Step by step guide to getting a reverse mortgage
A reverse mortgage in all ramifications is considered a loan. In Canada, this loan is available to homeowners aged fifty-five and older. Under this loan arrangement, homeowners can borrow against their home’s value provided they have considerable home equity on the property. A reverse mortgage is not taxable, though the fund might look like an income to the homeowner. Nevertheless, the Canada Revenue Agency (CRA) considers the money to be a loan advance.
A reverse mortgage is different from a forward mortgage, where the homeowner requests a loan to buy a home. Instead, the reverse mortgage is designed to provide funds for the homeowner without making any loan payments. As a homeowner, you can access your home equity, make no mortgage payments, and still maintain your home until you move or sell the property. In addition, the funds you get from a reverse mortgage can be used to assist your kids with their tuition payment or tuition expenses, debt consolidation, day-to-day spending, or home renovation.
How to qualify for a reverse mortgage in Canada
For homeowners above fifty-five, a reverse mortgage represents an easy way to access additional money to support different projects. In addition, since the mortgage is payment-free, homeowners don’t have to bother much about monthly repayments. The fund can be used to execute long-term and short-term projects.
If you are a homeowner in Canada, you may be eligible to access a reverse mortgage provided you meet up with the following requirements:
- If you are fifty-five (55) years old or above
- The home you are borrowing the fund against is certified as your primary residence
Easy steps to apply for a reverse mortgage in Canada
For homeowners interested in obtaining a reverse mortgage, here are some simple steps you need to take before your loan request can be granted:
- Contact a specialist on home equity plans
A reverse mortgage is a loan plan similar to HELOCs. So, before embarking on obtaining the loan, you or your financial advisor should contact a specialist on home equity arrangement to have a proper understanding of how it works. During the discussion, you are permitted to ask questions, and expectedly, the specialist will provide answers. The specialist objective is to put you through everything you need to know regarding a reverse mortgage.
- Home evaluation
Once you have completed your initial phone meeting, your home evaluation data will be communicated to you. At this stage, you will need to submit an ID for you and your spouse, though this is not applicable in all cases.
- Reverse Mortgage Qualified Amount
At this stage, your appraisal report would have been completed. The home equity specialist will provide you with information on how much you are qualified for after considering the following:
- Your age and that of your spouse (if stated in the terms)
- The structure of the home (apartment, condominium, freehold, etc.)
- Home residential address
- Your home condition
- The equity home specialist will make findings on your property tax to know about your tax history. As part of the loan arrangement, any outstanding loan will be covered in the reverse mortgage loan.
- Confirm your interest mortgage loan and your interest rate
As stated earlier, different factors will influence the amount you are qualified for under this loan arrangement. Once you have ascertained the loan amount you are eligible for, you can decide on the amount you would like to draw from the account. Also, it would be best if you chose the interest rate payable on the loan principal. The interest rate can be for six months, 1, 2, 3, or 5 year(s). In this situation, you are to choose an interest rate that will be suitable for you.
Furthermore, after deciding on the interest rate and amount you wish to withdraw from the account, the lender will notify you of your disclosure package.
- Hire a legal representative for legal advice
The home equity specialist will present information on terms and agreements relating to your home reverse mortgage loan. However, due to the technicalities involved in the entire process, you should get an independent legal representative to guide you through the process of signing the legal documents.
- The legal process
The home equity bank where you apply for the loan will forward a document to capture relevant information on the loan. Once you have completed the forms, you will deliver them back to the bank for further verification. Also, it is expected that you must have sent legal documents to your legal representative to sort out all the legal requirements. So, after a few days, depending on your legal representative, you can schedule an appointment with your lawyer to pick up the finalized form.
- The equity bank makes the funds available
After the bank has received all documents relevant to the loan, including your loan application forms and your legal documents form—which your legal representative must have sent—the equity specialist will inform you whether the loan has been approved or declined by the loan bank.
Once the loan is approved, the equity specialist will notify you of the reverse mortgage fund availability and provide details on how to access it. However, if for any reason the loan was declined, the equity specialist will state clearly why the loan was not approved.
A reverse mortgage fund represents alternative means of generating money for middle-aged Canadian homeowners. Compared to other home equity loans, a reverse mortgage fund is preferable because the homeowner doesn’t have to think about monthly repayment. Also, the loan condition makes it mandatory that homeowners retain title to the home as long as they remain in the house.
In addition, the homeowner or their estate can benefit from the increase in value of the home after the sale. In some cases, the homeowner’s heirs may choose to pay off the mortgage to keep the house. Want to find out more about reverse mortgages and how you can get started? Visit this page.