A reverse mortgage does not mean that you are giving away your home and the equity in it.
Reverse mortgages have come a long way over the years, especially with more competition and options! Discover how a reverse mortgage works and whether it fits your plans, while you keep ownership of your home.
About Ontario-Wide Financial
Tracy Lee Green, a 25-year-plus veteran in the industry, Mortgage Broker and Owner of Ontario-Wide Financial in Orillia, has received numerous enquiries over the years from older homeowners who have been rejected by a bank for a mortgage.
Green says, "I have a lot of seniors calling me looking for funds, because they have been unsuccessful at the banks or other lending institutions. And the 2% qualifying rate as set out by the Government of Canada is making it more difficult for seniors to obtain institutional funding. Many seniors are unable to borrow against their homes."
Age and risk management
Obtaining a mortgage as a senior can be a daunting challenge in two ways: firstly, with the reduction of the amortization period based on age with some lenders, and secondly, the extra 2% qualifying rate the Bank of Canada set out in June 2021. Green says, "These measures, while justifiable under the guise of risk management, significantly hinder seniors' ability to secure a mortgage if they need the funds." Even though the equity in their home may be $1,000,000, they may not qualify for a $300,000 mortgage to buy a vacation home or help their children buy their own home. This often leaves seniors turning to private mortgages, which come with higher interest rates. But Tracy Green says there are alternative solutions.
The benefits of a reverse mortgage
Reverse mortgages offer a unique flexibility that many may not be aware of. Green says, "Many people think that a reverse mortgage means that they're giving their house away. They don't realize that they can make mortgage payments on a reverse mortgage to maintain the equity in their home."
By making regular payments, homeowners can cover the interest or a portion of the interest and even reduce the principal by up to 10% annually, maintaining or growing their equity stake in the property as values rise over time. Green says, "This approach allows older homeowners to enjoy the liquidity of a reverse mortgage while safeguarding the value of their home. A reverse mortgage does not have to mean that the homeowner is taking equity out while the interest is accumulating, and they'll eventually have nothing left. A homeowner can make full payment, which over the full term will not take any equity out of the property, or they can make partial payments to slow the erosion of equity."
Homeowners can also take lump sums as needed rather than all at once. It works like a line of credit, with some restrictions.
As property values increase, a home's equity will appreciate. A reverse mortgage with the option of making monthly mortgage payments slows or eliminates equity erosion, capitalizes on rising property values, and gives older homeowners peace of mind.
Navigating the complexities of mortgage financing can be challenging, especially when traditional mortgages from a bank are out of reach. There are alternative options that can provide significant financial relief. Tracy Green and her team at Ontario-Wide Financial can access a wide range of mortgage options and tailor solutions to the clients' specific needs.