Reverse Mortgages - Is this a good deal?

As our population ages and mortgage rules are tightening I have noticed a substantial increase in clients asking about and considering a reverse mortgage as an option for financing.

It's really important to review all your options before setting one of these up.  They can be very beneficial for the right client, but other options may be better initially.  As a broker I can help with regular mortgages, lines of credit and reverse mortgages, therefore, I can show you the advantages and dis-advantages of each.

The reverse mortgage is really designed for a home owner who is 55 years or older.  The amount of money you will get from a reverse mortgage is directly dependent on your age and the value of your home.

The younger you are, the less equity you will have access to and therefore the older you are the more equity you will have access to.  The maximum equity is calculated at 55% of your home's value at age 78.

For example, If you are 78 years old and own a home worth $500k with no mortgage, then you could set up a reverse mortgage for $275,000 (55% of $500k).  You have a couple of options with this.  You could choose to take this as a 1 lump sum payment of $275,000 and use the money to pay off debt, or go an a holiday, or renovate your home, or invest the money to increase your income.

Another option you could choose with the reverse mortgage is monthly payments.  You could choose to receive $2,300/month for the next 10 years to supplement your pension income.  A third option could be a combination of lump sum payment and monthly income.

Once you set up the reverse mortgage you don't have to make any payments back to the bank but you can if you wish.  As your home increases in value, you can ask the bank to increase the amount of the reverse mortgage available to you.  Your home is always in your name, the bank registers a mortgage (reverse mortgage) on title and when you sell your home, the bank gets paid and you receive the balance of the equity, just like any other mortgage.

If you or a family member is considering a reverse mortgage, or want to know more about how they work, I'm happy to review the options with you.

I believe that it's best to make these decisions with all the facts.  Give me a call or email and we can schedule a time to review.