When you bring up the topic of reverse mortgages with a friend or family member, often times their reaction is that of uncertainty. They may have heard negative stories about reverse mortgages. Much of what we hear actually stems from stories out of our U.S. neighbours to the south. Their lending policies and practices are very different from ours in Canada. We have one of the safest banking systems in the world thanks to our rigid federal mortgage rules. Here are the top 5 misconceptions about reverse mortgages in Canada.
Myth #1: The reverse mortgage will be more than my house is worth.
Fact: Conservative lending guidelines only allow you to borrow a maximum of 55% of your home’s value. Did you know that the value of your home would have to grow at half the interest rate of the mortgage for you not to lose any equity?!
Myth #2: The interest rates are high
Fact: Interest rates are higher than that of a “regular” mortgage because the lender does not require payments. The bank must wait to collect their principal and interest until you decide to move or sell.
Myth #3: I cannot get a reverse mortgage because I already have an existing mortgage from my bank.
Fact: you can still get a reverse mortgage. The new funds are first used to payout your existing mortgage and the remainder goes to you. You will end up with only one mortgage which require no monthly payments.
Myth #4: A Home Equity Line of Credit (HELOC) is a better option.
Fact: HELOC’s are great if you qualify and only need the funds for a short period of time. Less than one year is ideal. The downside is that HELOC’s require monthly payments that can change based on the banks prime lending rate. The loan is also “callable” meaning that the bank can demand full payment of the balance at anytime.
Myth #5: My surviving wife/husband will be stuck paying the loan after if I pass away.
Fact: Your surviving spouse can remain in the home for as long as they choose and without having to make a single mortgage payment.