If you’re over the age of 55 and are retired you may have begun to realize it is not as manageable as you have expected. With day-to-day living expenses, medical bills, insurance, prescriptions and utility costs piling up its not hard to believe many seniors find themselves needing additional cash. If you are a homeowner without large amounts of debt you may be able to gain access to the equity in your home without having to sell the property or move. In doing this there is several mortgage options to consider and understanding the different mortgage options available will help you make the best decision possible given your specific situation.
What is a Reverse Mortgage?
A reverse mortgage is a type of mortgage that gives senior Canadian homeowners the ability to use the equity they have built up in their home. For most people their property and home will be there most valuable asset and can be a tool to grant them some extra cash during their retirement to assist them with their financial hardships. If you are a homeowner and wish to remain in your home, you can be given access to 55 % of your home equity. The way in which you receive this money can be in one large lump sum, or spread out into monthly payments whichever the client prefers. However keep in mind the exact amount given to the homeowner will depend on the type of property, the property location, the value of the home and the age of the homeowner. Generally the accumulated interest from the loan and the loan itself will be repaid when the house is sold, or the homeowners pass away.
How to Qualify for a Reverse Mortgage?
The process of qualifying for a reverse mortgage in Canada is contingent on several factors. First and foremost, the applicant’s residence must be used as their primary home. This Property needs to be well maintained and in good standing, insurance payments need to be up to date, property tax must be paid on time, and all outstanding debts must be cleared. You can use the funds granted trough the reverse mortgage to help clear any outstanding debts, typically the interest rates on the revers mortgage will be less than that of the outstanding debt. Contrary to many types of loans, there is no minimum income required or no health checks when applying for a reverse mortgage. During the process of the reverse mortgage an applicant will not be forced to sell their home or move as a result of fluctuating home values or annual earnings. The amount of equity used in your home for the reverse mortgage will never surpass the total market value of your home at the time it is sold. The loan will only be repaid if the homeowner chooses to sell the property and move, or the homeowner passes away. Your home should be an asset for you and your family and can be a great tool to provide extra cash flow throughout the remainder of your retirement.
How to Apply for a Reverse Mortgage Loan, What is required?
If you are a Canadian Senior and wish to apply for a reverse mortgage loan look to the following criteria to see if you qualify.
- Are you and your spouse 55 or older?
- Are you using your property as your main residence?
- Is home is in a good location and have a good amount of equity generated?
- The proceeds of the reverse mortgage must first be used to clear any outstanding debts such as a lien on the property or the remaining existing mortgage balance.
Using Reverse Mortgage Funds Wisely
When it comes down to being approved for a reverse mortgage, you must be careful with how you spend the money you receive. Understand that there are no required payments that need to be made towards the principal of the reverse mortgage loan. This can be quite the opposite of what you would normally expect with other types of loans or mortgages, as they generally require you to make regular payments. There are some ways in which you can uses the reverse mortgage to better your current situation:
Improve Your Living Quarters
- This can be essential to maximizing the value in your current property, and is key to living in a safe secure environment. It can be anything from replacing the shingles on your roof, repaving your driveway, building a new deck, kitchen upgrades or putting in a new furnace whatever it may be a reverse mortgage will give you the funds to make it possible.
Pay Off any outstanding debt.
- If you are finding yourself experiencing the high interest rates of credit card debt, it may be wise to pay off the balance using the funds from your reverse mortgage. The interest rates of your reverse mortgage will be less of that than your credit card debt so it will save you money. You can also use the proceeds to help clear any additional monthly debts, such as liens on your property or remaining mortgage balances.
Cover your Medical Expenses.
- A lot of seniors experience an increase in financial pressure when the are diagnosed with an unexpected illness, or are experiencing larger than anticipated medical expenses. A reverse mortgage will give you extra funds to take care of those unexpected costs, and alleviate some of your financial stress.
Pay For Leisurely Activities
- This is an obvious one as many Canadian seniors in the retirement wish to enhance their lifestyle by increasing their leisurely activities. Plan that vacation you’ve always wanted to take, or indulge in some of your favourite activities locally whatever you desire is made possible with the extra funds granted through reverse mortgage. The amount of time in which you can live on the property is not limited, so long as you keep up to date with your taxes, insurance payments and your maintenance costs. The loan is repaid when the homeowner passes or sells the home.
What Are the Advantages of a Reverse Mortgage Loan?
There are several advantages for Canadian seniors looking for reverse mortgages. There are no requirements as to what you do with the money you receive; you can use it however you please. Another huge advantage is that all the money you receive from a reverse mortgage is TAX FREE. And finally there are no payments required, the loan is only repaid when the homeowner sells the home, or passes away.