How does a reverse mortgage work? 

A reverse mortgage is a loan that uses your home as collateral (just like any other mortgage). But what makes it unique is that there are no payments during the term of the loan. When you get a regular mortgage, the bank expects you to make payments; one portion of which goes towards paying the interest and the other portion going towards paying down the principle. In the case of a reverse mortgage, the interest payments are added to the mortgage. The bank will collect the interest on the mortgage if or when you sell your home. This allows you to live off the equity in your home without making payments. 

Why would anyone want to do this? Isn't it expensive?

If you need to supplement your income or you need a lump sum of money for some other purpose (like a grandchild's education for example) and you can't afford mortgage payments or you would prefer not to make mortgage payments, this would be an ideal product. Of course there may be cheaper ways of borrowing money like refinancing your home, but then the goal of a regular mortgage would be to pay it down and this will reduce your cash flow. So you may pay a slightly higher rate, but you enjoy the freedom of not making payments. 

How much do I qualify for? 

That depends on your age, the value of your home and the location of your home. If you contact us we can provide a free assessment. Generally speaking, the older you are and the more value you have in your home, the more you will qualify for. The minimum age is 55 and the maximum amount you can borrow is 55% of the value of your home. 

How do I know how much my home is worth? 

One of the first steps of the reverse mortgage will be to have your home appraised by a professional and certified appraiser. 

What if I have an existing mortgage on my home?  

Your existing mortgage can be paid off from the proceeds of the reverse mortgage. There are rare instances where both a regular and a reverse mortgage will exist on the same property. 

Do I need to have good credit or income to qualify for a reverse mortgage? 

When qualifying for a reverse mortgage, they mainly look at the value of your home. However, they will consider your credit if you have had a previous bankruptcy for example. They will check to see if you have some tax arrears which can usually be paid off from the proceeds of the second mortgage. They will also check if you have a sufficient income source or savings to cover ongoing expenses such as property taxes. 

What are the costs involved? 

Of course, when you move or sell the home, you will need to pay the bank back the amount that you borrowed plus the interest that accrued during the period of the loan. There are also some costs up front to set up the loan in the first place: 

1. Appraisal: the bank needs to check the value of the home. The appraisal will cost you usually around $300-400. This must be paid up front. 

2. Your lawyer: you will need a lawyer to represent you which usually costs around $600 depending on how much work they need to do. This cost is usually deducted from proceeds of the reverse mortgage. 

3. Lender's legal and administrative fees: $1750 which is also deducted from the proceeds of the loan.