For many people, the equity in their homes is their greatest financial asset.
All Canadian homeowners over 55 are eligible for a program that unlocks that equity to improve life during retirement years. Reverse mortgages provide homeowners with the money they need to take that special trip, provide an early inheritance for heirs, or simply enjoy life without financial stress.
How reverse mortgages for Canadians work
Many homeowners who could be benefiting from a reverse mortgage in Canada haven’t done so simply because they do not understand how reverse mortgages for Canadians work. It is actually quite simple. Instead of homeowners paying a mortgage company every month, the mortgage company pays them by tapping into the money already invested in the property. While there are pros and cons to the system, reverse mortgages are an excellent way to access money that is already yours.
Unlike regular mortgages, there are no credit requirements. After all, the money already belongs to the property owners. Some homeowners worry about taxes due on the money they receive, but that is not an issue. There is no tax on any money accessed, and the income does not affect government programs.
There are no limitations on what homeowners can do with the proceeds of their reverse mortgage. Many people simply want to live comfortably, without having to worry about paying bills. Others want to invest the money somewhere else where potential returns may be higher. Homeowners can spend the money in any way they see fit.
Homeowners retain control of their home until they decide to move or they pass on. No one will be after them to move, as no payment is due until the home is sold. At that point, owners or heirs repay the money from the proceeds of the sale. As a protection for homeowners, the amount owed can never exceed the appraised value of the property.
Of course there are some restrictions. Only homeowners over 55 years old are eligible for a reverse mortgage in Canada. As a rule, the reverse mortgage amount cannot exceed 50 percent of a home’s value. For homes with larger mortgages, that may create issues for accessing the equity. The only other issue that might affect some property owners is an early repayment of the money. If the amount is repaid in less than three years, there will be a prepayment penalty applied. However, that is not an issue for most homeowners.
(For an unbiased look at utilizing reverse mortgages as a retirement option, the Canadian government has put together a fact-sheet on the FCAC Website, as well as on the CMHC site with respect to the CHIP, or Canadian Home Income Plan)
The option of using a reverse mortgage is valuable to many Canadian homeowners who are interested in accessing the equity they have built up over the years. While no one should enter into any contract without examining all pros and cons, reverse mortgages are an important tool to consider for financial planning.