How Do Interest Rates Affect Reverse Mortgages
The current interest rate environment has a direct effect on the available reverse mortgage principal limit. The higher the interest rate, the lower the available proceeds to the borrower. In 2021 you will see variable rates offering larger payouts over fixed programs as the expected rates on adjustable rates produce a higher principal lending limit.
Are Low Frills Mortgages Worth It
Restricted mortgages have boomed in popularity the last five years. Lenders realize that consumers want the lowest rate, so theyve tried to strip out features from their mortgages to get the pricing lower. For some borrowers who plan no financing changes for five years, low-frills mortgages may make sense. For most Canadians, the small rate savings isnt worth the much higher potential costs after closing. Those costs can bite you if you break, port, increase or otherwise refinance before your mortgage maturity date. Hence, for the majority of homeowners, its worth the small premium for a full-featured mortgage
What Are The Advantages Of A Reverse Mortgage
- A reverse mortgage is different from a typical loan because it does not require regular payments to be made on the loan
- The ability to withdraw cash from the value of your home without having to sell it.
- The payment from the reverse mortgage is entirely TAX-FREE
- The money from the mortgage does not reduce your eligibility for Old-Age Security or Guaranteed Income Supplement benefits
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Reverse Mortgage Fixed Rates
- Payment options: Single lump sum disbursement.
- Interest rate:Fixed rate for the life of the loan. The interest rate remains the same for the life of the loan but requires a single lump sum disbursement at the time of closing.
If you are using the reverse mortgage for a new home purchase or are already taking most of your available funds at closing to pay off another mortgage balance you might find this plan the most appealing.
Weigh The Pros And Cons Of Features For Your Reverse Mortgage
The borrower has the option to draw regular monthly payments from the reverse mortgage. However, in practice, this option is rarely used.
Most borrowers are now establishing a line-of-credit instead. This way funds are there for you if you need them you just have to ask. The benefit of the LOC is how it grows in two ways: at the natural interest rate, and when the borrower makes voluntary prepayments.
The LOC safety net is nice, but use it judiciously because youre borrowing funds from a financial institution and those distributions will accrue interest.
However, the line of credit is generally considered the safest, and most financially prudent, option. Not only does the available LOC grow at very nice rates, the emergency fund can be used for many financial planning purposes.
Just be sure if you opt for the line of credit to review the terms carefully.
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How Do Proprietary Reverse Mortgages Work
With a proprietary reverse mortgage, your proceeds come from your homes equity. The loan first pays off your current mortgage, then any remaining proceeds are provided in a lump sum that you can use for anything and are nontaxable. You must continue to pay your property taxes and homeowners insurance and maintain your home and your name stays on the title of the home.
Because theyre not federally-insured, most proprietary reverse mortgages dont require upfront mortgage insurance or monthly mortgage insurance premiums. However, they often come with higher interest rates.
What Are The Disadvantages Of A Reverse Mortgage
- Reverse mortgages have higher interest rates compared to typical mortgage rates or home equity lines of credit
- The various costs associated with the process include:
- Upon death, your estate is responsible for the costs, which could leave very little for your beneficiaries
- There is risk that the time required to settle an estate can exceed the time required to repay the reverse mortgage
- Your equity in your home decreases over time while interest on the reverse mortgage accumulates
*Note that the closing costs and administrative fees will be deducted from the funds, i.e. you will not have to pay out of your pocket
According to statistics provided by HomEquity Bank, the average applicant is approximately 72 years old and borrows an average of 36 per cent of the equity in their home. After the home is sold and the reverse mortgage paid off, the average amount of equity left in the home is close to 50 per cent.
Qualifying for a reverse mortgage
Steps to acquire a reverse mortgage
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Who Needs A Proprietary Reverse Mortgage
To qualify for this type of loan, you must be 62 or older, have enough equity in the home and use the home as a primary residence. You can own your home free and clear or have an existing mortgage.
A proprietary reverse mortgage may be a better fit for some borrowers than others. Those types of borrowers may be homeowners with a primary residence valued over $822,375, who want to get the most proceeds possible or just want to avoid paying FHA insurance and counseling fees.
If you match this type of borrower, you should still research all of your options, including other reverse mortgages and alternative loan options, and shop around for the best loan terms.
Home Equity Loan Or Home Equity Line Of Credit
A home equity loan is a second mortgage thats secured by the borrowers home equity and paid out in a lump sum. Similarly, a home equity line of creditor HELOClets homeowners borrow against their equity up to a certain limit and access those funds on an as-needed basis. This means you only pay interest on your current balance, not a lump sum loan.
In contrast to a reverse mortgage, you will have to make monthly payments, and lenders will evaluate your income and credit when reviewing your application.
