Debt levels in Canada have been increasing, particularly for people over the age of 50. This trend of rising debt is not new: between 1999 and 2016 alone, the proportion of senior families with debt went from 42%, up from 27% in 1999. In this same period, the number of seniors with mortgage debt doubled. This means if you are over the age of 50 and still have debt or a mortgage, you are not alone. In fact, you are part of a growing group of Canadian homeowners.
With increasing living costs and rising interest rates, the thought of paying off the mortgage faster can seem impossible to retired homeowners living on a fixed pension income. However, tools like reverse mortgages seem to be offering a promising solution to this problem.
In recent years, the popularity of reverse mortgages in Canada has grown, showing a 35% growth in 2022 according to the Office of the Superintendent of Financial Institutions. Despite this uptick, there's still a lack of understanding about reverse mortgages, their benefits, and the potential they hold for Canadian homeowners over the age of 55.
In this article, we’ll show you how a reverse mortgage can be used to pay off your mortgage faster and help you enjoy financial freedom in retirement.
Understanding Reverse Mortgages
Are you nervous or unclear about what a reverse mortgage is? A reverse mortgage is a financial product designed specifically for homeowners over 55 years old, enabling them to convert a part of their home equity into cash.
Unlike a traditional mortgage or Home Equity Line of Credit (HELOC), a reverse mortgage does not require monthly repayments. Instead, the loan and interest are repaid when the homeowner sells the house, moves out, or passes away.
In order to qualify for a reverse mortgage, the eligibility criteria are primarily based on age and property value, rather than income – making it an attractive option for retired individuals or those with lower income.
If you want more information and details about reverse mortgages, we’ve written the most comprehensive guide to reverse mortgages in Canada.
The Benefits of a Reverse Mortgage
Choosing a reverse mortgage brings several benefits that could greatly enhance the quality of life for seniors. Here are a few of the key advantages:
1. Financial Freedom: By tapping into home equity, seniors can reduce financial stress, pay off debts, or fund life-enhancing experiences.
2. No Monthly Payments: As opposed to traditional mortgages or HELOCs, reverse mortgages require no monthly payments. This can significantly improve cash flow and ease budgetary constraints.
3. Stay in Your Home: One of the greatest benefits of a reverse mortgage is the ability to stay in your home while accessing its equity. This means you can continue to live in the home and community you love, without the worry of monthly mortgage payments. Aging in place can become a real option for many retirees.
How to Use a Reverse Mortgage to Pay Off Your Mortgage Faster
One of the most effective ways to use a reverse mortgage is to pay off your existing mortgage. Normally, it might take years to completely pay off a mortgage with traditional monthly payments. However, with a reverse mortgage, you can pay it off immediately.
You're free to use the reverse mortgage funds for any purpose, including paying off an existing mortgage. By doing this, you can improve your cash flow and quality of life dramatically without having to make monthly mortgage payments.
This strategy allows for mortgage-free living, which can bring a tremendous sense of financial relief. Even if your reverse mortgage loan amount is not enough to pay off your mortgage entirely, you may still have options. These options are not available directly from reverse mortgage lenders and are only available from mortgage brokerages like RetireBetter.
If you speak to another mortgage brokerage, make sure they are experienced in reverse mortgages as they are differ from traditional mortgages!
Debunking Myths About Reverse Mortgages
While reverse mortgages offer real benefits to retired homeowners, many myths continue to exist. In our experience, most homeowners simply do not have a good understanding of reverse mortgages. Many times when a client suggests they are familiar with reverse mortgages, we find they are actually referring to facts about American reverse mortgages, instead of Canadian reverse mortgages! Let's address these myths and shed light on the realities of reverse mortgages.
Myth 1: You no longer own your home.
Fact: When you take out a reverse mortgage, you continue to own your home. You can stay in your home as long as you want, and the loan only becomes due when you sell, move out, or pass away.
Myth 2: You can lose all your equity.
Fact: It's a common misconception that you will use up all your equity with a reverse mortgage. The truth is, the majority (99%) of all CHIP reverse mortgages have surplus equity when they are eventually paid off, as reported by HomeEquity Bank, the leading reverse mortgage lender in Canada.
Myth 3: You need to be 62 years old and your heirs could be left with debt.
Fact: These are related to American reverse mortgages. For Canadian reverse mortgages, you need to be 55 years old and get a negative equity guarantee - ensuring that your heirs will never owe more than the value of your home.
There are so many other myths about reverse mortgages, we wrote a full article about them. Bottom line: reverse mortgages are not a scam and are regulated by the government.
The Process of Obtaining a Reverse Mortgage
1. Contact RetireBetter: Reach out to RetireBetter. We are the leading reverse mortgage experts in Canada. Every one of our advisors is a licensed mortgage professional certified in reverse mortgages. We’re happy to provide you with a consultation and assist you in understanding reverse mortgages better.
2. Application: We work with more reverse mortgage lenders than any other mortgage brokerage in Canada! Not sure about whether to get a CHIP reverse mortgage or an Equitable Bank reverse mortgage? We can help you decide (or maybe even suggest a better option!)!
3. Approval and Closing: If the traditional mortgage process was stressful to you (with all of the paperwork and required documents), we can ease you through the entire process. We’ve completed more reverse mortgage transactions in Canada since 2017 than any other brokerage—we’ve seen it all and know how to avoid the mistakes that other, less experienced mortgage agents make. The only big decision you need to make on your own is how you want to receive your funds—as a lump sum or in multiple installments. We’ll coordinate everything else to pay off your existing mortgage.
4. Loan Repayment: The loan becomes due only when you sell your house, move out, or pass away. Until then, there are no monthly payments, allowing you to enjoy financial freedom!
Summary: Contact RetireBetter
If you're over 55, own your home and still have a mortgage, a reverse mortgage could be the financial solution you've been looking for. More Canadians than ever before are using a reverse mortgage to pay off their mortgage faster. Now is the time to explore your financial freedom through a reverse mortgage. Contact RetireBetter today and start living your retirement to the fullest!
Frequently Asked Questions
Q. Can I lose my home with a reverse mortgage?
A. No. You continue to own your home with a reverse mortgage. The loan only becomes due when you sell, move out, or pass away.
Q. How is a reverse mortgage different from a regular mortgage?
A. The main difference is that a reverse mortgage doesn’t require monthly payments. You can pay back the loan when you sell your home, move out, or pass away.
Q. Will someone explain the reverse mortgage paperwork to me?
A. Absolutely. We will answer all of your questions before you sign anything. Plus you will meet with a lawyer who will give you independent legal advice to make sure you really understand and are signing without any pressure
Q. Can I get extra money with a reverse mortgage?
A. Your maximum loan amount will be based on your age and your home appraisal. You can take the full loan amount or less, it’s up to you.