For many people, a home is one of their most significant investments. The only problem can be how to tap that investment. Selling your home and moving somewhere else is one of the options, but this is a tough decision for many people.
If you have entirely paid off your mortgage, a reverse mortgage can be an ideal option. But before you find traditional or private lenders in Vancouver that offer reverse mortgages, you need to understand how a reverse mortgage works and if you are eligible for it.
In this article, we discuss everything you need to know about a reverse mortgage, including:
- What is a reverse mortgage?
- How it works
- Reverse mortgage eligibility
- Benefits of reverse mortgage
Let’s delve into them.
What Is a Reverse Mortgage?
A reverse mortgage is a type of loan offered to seniors who are 62 years and above, and have an adequate amount of home equity. This money is not taxable since it is considered loan proceeds and not income. Usually, the funds can be received as a lump sum or fixed monthly payment.
Unlike normal mortgages [used to buy a home], with reverse mortgages monthly payments are optional. However, someone will have to pay the loan back when you move out of the house permanently, sell the home, or die. That could sometimes mean selling the house to repay the loan.
How The Reverse Mortgage Works
With a reverse mortgage, the interest is typically rolled into the loan balance so that the homeowner does not pay anything upfront. And the best thing about the reverse mortgage is that the homeowner will still keep the title of the home. However, it is worth mentioning that with the reverse mortgage, throughout the period of the loan’s life, the homeowner’s debt will be increasing while the home equity decreases.
The home is the collateral of the reverse mortgage. So when a homeowner sells the home, moves elsewhere, or dies, the proceeds from the home’s sale will repay the loan including its principal, interest, insurance, and fees.
Reverse Mortgage Eligibility
Not everyone who is eligible for a home equity loan or alternative mortgage is also eligible for a reverse mortgage. To qualify for a reverse mortgage, you must:
- Be 62 years and above
- Maintain your home and make sure it is in good condition
- Keep up with your property taxes
- Living at the home
- Pay your home insurance
- Have an adequate amount of equity [usually 50% and above]
Benefits Of Reverse Mortgages
Here are the top benefits of a reverse mortgage:
- Homeowners don’t have to pay monthly mortgage payments, which can be so draining and affect their cash flow
- Homeowners are spared from foreclosure
- Homeowners can get a lump sum and spend it as they wish
If you are interested in getting a reverse mortgage you should know that traditional lenders like banks or credit unions are not your only option. You can also work with private mortgage lenders in BC, which will make the entire process faster and easier.