Reverse Mortgage Loans Blog

Canadian Home Income Plan

The housing marketing in Toronto has increased considerably as new housing assessments show that the property originally purchased is now worth considerably more than this purchase price. However, with houses consisting more, the property tax to be paid on these houses has increased as well.

Yet according to the Canadian Home Income Plan, many people especially seniors can use the equity in their homes to help pay impending bills.

It is being recommended by Patricia Lovett-Reid, Senior VP of TD Waterhouse as a “legitimate funding strategy for people 60 and above who want to stay in their home”.

Usually many people choose either a 6 month or 1-3 year term, with 6.95% interest on the 6 month term, or 8.25% interest on the 3 year term. Based on this strategy, homeowners are able to receive $20,000-$50,000 tax free, and this amount is paid back when the house is sold or if you die.

Advantages and Disadvantages Of A Reverse Mortgage

Anyone interested in a reverse home mortgage should know that it is something to consider only after carefully reviewing it advantages and disadvantages.

Moreover, a revere mortgage allows people to borrow against their real estate property. Their home equity is a great way to receive a loan from a bank. The amount of the loan is paid on a monthly basis until the full mortgage borrowed is released.

If the property is sold, the bank’s loan is due in full plus the interest and any closing costs associated with the reverse mortgage.

A reverse mortgage has its advantages that it allows people who do not have money for everyday essentials but own a house, the ability to borrow money based on their property.

However, it has a few disadvantages such that the upfront fees associated with it are high, almost 10% of the amount borrowed. As well, the “due on transfer” clause states that the loan must be paid immediately when ownership of the house changes. Therefore, if the person dies, the family house might have to be sold to repay the loan.

Elderly Encouraged To Get A Reverse Mortgage

A reverse home mortgage might just be what some senior citizens can obtain to help themselves climb out from underneath those piles of bills.

A reverse mortgage would allow a senior citizen to borrow equity against the value for their house. As long as they live there, they will not have to pay back the loan, and can use the money to pay bills or finance other projects. They money is given as one sum and is available tax  free.

Usually there is only a small amount of criteria needed to qualify, however, if the senior citizen dies or decides to leave their home, the loan will become due.

Anyone considering a reverse loan should read the fine print, as there might be other costs associated with the loan, such as insurance or closing costs that must be factored in.

Home Equity Conversion Mortgage Market Growing Quickly

Due to rising fuel and engery costs many baby boomers are struggling to keep up with living costs. Some of the early boomers are taking out reverse mortgage loans to make life more comfortable or improve their homes. Others decide that to better enjoy their retirement they would like to go on vacation or get a new car.

Most reverse mortgage loans have been taken out in California, where real estate prices have climbed significantly over the last decade. The reverse mortgage loan market is growing quickly nationwide though, and over 90% of reverse mortgage buyers are opting for Home Equity Conversion Mortgages.

Reverse mortgages have grown over 500% in the last 5 years. Why are they so popular?

"The wonderful part of a reverse mortgage is that it is a financial planning tool that effectively takes an illiquid asset and turns it into a liquid one, without tax consequences of selling stocks" or other investments, said Jim Mahoney, chief executive of Financial Freedom Senior Funding Corp.

The scope of use is greatly changing. Reuters also reports that some people have went so far as to use their reverse mortgage to buy airplanes.

Uses of home equity are adapting to new borrower profiles.

"When our typical borrower was a widowed female it was more of a needs-oriented loan," said Bell.

"We've seen it become more of a security-oriented loan," he added. "People don't necessary need the money to make ends meet day to day but want to set a stand-by reserve should they need it. Or people are getting by OK and they'd like to add an element of discretionary spending."

Tom Hardington, an 85-year-old retiree and WWII aircraft mechanic from Munhall, Pennsylvania, used part of his reverse mortgage to fulfill a dream: buying a 1966 Cessna 172 plane.

What is a Reverse Mortgage Home Loan?

A reverse mortgage is a tax free loan for seniors above the age of 62. Reverse mortgages allow you to convert some of the equity of your home into income without having to sell you house or take on additional expenses (like those associated with a second mortgage).

Typically you only have to pay back the loan when you sell the home, no longer live there as a primary residence, or when the last surviving borrower dies.

HECM reverse mortgage loans are federally insured, so if you outlive the value of your home or for some reason the value of your home drops sharply you can't be forced to give up your home.