The Reverse Mortgage
Sometimes, “reverse” is the best way forward.
Reverse mortgages are available to Canadians aged 55 and older; and, depending on their age, borrowers can access up to 55% of the equity in their home. Cash can be paid out in lump-sum; in monthly/quarterly instalments as a form of tax-free cash flow; or as a combination of the two. This allows for the smoothing out of a senior’s income and consumption needs, to complement what otherwise may only be taxable pension & investment income.
Famously, reverse mortgages require no payments. Homeowners need not repay the loan until they pass away, sell, or move out of their home. Because of this, the interest is added to the loan balance each month. Borrowers are still responsible for home insurance, and property taxes (the latter can be deferred in BC starting at age 55 anyway).
Created in the USA almost 40 years ago, reverse mortgages gained a bad reputation there because of under-regulation: predatory lenders, loans being granted to far too much of the home’s value; and transfer of the home’s ownership into the lender’s name.
That stigma and distrust spread from the US into Canada, but unfairly. By comparison, Canadian reverse mortgages are far more heavily regulated: a much lower maximum loan value, mandatory independent legal advice for the borrower, and title/ownership always & only staying in the borrower’s name.
While traditional bank mortgages in Canada are approved mainly on the borrower’s income and credit, reverse mortgage approvals are based primarily on the homeowner’s age and home equity. Reverse mortgages therefore serve an important demographic niche; they can be useful cash flow, tax, and estate-planning tools for Canadian seniors…allowing them financial flexibility without having to sell or leave their home.
There are currently four federally regulated reverse-mortgage lenders; and I’m registered with them all. Here’s some general information about reverse mortgages, from the Financial Consumer Agency of Canada.
I’m happy to discuss reverse mortgages with you, your family, and your advisors – anytime.