Many homeowners are familiar with HELOCs or mortgage refinancing when accessing home equity. But what if we told you an entirely different process allows you to access your home’s equity without monthly repayments? That’s what a reverse mortgage is.
Unlike a conventional mortgage that requires monthly payments with interest, a reverse mortgage offers a unique approach. In this blog, we’ll explore the concept of buying a house with a reverse mortgage.
Using a Reverse Mortgage to Buy a House
Here’s a tip: you can use a reverse mortgage to buy a house. This may be surprising, but this financial tool can function as a form of purchase mortgage, enabling you to acquire a new home without the requirement of traditional monthly payments.
How do you Buy a House with a Reverse Mortgage?
Using a reverse mortgage to purchase a home is simple and can be a wise financial decision during retirement. Here are three ways you can utilize a reverse mortgage to buy a new home:
1. Your First Home Purchase
Are you a first-time home buyer or a retiree with solid retirement savings but no home to call your own? With a reverse mortgage, you can take a step towards homeownership.
For example, if you’re eyeing a $300,000 home, but your savings fall short, a reverse mortgage can help you bridge that gap. The advantage? You achieve homeownership, enjoy security, and leave concerns about rising rent expenses behind.
2. Downsizing with a Reverse Mortgage
Some retirees find their current home too large and opt for a smaller place nearby.
Opting for a reverse mortgage to purchase your new home can help you retain a larger portion of the proceeds from selling your previous property.
3. Acquiring a Second Home or Vacation Property
Fulfill your dream of having a vacation property in retirement with a reverse mortgage. Suppose your mortgage-free home is worth $600,000, and you want to buy a vacation property.
You can use a reverse mortgage to contribute to the cost of the second home. Relish your vacation property during your retirement years and reap the rewards of its potential value appreciation when you decide to sell down the road.
Who Offers Reverse Mortgages in Canada?
In Canada, two providers primarily offer reverse mortgages: HomeEquity Bank (since 1986) and Equitable Bank (established in 1970). Both operate as Schedule 1 banks without physical branches.
HomeEquity Bank’s reverse mortgages are available directly through major Canadian banks, select credit unions, mortgage brokers, and financial planners.
In contrast, Equitable Bank’s reverse mortgage products are exclusively offered through independent mortgage brokers. HomeEquity Bank offers reverse mortgages in all Canadian provinces except the territories, while Equitable Bank lends only to homes in specific areas of British Columbia, Alberta, Ontario, and Quebec.
TurnedAway is ready to walk you through every step of the process, ensuring that you make a well-informed decision that perfectly matches your financial aspirations.
How Does a Reverse Mortgage Work in Canada?
In Canada, a reverse mortgage is a way to unlock the equity in your home, but it works a bit differently than traditional mortgages:
1. Debt Settlement
Before you can proceed with a reverse mortgage, you’ll need to settle any existing loans associated with your home, like a mortgage or HELOC. This clears the path for the reverse mortgage process.
2. Payment Options
A reverse mortgage gives you options: a lump sum or regular payments, which you can use for various expenses like home improvements. These payments aren’t taxable income; they’re borrowed funds.
3. Tax-Free and Benefit Friendly
The money you borrow through a reverse mortgage is tax-free and does not impact benefits like Old-Age Security or Guaranteed Income Supplement.
4. Higher Interest Rates
Reverse mortgages typically carry higher interest rates than traditional mortgages, which means your home equity diminishes gradually. These distinctions highlight the distinctiveness of reverse mortgages, rendering them a valuable financial instrument for homeowners aiming to tap into their homes.
How to Get a Reverse Mortgage in Canada?
Getting a reverse mortgage in Canada involves a straightforward process:
1. Start with the Online Application
Begin by completing an online application with providers like CHIP and Equitable Bank. This application typically involves answering basic questions about your personal and financial information. Afterward, you’ll receive an immediate estimate of how much you can borrow.
The lender will get in touch to address your inquiries and gain insight into your financial circumstances. Unlike traditional mortgages in Canada, you won’t need to provide proof of income or a down payment.
However, the lender will inquire about any existing reverse mortgage loans registered on your property. If there are other loans, you’ll likely use the reverse mortgage funds to pay them off.
3. Finalize the Details
The lender collaborates with you to iron out the specifics of the reverse mortgage agreement.
When it comes to receiving payments, you’ve got flexibility.
You can opt for regular payments, take them as needed, or go for one lump sum. Plus, you can even combine these choices; for instance, start with $50,000 upfront and get $5,000 every six months.
4. Repayment Terms
One distinctive aspect of a reverse mortgage is that you don’t need to make payments until the last registered homeowner leaves the property.
Getting a reverse mortgage in Canada is a simple process that can provide financial flexibility in your retirement years.
Buy Your Dream Home with a Reverse Mortgage – Apply Now!
Utilizing a reverse mortgage for a home purchase is a substantial decision that requires a deep understanding of its consequences and advantages. We strongly recommend seeking professional advice and assessing how this choice aligns with your unique situation and objectives.