Learn more about Reverse Mortgage, including how it works, who qualifies, and how much it will cost you, by reading on.
The following criteria must be met in order for you to qualify for a reverse mortgage in Canada:
- You need to be a homeowner aged 55 or older.
- The property must be your principal residence (you reside there for at least six months of a calendar year).
- You must be living in one of the major urban areas of Ontario, Quebec, British Columbia, or Alberta.
- The house must be appraised and have damage insurance. The purpose is to protect the asset that serves as collateral.
- The amount of the loan will depend on the age of the applicant. The older you are, the more money you can borrow.
- The lender must verify that the home is worth the loan amount.
- All title holders of the property must apply as joint borrowers.
The money you borrow from a Reverse Mortgage is subject to interest charges, just like most other loans and credit lines. Every borrower receives a monthly statement that lists these fees, which are calculated daily and applied to the loan total each month.
You are not required to make any mortgage payments if you have a reverse mortgage. Instead, the lender won’t get reimbursed until after you sell or move out of your home. To compensate for this, reverse mortgage rates are higher than standard mortgage rates.
Since a Reverse Mortgage loan does not require any monthly mortgage payment, the interest is charged to the outstanding loan balance each month. Only the actual balance is subject to accumulation of interest. If a borrower has a line of credit that is available, interest is not charged on that sum.
The longer you stay in your house after taking out a Reverse Mortgage, the more equity is drawn away because the principal can quickly accumulate compound interest. The interest on a loan or deposit that is calculated based on both the initial principal and the accumulated interest from prior periods is known as compound interest, also known as compounding interest.
The interest rate index and a margin set by the lender are added to determine the overall interest rate.
Because of the additional premiums, reverse mortgage interest compounds on a bigger number each month as opposed to a standard mortgage’s smaller number.
Let’s get you started on a Reverse Mortgage.
Source: Chip, Reverse Mortgage Canada