Money is tight – isn’t it always. Perhaps compounded by the affects of COVID, getting access to funds can be a convoluted process. We reached out to Harcharan Upal, Mortgage Broker with Sherwood Mortgage Group, for his insight on a product making trends in the lending space; the Reverse Mortgage.
“As of late, the term ‘Reverse Mortgage’ has been coming up and am being asked “what is it? How can I take advantage of it? Do I even qualify”? All valid questions. Here are some points to help you better understand.
A Reverse Mortgage, in the simplest form, is a mortgage that allows you to pull equity from your home as you need it. You can draw out the equity on a month-to-month basis, or receive a lump sum amount deposited into your account.
Some may compare this type of a mortgage to a secured line of credit (also known has a HELOC: Home Equity Line of Credit) as you can draw available funds as needed. They are similar in that way, but the biggest difference is that, with a Reverse Mortgage, there is an option where you are not required to make a monthly repayment towards the outstanding balance, whereas with the HELOC, you are required to make, at least, a minimum monthly payment. This is significant as this opens up cash flow for the client and not have to worry about making a payment towards their mortgage.
So, if the client doesn’t make any monthly payments, how does the balance get paid down? What’s the catch?” — valid questions. The response is as such: the monthly interest that is accrued on the balance owing, and not the amount the client is approved for, and will be added to the total principal balance at the end of the term. Should the client sell the property, then the balance owing to be paid out would be the original principal amount + the total interest accrued. For example: if the client is approved for a $400,000 Reverse Mortgage, and they only draw $200,000, the interest accrued will be based on the $200,000 drawn and not the total amount $400,000.
Who qualifies for this mortgage?
- Minimum age qualification is 55 years old; this product is geared towards seniors
My clients are on a fixed income (pension) and would not qualify for the mortgage, can they still apply?
- Absolutely! This mortgage does not use traditional mortgage qualification criteria. They client does need to demonstrate some sort of income stream (ie. pension. Dividends, annuities, etc.), but not so much where their annual income would need to service the mortgage amount.
What’s the interest rate:?
- Depends on the clients credit profile, property, and how loan amount
How much can the client access?
- Up to 40% of the appraised value of the property. The mortgage amount will be at the lenders discretion
What can the funds be used for?
- Paying out existing mortgage(s)
- Monthly cash flow
- Paying out outsides debts (credit cards, lines of credit, loans, etc.)
- Home renovations
- Down payment for a secondary or investment property
- Gifting down payment to family
- New car
- Personal use
I currently don’t have a mortgage on my property, would I still qualify?
- As long as you meet the lenders lending criteria (credit profile, property location, loan amount required), then YES!
How can your client start an application?
- Have them call me
This is a wonderful alternative to the conventional mortgage product for those individuals that are 55+ years old. Statistics show that Canadians that are 55+ years of age require a minimum of $60,000 net annual income to cover their basic monthly expenses, not inclusive of their mortgage payment (if they have one). Some may be drawing income from their RRSP’s and investments, which is fine, however, depending on the tax bracket that the client is in, they amount of income tax that they pay when drawing from their RRSP’s may not be, financially, the most viable option. Why not use the equity in your home, and continue to allow your investments and RRSP’s to grow?”
Harcharan Upal is a Mortgage Broker with Sherwood Mortgage Group. His years of executive experience in finance make him a trusted advisor. He can be reached at: Wilson Avenue, Toronto ON M3H 1V1C: 416-451-2327F: 416-241-9203 W: www.sherwoodmortgagegroup.com Email: email@example.com Instagram: harcharanmortgagebroker