What Is The Best Reverse Mortgage Rate
The answer to that depends on what term you prefer. A 5-year fixed reverse mortgage rate, for example, is usually at least two-thirds of a percentage point greater than a variable or 1-year fixed. The longer the term, the higher the rate.
Given the same term, however, theres not much difference in rates between lenders . Thats because theres very little competition in Canadas reverse mortgage market. The two leaders in the industry, HomeEquity Bank and Equitable Bank, price very close to one another so as to maximize margins.
Below are some of the more frequently asked questions about reverse mortgages
What Is The Pension Loans Scheme
The Pension Loans Scheme is an Australian Government initiative that helps pensioners and self-funded retirees receive an income boost. It is a voluntary reverse equity mortgage scheme that allows Australians to receive a non-taxable supplement secured by the value of their homes. It works in the same way as a typical reverse mortgage, with compound interest, and the loan can be repaid in increments at any time or in full when the property is sold. Further information is available on the Services Australia website.
Before taking out a reverse mortgage, it is important to understand the impact it will have on your financial future and your retirement. It is also important to keep in mind that if you pass away with money owing on a reverse mortgage, the balance of the money owing will need to be paid off to settle the loan. According to Moneysmart, reverse mortgages taken out in recent years in Australia have negative equity protection, so the amount that ends up being owed to a lender cannot exceed more than a home is worth .
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Why We Recommend Reverse Mortgage Funding
RMF is one of our top picks for 2021 not only because it is an NRMLA member it is also one of the relatively few top lenders who guarantee consumers that it will never pass servicing of a reverse mortgage loan to another lender. Borrowers who begin a reverse mortgage loan with RMF stay with RMF, and its all part of its Customer for Life program.
Another aspect of the Customer for Life program that stands out for us is RMFs price match guarantee. It aspires to match the estimates quoted to applicants by other lenders, and agents also provide detailed estimates of their quotes in writing so that, should another lender offer a better option, consumers can easily take part in those other lenders price matching programs with an RMF estimate in hand.
What Customers Are Saying
This lender has an A+ rating with the Better Business Bureau and has been reviewed as having a particularly consumer-friendly service ethic. Jolyn O., writing on the Better Business Bureau website, stated that RMF exceeded her customer service expectations: I am so grateful that I chose to work with Reverse Mortgage Funding and in particular, Jason M*********y, who far exceeded any expectations I had for a loan specialist. Jason and his team were informative, kind, patient and ultra-professional.
Mortgage information documentation was excellent, and he spent a lot of time with me explaining my options. All my questions were answered within 24 hours usually much less.
Getting The Best Mortgage Rates In British Columbia
Thanks to some beautiful countryside, some of the most livable cities in the world, as well as a busy local and tourist economy, British Columbia is home to a vibrant mortgage and real estate industry. If you’re looking for a mortgage in BC you have plenty of products and providers to choose from, but we can help make that choice easier.
At Ratehub.ca, we help you find and compare the best rates from the Big 5 Banks, small banks, credit unions, and BCâs best mortgage brokers, at no cost to you. Using our rate tables, you can compare the most current mortgage rates instantly, all in one place. By comparing the best mortgage rates in BC, you could save yourself thousands of dollars.
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Beware Of Fake Reviews
Read the reviews of actual customers online.
Do not rely solely on online sites that generate leads for companies, their reviews can be bought and sold making them less trustworthy.
Go to honest third parties like the BBB or Google Ratings, where ratings are consumer generated and cannot be influenced by the lender.
Look for problem issues that are constant and recurring and realize you may want to steer clear of those originators.
Understand your needs. This loan is all about you, not the lender.
The key to a successful reverse mortgage is getting the right loan the first time and the right loan is the one that addresses your specific circumstances.
At All Reverse Mortgage, we prefer to give you enough information to make an informed decision not sell you a loan program that doesnt fit your needs.
How Much Can I Borrow For A Reverse Mortgage
For conventional mortgages, the maximum amount you can borrow is governed by each lenders affordability criteria. With a reverse mortgage, the maximum amount you can borrow will depend on your age, health and the value of your property.
The older you are the more you are able to get, therefore, an applicant who is 78 will be able to borrow more than someone who is 59. Much like with pension annuities, an individuals perceived mortality will determine how much a lender will allow them to borrow.
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Who Would Need A Reverse Mortgage
A reverse mortgage allows elder homeowners to obtain cash, without selling their largest asset their home. It can be used as a financing plan for retirees who find themselves house rich but cash poor. The borrower can choose how they want to receive the payment from the reverse mortgage. There are three possible options:
- Receive a lump sum payment
- Scheduled advances to simulate regular income
- A combination of both
To be eligible, homeowners must be at least 55 years old.
