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Let's start with what is true.
Yes, it is more costly than a normal mortgage! If somebody qualifies with a normal mortgage with payments the rate today (Feb 9/2022) is around 2.99% for a fixed mortgage for 5 years. A secured line of credit is around Prime 2.45+ plus .50% or 2.95%.
A Reverse Mortgage fixed rate can be anywhere from 4.39-6.49% depending on the plan and term chosen.(Feb 9/2022) A floating-rate mortgage could be as low as 4.24-4.64%.(Feb9/2022)You do pay a rate premium for the advantage of having no payments and for also having way fewer qualification standards than a normal mortgage. Fact is, some people would not qualify for a normal mortgage today under the Government's strict qualification guidelines.
The cost to process a normal mortgage would approximate $2000 to $2500, including legal fees, appraisal. The costs are normally built into the mortgage. A Reverse mortgage can cost $3500-4500 depending on the product. The cost of an appraisal and independent legal advice would be included and these costs are normally built into the mortgage. The appraisal may be the only cost you may have upfront. There, that is the only truth.
Is it worth the extra cost?
Maybe, maybe not!
You will find out in Part Three!
P.S.- One couple did it 4 years ago and would have given up a huge equity gain if they had. Their gain in value and their lifestyle heavily outweighed their cost and they plan to renew their Reverse Mortgage next year.
Now let's talk about some of the things that are not true.
1)Your mortgage can go into default if you don't make payments!
Fact!-There are no payments! Sounds strange to anybody who has had a mortgage previously but the equity in your home pays for the interest costs. Your only responsibility is to live in the home, pay the property taxes and maintain the property.Yo do have the option of making interest payments if you wish but no payments are required.
2)Fact!-No one has lost their home due to a Reverse Mortgage in the 30 -year history of Reverse Mortgages in Canada. There is a" No Negative Equity Guarantee" built into every mortgage.
I like that!
3)Fact!-You will see advertising saying you can get up to 55% of the value of your home. Reality-You get much less money from a Reverse Mortgage than you would in a normal mortgage. The average Reverse Mortgage would be somewhere between 35-40% of the value of your home depending on your age and the type of product you choose. The older you are the higher the percentage of value. Because the interest cost accrues within your mortgage the lower lending value ensures the growth of the Reverse Mortgage will not exceed your home’s value as in #2 above.
4)Fact! -the Bank does not own your home. You maintain title and ownership. Your responsibility is to pay the property taxes, insurance, maintain the home and reside in it.
5)Fact!-If you die the Bank does not take your home. There is no change to the status of the reverse mortgage as long as the surviving spouse occupies the home.
Those are the 5 "Biggies"
On the question of the last resort, The Reverse Mortgage is but one option of many financing scenarios but some people may not qualify for a normal mortgage due to the restrictive government approval guidelines. Some people may not want payments. Some people may not want to cash in investments or savings.
To some people, it is a lifesaver in a difficult financial position that alleviates financial stress at a time when they should be enjoying their life.
A Reverse Mortgage in Canada provides the best peace of mind of any other mortgage product in the market. Even though I will do my best to ensure you know what you are doing the lender will not let you proceed until you obtain independent legal advice to ensure you understand the process, costs, and the product.
I like that!
Ok, at this point you still should be gathering more information. Now find out in "Part Three", why people are discovering there is value in a Reverse Mortgage to help them plan for the future. Why would someone want a Reverse Mortgage?
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