There might come a time when you want to consider reverse mortgages in Ontario. If you own your own home, intend to stay in it for a while, and meet the age requirements, a reverse mortgage could be a great way to bring in a little extra income.
But before you make a decision, let’s dig in a little, and look at the pros and cons of getting reverse mortgages in Ontario.
Reverse Mortgages Are Not the Same as Refinancing
The first thing to note is that a reverse mortgage is not the same as refinancing your mortgage. Although both can open up equity in your home, they are very different.
Refinancing is when you take a new loan out to pay off your existing mortgage. You can refinance your mortgage to take advantage of a lower interest rate. Or you may refinance to get extra cash in the form of a lump sum payment from any equity you have built in your house either from paying your mortgage down, or for the increase in value of your home over the years.
With a reverse mortgage, you can take advantage of the equity you have built over the years by taking it out as a lump sum or as monthly payments to supplement your budget. In effect, you borrow against the value of your home while you still live in it.
With reverse mortgages in Ontario, you can borrow up to 55% of the value of your home.
Many seniors consider reverse mortgages as a way to supplement their income and stay in their family home. You can apply for a reverse mortgage through a banking institution, private lender, or trusted mortgage broker. A mortgage broker can also guide you through other financing options like lines of credit that may be better for your circumstances.
Pros of Reverse Mortgages in Ontario
The pros of reverse mortgages in Ontario are fairly simple:
- Provides cash income if you don’t have a lot of retirement savings
Whether your retirement savings are depleting, or you have a large unexpected expense, you can take advantage of the equity you built in your home over the years to cover it.
- You continue to own your home
Many seniors are not ready to move from their family home. A reverse mortgage can provide them with the financial means to stay there.
- Does not impact Old Age Security or Guaranteed Income Supplement payments
Reverse mortgages in Ontario are not classified as income, and the income you earn is tax free, so they won’t impact OAS or GIS payments.
- You don’t make mortgage payments
A reverse mortgage doesn’t open up a new mortgage – you pay back the amount borrowed when you sell your home or move permanently.
Cons of Reverse Mortgages in Ontario
The cons of a reverse mortgage can be a little more difficult to predict:
- There are fees required to complete a reverse mortgage
Administrative, legal and closing fees are charged, which will reduce the total amount you will receive.
- You may have less to pass on to your inheritors
Reverse mortgages increase your debt load, and must be repaid when you move or by your estate if you die.
- A reverse mortgage will cut down your home equity
Reverse mortgage interest rates are typically higher than regular mortgages, and your estate must also pay the interest accrued on your reverse mortgage loan.
- You will incur a penalty if you sell your house prior to the completion of the term
If your health diminishes quickly, you decide to move, or pass away within 3 years of taking out your reverse mortgage, you or your estate will incur a penalty.
Do You Qualify for a Reverse Mortgage in Ontario?
To qualify for reverse mortgages in Ontario:
- The home must be your principal residence (you live there 6 months or more a year)
- Everyone on title to the mortgage must be 55 or older.
- Your home must be either paid off, or you must have equity in your home.
In addition, your lender may take into account the location of your home, the appraised value, your credit rating, and current interest rates.
Should You Consider a Reverse Mortgage?
Our advice at HW Advantage is to always evaluate all your options. If you can find other revenues to help you manage your retirement funding, like a line of credit or selling other property, we’ll let’s talk about those first.
You should also consult with your family, and ensure they understand the impacts to your financial health and your estate.
Contact HW Advantage for Trusted Advice
Unlike the big banks who might see only numbers, at HW Advantage, we care about you. We have built our business on client satisfaction and customer referrals.
Considering selling or taking a reverse mortgage on your home is an incredibly emotional decision. You can rely on HW Advantage to provide you with compassion, and advice you can trust. Contact HW Advantage at 905-541-6961 or by email to book an appointment online.
Financial Consumer Agency of Canada: Reverse mortgages