What Is A Reverse Mortgage?
After purchasing your home, you may be looking for additional financing without having to sell the property. A reverse mortgage in Canada allows you to tap your home equity and borrow up to 55% of the current property value. The amount you qualify for when taking this mortgage will vary depending on:
- Your age (most institutions require the youngest borrower to be at least 55 years old)
- Your home’s appraised value, condition, and type
- Financial eligibility criteria set by the lender
With a reverse mortgage, you no longer need to pay for the loan until it’s due. However, if you want to move out or sell the home, you will be required to make payments. As you go along without making payments, your interest increases, and this may result in reduced equity in your home.
how does a Reverse Mortgage work?
Reverse Mortgages In BRITISH COLUMBIA
How A Reverse Mortgage Works
Most homeowners will use the money they get from a reverse mortgage to pay off any outstanding loan or lines of credit that they took using their home. The remaining amount from the reverse mortgage can be used for long term projects such as home renovations or even to repay high-interest debts.
Keep in mind that after taking the reverse mortgage, you may not qualify for other forms of financing that are secured by your home, such as a HELOC. Once you qualify for the reverse mortgage, you have two payment options. What you choose will depend on how you’d like to access the funds.
- You can take the funds one-time as a lump-sum
- You can access different amounts over time
There could be restrictions or fees charged by your lender when taking a reverse mortgage. Ask us questions to understand the terms of your loan and avoid surprises.
Are You Eligible For A Reverse Mortgage?
Lenders have different eligibility criteria for reverse mortgage applications. Typically, the applicant must be a homeowner of at least 55 years of age. If you have more than one name on your home’s title, these individuals must also meet the eligibility criteria.
You will need to get a legal professional to provide independent advice when making this application. Most lenders will ask for proof that you obtained this advice before moving forward with your application.
Note that you can only take a reverse mortgage if you live in the home as your primary residence. This often means that you must prove that you live in the home for at least six months a year. You must also have sufficient equity.
How Can You Repay Your Reverse Mortgage?
Unlike a typical mortgage where you have to make regular payments, with a reverse mortgage, you can pay the principal and interest as a lump-sum whenever you want. However, some lenders will charge a fee for paying the reverse mortgage before it’s due.
There are several circumstances where you will be required to repay the amount you owe on your reverse mortgage in full. They include:
- When you sell your home
- When you move out of your home
- When the last borrower passes away
- When you default the loan
When you move out of your home
When the last borrower passes away
When you default the loanDefaulting On A Reverse Mortgage
Different situations could be termed as a default of your reverse mortgage.
- If the funds are used for anything illegal
- If you provided false information in your application
- If you neglect your home or poor maintenance that lowers the property’s value
- If you fail to follow the stated conditions in your reverse mortgage contract
It’s important to ask your lender to clarify what would be termed as a default when submitting your application.
In the event of death, most lenders will require that the reverse mortgage be repaid using your estate unless there are other individuals in the title who are still alive.
The time given to repay the funds after the death of the last borrower will be stated in your contract. Typically, lenders provide a period of 180 days to pay the funds in the event of death. However, for homeowners who move into long-term care, the lender can extend the repayment period to 1 year.
Understanding this timing is very critical as it helps you to prepare for such scenarios.
READY TO APPLY FOR A Reverse Mortgage?
Unlock the potential of your home’s equity with a reverse mortgage from Flash Financial.
Whether you’re in Vancouver or anywhere else in British Columbia, our expert team can guide you through the process. With flexible payment options and eligibility criteria, we make accessing your home’s value easier than ever.
Ready to secure your financial future?