Top Five Misconceptions About Reverse Mortgages

Reverse mortgages are a type of mortgage product that is available for Canadians who are 55 years old and above. Reverse mortgages allow a person to access the equity in their home, tax-free. Although there are many Canadians who are applying for a reverse mortgage in their later years, there are some misconceptions that are misleading borrowers. The following are the top five misconceptions about reverse mortgages.

1. Borrowers Will No Longer Own Their Home

Many clients think that having a reverse mortgage would lead to them losing title of their homes, thereby resulting in no longer owning their home. However, it is important to highlight those borrowers applying for a reverse mortgage will always maintain title, ownership, and control of their home.

2. Borrowers Owe More Than the Value of Their Home

The amount that has to be paid by the borrower will not exceed the fair market value of their homes as long as they ensure to fulfil all obligations, as highlighted by CHIP Reverse Mortgage No Negative Equity Guarantee (1).  Majority of the borrowers are able to retain the equity in their homes when they decide to sell and more than 50% of the home’s value remains after the loan has been paid back by the borrower.

3. Only People Younger Than 62 Can Apply for A Mortgage

The CHIP Reverse Mortgage has explained that Canadians who are aged 55 years old and above are eligible for a reverse mortgage. In fact, the older the borrower is, the greater their chances to qualify for a higher amount on their loan. Moreover, a reverse mortgage is a lifetime product, and it is essential to highlight that the as long as property taxes and insurance are in good standing, the loan will not be called even if the house decreases in value.

4. Failure to Make Payments Can Result in Eviction

This is one of the most common misconceptions when it comes to reverse mortgages. The CHIP Reverse Mortgage does not require any monthly payments, meaning borrowers never have to worry about missing a payment.

5. Arranging a Reverse Mortgage is Very Expensive

This conception is also untrue because like a conventional mortgage, reverse mortgage requires borrowers to pay for a property appraisal and independent legal advice. And there is only a one-time additional cost of closing and administration fee. A reverse mortgage is a much more affordable option as compared to the cost of “rightsizing” with a new home.