IS A REVERSE MORTGAGE THE BEST STRATEGY?
A reverse mortgage is a financial option that enables homeowners, typically aged 55 or older, to tap into their home’s equity without selling their property. Instead of making regular payments to a lender as with a conventional mortgage, a reverse mortgage provides payments to the homeowner. This can be an appealing choice for retirees seeking to enhance their income while remaining in their home.
How Does this type of Mortgage Work?
A reverse mortgage allows homeowners to borrow against their home’s value. Repayment is deferred until the home is sold, the homeowner moves out, or they pass away. Throughout the loan term, the homeowner retains ownership and can continue living in the home, provided they meet responsibilities like paying property taxes, maintaining home insurance, and keeping up with general upkeep. The funds can be received as a lump sum, a series of monthly payments, or a line of credit, depending on individual preferences.
Eligibility for a Reverse Mortgage
In Canada, homeowners typically need to meet the following criteria to qualify for a reverse mortgage:
- Be at least 55 years old
- Own their home outright or hold substantial equity in it
- Use the property as their primary residence
The amount available to borrow is based on factors such as the home’s market value, location, and the homeowner’s age.
REAL LIFE EXAMPLE: A STRESS-FREE DOWNSIZING SOLUTION
Realtor: Tyler Waldron, Royal LePage Northstar Realty
Mortgage Broker: Greg Horvath
Recently, Tyler and Greg worked with a client who was looking to downsize but didn’t want the stress of selling her home before knowing where she was going to buy. She had her eye on a Master On The Main townhouse, but these properties are in short supply.
Instead of rushing into selling her home, she opted to use a reverse mortgage, with the logistics masterminded by mortgage broker Greg Horvath. This allowed her to secure financing for her new purchase without listing her home right away. Once we found the perfect townhouse for her and her offer was accepted, we listed her home, negotiated quick closing dates, and minimized her reverse mortgage interest to just three weeks’ worth of payments.
Benefits of This Approach
– Flexibility: A reverse mortgage provided the freedom to buy before selling, which gave her the time to find the perfect property without feeling pressured.
– Cost Savings: By negotiating quick closing dates, we kept the interest on the reverse mortgage to a minimum, significantly reducing her financial costs.
– Reduced Stress: She avoided the anxiety of needing to sell first and then scrambling to find a new home, a common concern for downsizers.
The Process to Secure a Reverse Mortgage
If you’re considering a reverse mortgage, here’s how the process works step-by-step:
1. Schedule a Consultation with Tyler Waldron & Greg Horvath
Start by booking a meeting with Tyler Waldron, your trusted real estate agent, and Greg Horvath, an experienced mortgage broker. Together, they will review your situation and determine the market value of your home.
2. Submit Necessary Documents
Just like any other mortgage approval, you’ll need to gather and provide the necessary documents to start the approval process.
3. Obtain Mortgage Approval
Once the paperwork is in, Greg will work on securing your reverse mortgage approval, setting you up for your next move.
4. Begin House Hunting
With your financing in place, Tyler will guide you through the search for your new home, helping you find the perfect property to downsize into.
5. Submit Your Accepted Offer to Greg
Once you’ve found the right home and had your offer accepted, Greg will take care of the financing logistics, ensuring a smooth transition.
6. Remove Subjects
With financing secured, you’ll proceed with removing subjects on the offer, making your new home purchase official.
7. List Your Current Home
Once your new place is secured, Tyler will list your current home for sale, strategically planning the process to minimize stress and overlap.
Things to Consider with Reverse Mortgages
– Interest Accrual: Interest on the reverse mortgage compounds over time, increasing the loan balance. However, as seen in this case, a short-term reverse mortgage can help minimize these costs.
– Impact on Inheritance: Since the loan is repaid from the sale of the home, this could reduce the amount of equity passed on to heirs.
– Fees: Reverse mortgages often come with higher upfront fees, including legal, appraisal, and administrative costs.
Is a Reverse Mortgage Right for You?
A reverse mortgage can be a powerful tool for homeowners seeking financial flexibility, especially those who want to downsize or need additional cash flow. If you’re considering this option, Tyler Waldron and Greg Horvath can provide expert advice tailored to your needs. Contact us today to explore how a reverse mortgage might fit into your real estate plans.
