Reverse mortgages have been available in Canada for several years.
This mortgage product allows you to get money out of your home ownership without having to sell your home. You can borrow up to 55% of the current value of your home.
The maximum amount you can borrow depends on:
• Your age
• The estimated value of your home
• Type and location of the property
The mortgage is paid off when you move out of your home, sell it, or another borrower dies. No payments are required on a reverse mortgage and interest charges accrue over the term.
To be eligible for a reverse mortgage, you must be a homeowner and be at least 55 years old.
There is now a new mortgage product that helps homeowners unlock up to 45% (for five years) and 35% (for 10 years) of their home ownership without the need for monthly payments. Unlike a reverse mortgage, there are no age restrictions although the lender requires a minimum credit score.
Another big difference that sets this mortgage product apart from a reverse mortgage is the variable interest rate associated with the mortgage. The interest rate depends entirely on the appreciation of your home and protects you in cases of high and low appreciation.
There are no monthly payments and no penalties for breaking the mortgage early although partial payments are not allowed, so the full amount owed must be paid. Two terms are available – five years and 10 years. The maximum mortgage amount is $1.5 million.
What happens if your home doesn’t increase in value? Over the course of your stay, if the value of your home increases by a small amount or even decreases, the lender will automatically lower your interest rate to the lowest current rate to protect your home ownership.
What if the value of your home increases dramatically? Over the course of your stay, if the value of your home is above the lender’s five-year threshold, the interest rate will be capped so you retain more equity in your home.
Who is the typical customer for this product according to the lender?
• They own the majority of their homes, which represents a large number of their net worth
• Desire to diversify their holdings from assets to alternative assets or investments
• They are looking for additional sources of income
• The primary goal is to have enough money to live comfortably without jeopardizing the financial security of their families
This product is only available for primary and non-core residential freehold property, detached or semi-detached, condominiums or apartments.
Like all mortgage products, you need to make sure that it fits your short- and long-term goals in order for it to work for you.
It is always recommended to seek advice from a professional mortgage broker to review all possible mortgage options.
If you would like to discuss further, please email me at [email protected] Or call 1-888-561-2679
This article was written by or on behalf of an outside columnist and does not necessarily reflect the views of Castanet.