As we age, our home becomes more than just a place to live. It’s often a significant source of financial security. However, as home ownership can be expensive, many older Canadians are unable to leave their properties as an inheritance for their children or grandchildren.
This means that when they pass away, the house is likely to go to the government unless they have other financial plans in place. There are different ways that you can leverage your home during retirement. A reverse mortgage is one of them. In this article, we explore what reverse mortgages are, who is eligible for them, how they work, and common myths about reverse mortgages in Canada.
What Is A Reverse Mortgage?
chips reverse mortgages canada is a type of lending option for seniors. With this type of loan, you get government-backed cash against the value of your home. You don’t have to make scheduled payments until you die, sell your home, or leave it permanently. You can also use a reverse mortgage to repair or renovate your property.
A reverse mortgage is not a traditional mortgage. Instead of repaying the loan with interest, you receive a one-time payment based on the value of your home. Although a reverse mortgage is often associated with a low-interest loan, it’s not a conventional loan.
How Does A Reverse Mortgage Work?
A reverse mortgage is a type of equity-release loan. This means that you borrow money against the value of your home. The lender will continue to make payments on your behalf to your government-backed insurer until you die or leave the home.
When you die, the loan is paid off with the proceeds from the sale of your home. If you leave your home during the loan’s term, the loan will be repaid in full. These loans are offered through financial institutions that hold your home’s title.
You don’t make payments during the term of the loan, but you must continue to pay property taxes and maintain your home’s insurance. If you fail to make these payments, the government-backed insurer can take control of your home.
Who Can Apply For A Reverse Mortgage?
While reverse mortgages are often associated with seniors, they aren’t just for the elderly. Seniors make up a smaller segment of those who take out these loans when compared to younger borrowers. The majority of participants are between the ages of 59 and 70. If you meet the following criteria, you may qualify for a reverse mortgage:
– You own a home that is your primary residence.
– You are at least 59 years old but can be as young as 49.
– You must be a Canadian citizen or permanent resident.
– You must have significant equity in your home.
How To Receive The Advance?
You can receive the advance by a lump sum payment or by monthly payments. The lump sum is calculated by taking the full value of your home. When you receive the lump sum payment, you must pay back the loan in a set period, usually within one to five years. You can receive monthly payments, which are based on your age and the home’s appraised value.
The amount you can borrow varies by province. In Ontario, you can borrow up to 40% of the value of your home, but the remaining 60% must be repaid at the end of the loan. In B.C., you can take out up to 50% of the value of your home, and you don’t have to repay the remaining 50%.