What is a Reverse Mortgage?

A reverse mortgage allows those 55 and older to borrow up to 55% of the equity in their home without making any monthly payments over the life of the loan.

Unlike a standard mortgage, you do not have to pay anything back until your spouse leaves the home or the last borrower on the title dies. At this time, the amount to be paid will include the principal and accrued interest over the life of the mortgage, which can be paid back from the loan proceeds. Any money left over is yours (or your beneficiaries) to keep.

A reverse mortgage is an excellent option for those looking to supplement their income into retirement, pay off some outstanding debt and age in place. It’s also tax-free money, so it won’t impact your current benefits, such as your OAS or pension.

Let’s dive into some details to determine if it’s the right option for you or a loved one.

How It Works

Eligibility:

You must be Canadian and over 55 to qualify for a reverse mortgage. You must be listed on the mortgage application if you and your spouse are joint homeowners. To secure the mortgage, The property you are using must be your primary residence and worth a minimum appraised value of $200,000.

Qualification:

If you are eligible, a reverse mortgage will allow you to borrow up to 55% of the equity in your home to be taken out as tax-free cash. The amount you will be granted will depend on several factors, including your age, the property location and value, and the condition of your home.

When you apply, the lender will qualify you for the total amount, but you only need to remove some of the money immediately. With a reverse mortgage, you can obtain the funds as a lump sum, regular installments or a combination of both.

Repayment:

The beauty of a reverse mortgage is that you are not required to make any payments over the life of the loan. You must only pay back what you borrow when you move out of the home. So, if you qualify for $300,000 and only take out $150,000 of it, you will only be responsible for paying back the $150,000 plus any interest accrued since the mortgage loan was funded.

What’s also important to know is that this loan amount can never exceed the fair market value of your home, so you can never owe more than you borrow.

What it can be used for:

Another benefit of a reverse mortgage is that your funds can be used for anything you like. You can use it to help cover your monthly expenses, pay off debt, purchase a big-ticket item, renovate your home, or travel the world. You can even gift it to a loved one as an early inheritance or assistance in purchasing their home.

How To Apply

We make applying for a reverse mortgage beautifully simple for you. Reach out to your Pineapple mortgage expert, and they will answer all of your questions and assist you with getting a hassle-free reverse mortgage.

Step 1: Initial Assessment

We’ll collect basic information from you to estimate the total funds you will be eligible for based on your age, location and estimated property value. During this stage, we’ll help you decide whether receiving the funds up front as a lump sum or as advances deposited into your account over time is the right choice for you.

Step 2: Determining The Right Lender

More than one lender in Canada offers the reverse mortgage program. HomeEquity and Equitable Bank are the leaders in this space, but several other lenders have also started offering a range of programs based on the term length and the type of advance - ad-hoc, pre-scheduled or upfront lump sum preferred. We’ll make sure you are placed with the right one for your specific needs based on your initial assessment.

Step 3: Getting An Appraisal

The lender will require an appraisal of your home before advancing the funds. The appraisal determines its current value before creating the final approval package.

Step 4: Securing The Funds

Once everything is in place, the lender will transfer the funds, which you can use however you wish. It’s as easy as that.

Common Myths About Reverse Mortgages:

There’s a lot of misinformation out there about reverse mortgages. A reverse mortgage is an excellent way to get the funds you need to stay in your home as long as you like and fuel your retirement savings. To help you separate fact from fiction, here are the common myths about reverse mortgages debunked:

I Have To Be Retired To Qualify

Contrary to popular belief, you do not need to be retired to take advantage of a reverse mortgage. A reverse mortgage is available to those 55 and older living in their primary residence. So, even if you work full-time, you can still apply.

I Will No Longer Own The Home

With a reverse mortgage, the homeowner always maintains ownership of the property. The bank issuing the reverse mortgage will place a first mortgage on the title, but the owners will keep title ownership.

I Will Owe More Than The Value Of My Home

The debt can always be, at most, the cost of the loan. So, if the housing market were to take a downturn and the home suddenly was worth less than the loan, you would not owe more than the fair market value of your property.

I’ll Have To Make A Payment At Some Point

A reverse mortgage requires no payments until the last surviving spouse on title leaves the property. At this time, you will pay back the mortgage in total, which can be done from the sale proceeds. Once paid out, any remaining monies are yours to keep (or your beneficiaries). You can also make payments over the life of the loan if you choose, but it’s not required.

I Need To Have An Income To Qualify
Qualifying for certain loans becomes difficult and expensive for a retiree living on old age security and other pension income. Reverse mortgage programs are tailored to seniors living on a fixed income. To qualify for a reverse mortgage, the lenders will look at the value of your home, the location and condition of the property and your age - not your income.

There Will Be Nothing Left To Leave To My Children
When the last remaining spouse passes away, the heirs will be responsible for repaying the loan. However, the home sale proceeds can be used to pay off the mortgage, or the heirs can repay the loan from their savings to maintain ownership. A Pineapple mortgage agent can also help your family members obtain a new mortgage to repay the loan if they choose to acquire the property.