The Key Differences Between a Reverse Mortgage and a Regular Mortgage

The Key Differences Between a Reverse Mortgage and a Regular Mortgage

As thousands of baby boomers become senior citizens every day in such a rough economy, reverse mortgages are becoming more popular as a way for people to avoid losing their homes to foreclosure or simply because they want to have more money to enjoy their retirement. A reverse mortgage is still a mortgage in that it involves a loan, but there are a few notable Differences Between a Reverse Mortgage and a Regular Mortgage.

Loan

The borrower of a regular mortgage usually takes out a loan in the amount of the cost of the home they want to buy, which they use to pay the owner of the home. Then, they make monthly mortgage payments to the bank to pay off the loan.

The reverse mortgage, on the other hand, is still a loan, but it is a loan given against the equity that is already in a home. Getting a reverse mortgage will allow you to take money out of the house when you really need it.

Qualification

It can be very difficult to qualify for a regular mortgage. You have to prove you will be able to make the payments for the duration of the loan or have collateral to cover the amount.

With a reverse mortgage, there is no income qualification, and what you plan to do with the money has no bearing on your eligibility for the loan.

Payment

Regular mortgage payments are usually made monthly. Payments can be made more often or for more than the amount of the monthly payment, but there may be penalties for early payment.

A reverse mortgage requires no payment from the homeowner but pays them a lump sum or monthly payments depending on how it was set up. Other expenses, such as insurance and taxes, are still the responsibility of the homeowner, but they could cover those expenses with the payments they receive if they choose to do so.

Overall

With a regular mortgage, you make payments toward the home and build up the equity in it. With a reverse mortgage, you are taking equity out of the home by means of a loan that will not require any payments until it is due.

With the average regular mortgage lasting around 30 years, you have probably spent many years putting money into your home. If so, it may be worth looking into to see if a reverse mortgage in Canada can help you live the life you want to live.

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