding debt or lien registered against the property
Can a Power of Attorney apply on a client’s behalf?
Yes, a Power of Attorney may be used when applying for an Equity Release Mortgage. The attorney must have the ability to deal with the real property, and will not be allowed to apply on behalf simply because the client is out of the Country.
Who is responsible for paying property taxes?
You are responsible to pay the property taxes, utilities and any condo fees.
How can we reduce the interest owing on our Equity Release Mortgage?
You can limit the amount of interest by reducing the amount of initial advance, and only drawing from the funds when needed. You can also pay down the interest without a prepayment charge.
How can we use the funds?
You can use the funds to cover your daily expenses, including renovations, medical bills, trips and more. It is really up to you to decide how to best spend it that helps you live more comfortably.
If one of us passes away, do we have to sell our property?
If both spouses are registered, the surviving spouse can continue to be a borrower and is still entitled to all the benefits of an Equity Release Mortgage.
When is a holdback done?
At the time of application or during the life of the Equity Release mortgage the lender may require a holdback to cover home repairs if deficiencies could affect livability or have potential to materially affect the home’s future value. The lender may also require a holdback if there are tax or condominium arrears.
Is there a setup fee?
There is a setup fee (that may vary from lender to lender), which is deducted from the initial advance.
If you feel that an Equity Release Mortgage is the right choice for your lifestyle, then please feel free to reach out. For your convenience a PDF File with the information is also available for download below.
We will be happy to go over it in more detail, and assist you through the process.