Avoiding Reverse Mortgage Scams
Government-backed reverse mortgages are generally very safe. But many of the ads that consumers see are for reverse mortgages from private companies. When working with a private lenderor even a private company that claims to broker government loansits important for borrowers to be careful.
Here are some things to look out for, according to the FBI:
- Dont respond to unsolicited mailers or other ads
- Dont sign documents if you dont understand themconsider having them reviewed by an attorney
- Dont accept payment for a home you dont own
- Be wary of anyone who says you can get something for nothing
In many cases, these scams get unwitting homeowners to take out reverse mortgages and give the money to the scammer. In other cases, scams try to force homeowners to take out reverse mortgages at onerous interest rates or with hidden terms that can cause the borrower to lose their property.
Variable Rate Reverse Mortgages
The less popular, but oftentimes the more flexible option, is the variable rate. Just as the fixed rate is fixed for the loan period, a variable rate varies throughout the loan period. There are pros and cons to variable rate reverse mortgages:
- They come with more disbursement options then a fixed rate loan. Borrowers may choose between a line of credit, monthly payments, a lump sum, or a combination of the three.
- Interest is only charged on funds that have been withdrawn. This means that, if you have a line of credit that you rarely use, you will only be charged interest on the amount withdrawn.
- Unused lines of credit may also grow with time, allowing the borrower even more flexibility in the amount available for them to borrow.
In general, variable rates are best for borrowers who plan to use their reverse mortgage funds over time, or in rare instances. In this way, borrowers may use it to add to their existing fixed income every month, to supplement their other retirement accounts, or as a stand by account so money is readily available in the case of an emergency.
What Is The Minimum Age For A Reverse Mortgage
Reverse mortgages are available to those aged 55 and older.
The loan amount depends heavily on your age and mortality tables, kind of like life insurance. Other things equal, the older you are, the more money you can get.
At the minimum age of 55, the approved amount will often be just 15-20% of your home value. For the maximum loan amount, all homeowners generally need to be over 80 years old.
In most cases, unless youre well over 80, youll also get a slightly higher loan amount if youre a single homeowner.
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How To Know If A Reverse Mortgage Is Right For You
Retirement is expensiveand its only going to get worse. Inflation aside, several factors, including a lack of sufficient funding for programs like Social Security and Medicare and a lengthier average life span, are making Baby Boomers lose much of their confidence in retirement.
Only 17% of Boomers who have retired or are approaching retirement are very confident they will have a comfortable time of it, according to Legg Masons 2018 Global Investment Survey. The study shows that this lack of certainty is fueled by a realization that the traditional three-pronged approach of savings, pensions, and Social Security simply wont be enough to live comfortably.
Reverse mortgages have been suggested as a possible solution to the problem, though they cant possibly solve the issues of all current and prospective retirees. A total of only 48,359 HECMs were issued in 2018, while at least 10,000 people reach retirement age daily. However, for consumers that are well situated to make use of the loan, it can be a powerful tool. So, how can you tell if a reverse mortgage is the right choice for you or a loved one?
If you still arent sure of whether reverse mortgages are the right product for you, ask yourself the following:
Are you scared of struggling during the latter years of your retirement due to a lack of money?
Do you need a short-term injection of cash to offset certain expenses?
Do you expect to live in your home until you pass away?
Considering A Reverse Mortgage Heres What You Need To Know
By Alexandra Macqueen on November 4, 2019
While a conventional mortgage advances you funds in order to buy a house, a reverse mortgage is just the opposite: It advances you funds from the house you already own. In this era of declining pensions, increased longevity and costly long-term care, are reverse mortgages a godsend? Or are they another symptom of growing debt?
More than ever, Canadians are relying on reverse mortgagesa dont-pay-till-you-die option to create cash flow from the equity in your homeand the trend is turning conventional wisdom about debt and retirement on its head. While past generations fought hard to avoid debt in their golden years, data from the Office of the Superintendent of Financial Institutions the federal government agency that supervises and regulates banks, insurance companies, and trust and loan companiesconfirms that reverse mortgages are on the rise in Canada, with $3.78 billion in reverse mortgage debt outstanding in July 2019, just over 26.24% higher than the same month last year.
But given rising home values and rock-bottom interest rates, perhaps the conventional wisdom about reverse mortgages is due for an update. Are reverse mortgages a symbol of everything thats wrong with Canadas debt-obsessed citizenry, or a rational solution in an era of declining pensions, increased longevity and costly long-term care?
Theres a lot to consider, so this explainer will take you through the ins and outs of reverse mortgages.