Lately, when I turn on my TV, I've seen "Reverse Mortgage" advertisements more often. But what exactly is a Reverse Mortgage? And how do you know if a Reverse Mortgage is right for you?
The basic concept behind a Reverse Mortgage is to allow homeowners access to the money ("equity") from their home without selling their home. You must be at least 55 years of age in Canada to be eligible for a Reverse Mortgage. Based on certain criteria, a lender would determine what percentage of the current value of the home the homeowner could borrow. With a Reverse Mortgage, there are no fixed monthly or bi-weekly payments; the homeowner is only required to make payments when the loan becomes due. A Reverse Mortgage typically becomes due for one of the following reasons:
It is important to note that the interest rate on a Reverse Mortgage is higher than a conventional mortgage. It is equally important to understand that the balance owing on a Reverse Mortgage will grow significantly over time. This can happen if no payments are being made as the interest compounds. So, potentially all of the equity in a home could be eaten up when a Reverse Mortgage becomes due. If a homeowner decides later that they want to downsize, it is possible that a Reverse Mortgage could limit the homeowner's ability to do so. Some other critical information is as follows:
A homeowner may not be eligible for a Reverse Mortgage if they often travel for extended periods or someone who has a "winter home" out of province/country.
Suppose the homeowner becomes ill and ends up being hospitalized for a prolonged period. In that case, they may no longer be eligible under the Reverse Mortgage terms and may end up being in default.
The homeowner will likely still bear some high up-front costs, such as the lender's requirement for an appraisal and the fees associated with receiving Independent Legal Advice from a lawyer.
Here is a scenario where a Reverse Mortgage proved to be appropriate. A widowed homeowner, 75, has a home valued at $250,000.00. They were in debt for a Home Equity Line of Credit (HELOC) in the amount of $70,000.00. The late spouse had depleted retirement savings, and the homeowner was in danger of foreclosure. They obtained a Reverse Mortgage and were able to access $75,000.00 of the equity in the home. The HELOC was paid off; they avoided foreclosure and were able to remain in the home. However, there are plenty of scenarios where a Reverse Mortgage seems appealing, but it is no longer the best idea once all possible options have been explored. While the idea of accessing the equity in your home may sound like a good idea, a Reverse Mortgage is not for everyone. If you are ever contemplating obtaining a Reverse Mortgage, be sure to speak to your lawyer first. Once a lawyer fully understands your situation, they can help you determine whether or not a Reverse Mortgage is an appropriate way to go. You may enjoy reading...https://tlrlaw.ca/wp/2018/04/10/buyer-beware/https://tlrlaw.ca/wp/2018/09/18/changing-real-estate/
This article is presented for informational purposes only. The content does not constitute legal advice or solicitation and does not create a solicitor-client relationship (this means that I am not your lawyer until we both agree that I am). If you are seeking advice on specific matters, please contact Philippe Richer at 204.925.1900. We cannot consider any unsolicited information sent to the author as solicitor-client privileged (this means confidential).
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