Unlike other countries, Canada has government regulations in place to protect the rights of homeowners who take reverse mortgages.
- The bank will never own your home
- The bank can only demand the principal and interest that has accumulated over the term of the loan.
- The bank has no claim over your home’s equity
- The bank is not allowed to order the applicants to move.
- The equity on the property will remain the asset of the Estate in the event applicants pass away.
- There is no mortgage insurance required on the loan.
What might be considered a reverse mortgage default in Canada?
It will be considered a default if you:
- Misrepresent information on your application for your reverse mortgage.
- Fail to adhere to the terms and conditions of your contract such as fail to keep your home insurance valid or lapse on payment of your condo fees and property taxes.
- Knowingly allowing your property to fall into disrepair that could cause its value dropping.
- Using the funds gained from your reverse mortgage in any illegal activities.
Costs of reverse mortgages in Canada
Costs of reverse mortgages are significantly cheaper than in the US, however,
- Interest rates charged are generally higher than traditional mortgages.
- They will expect you to pay for a home appraisal.
- Your lender will charge a setup fee.
- If you choose to pay off your reverse mortgage early, prepayment penalty and legal discharge fees will be applied.
Advantages of a Reverse Mortgage:
- Regular loan payments are not needed as part of the terms and conditions.
- You can take advantage of your largest asset now instead of having to wait.
- No taxes are due on the money you borrow.
- You can instantly cash in the equity of your home without having to leave it.
- You can choose from a variety of different options regarding how and when you receive the money
- Releasing equity in your home does not affect your GIS (guaranteed income supplement), CPP (Canada Pension Plan) or your OAS (old age security)
Disadvantages of reverse mortgages in Canada
- Your beneficiaries will receive the value of the home, after paying back the reverse Mortgage and the unpaid interest.
- This value will be less than they would expect because of the higher interest rate and compounded interest.
The good news is that the probate payable on the transfer of the asset to the beneficiary will be less because the mortgage will be deducted from the value of the asset.
When should I consider a Reverse Mortgage?
Reverse mortgages have helped thousands of Canadians who have few dependents or family. It is great for people who have most of their net worth tied up in their home’s equity and want to live their retirement years well.
It is invaluable for senior homeowners who find themselves unable to sustain the retirement lifestyle they desire. Or those who want to maximize their investments in Tax-free Savings Accounts, Life insurance, or even investing in a rental property.
When is a Reverse Mortgage a Bad Idea?
This product may not suit
- those who may have younger dependents still living at home and
- homeowners who have a source of income and can qualify for other types of mortgages
We recommend you contact me to provide you with accurate and up-to-date rates and terms as they apply to your unique situation.
To learn more about reverse mortgages watch this video here