You may be seeing and hearing a lot more about the Reverse Mortgage in today’s marketplace. I have taken the time to get familiar with the program here in Canada and have been quite surprised by how it’s changed, how different it is to its counterpart in the U.S., and how relevant it has become given our ageing population in Canada.

Who are they best suited for? People aged 55+ that own a house, townhouse, or condo and want to either increase their cash flow or access equity without making a monthly payment. The older the client, the higher the approved limit.

Here is a list of PROS and CONS of the Reverse Mortgage.

Pros

• Funds can be advanced as needed, saving you interest cost as you would only need to start paying interest on the amount that is advanced.
• No income debt servicing like other ‘standard’ mortgages. Retirees with fixed incomes can qualify for much more money as our approvals are based on age and property.
• No payments required. The borrower can retain more of their income and never worry about default or foreclosure.
• Changes in interest rates don’t affect the client’s monthly cash flow since there are no payments required.
• Clients can pay up to 10% towards the loan if they choose each year, but there is no obligation.
• Prepayment penalties are waived upon death and reduced by 50% if the borrower(s) are moving into a care home.
• Borrowers will never owe more than the fair market value of the home at the time it is sold.
• There are no changes to the mortgage amount and no payments required if one spouse passes or moves into a care home.
• With a conservative estimation of house appreciation at just 2.5% to 3% per year, the interest cost of a reverse mortgage will typically end up being recovered over time. This leaves clients with plenty of leftover equity in the end.

Cons

• Clients are choosing to have more income/cash flow TODAY, in return for having fewer savings in the home TOMORROW.
• All clients are required to obtain independent legal advice, which is a good thing. But there is a small extra cost. Total one-time setup and legal fees come to approximately $2,500.
• Rates are approximately 1.5% to 2% higher than the best rate secured line of credit.
• If the housing market never goes up, and the client lives in the home long enough, there is a chance the client could exhaust all the equity in the home to fund their retirement.

If you, a family member, or a contact of yours could benefit from a reverse mortgage or want to learn more, please contact a Dominion Lending Centres mortgage professional who can walk you through the entire process.