Reverse mortgages have been available in Canada for several years.
This mortgage product allows you to get money from your home equity without having to sell your home. You can borrow up to 55% of the current value of your home.
The maximum amount you’re able to borrow will depends on:
• Your age
• Your home’s appraised value
• The type of property and it’s location
The mortgage is paid back when you move out of your home, sell it or the last borrower dies. There are no payments required on a reverse mortgage and the interest charges accumulate over the term.
To be eligible for a reverse mortgage, you must be a homeowner and at least 55 years old.
There is now a new mortgage product that helps homeowners unlock up to 45% (five-year term) and 35% (10-year term) of their home equity with no monthly payments required. Unlike a reverse mortgage there are no age restrictions although a minimum credit score is required by the lender.
Another big difference that sets this mortgage product apart from a reverse mortgage is the variable interest rate that’s tied to the mortgage. The interest rate is entirely dependent 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 owing 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 does not increase in value? Over the course of your term, if the value of your home only increases by a small amount or even decreases, the lender will automatically drop your interest rate to their current lowest rate to protect your home equity.
What if your home increases in value drastically? Over the course of your term, if the value of your home appreciates beyond the lender’s threshold for a five-year term, they will cap your interest rate so you hold onto more of your home’s equity.
Who is the typical customer for this product according to the lender?
• They own the majority of their home which represents a plurality of their net worth
• Want to diversify their asset holdings into alternate assets or investments
• Are looking for additional sources of income
• Have the primary goal to have enough money to live comfortably without jeopardizing their family’s financial security
This product is only available for primary and non-primary residential freehold properties that are detached, semi-detached, townhomes or condos.
Like all mortgage products you need to ensure that it fits both your short-term and long-terms goals so it works for you.
Seeking the advice of a professional mortgage broker to review all possible mortgage options is always recommended.
If you would like to discuss further please email me at [email protected] or call 1-888-561-2679
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.