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November 6^th 2021 - Philip Roe

Working with an independent mortgage professional, like Lotus Income, can give you an increased understanding of things like reverse mortgages. There are a ton of reverse mortgage misconceptions out there that bear clarifying.

Despite some experts’ belief that reverse mortgages are bad, they continue to grow at an exponential rate. With 28 percent annual growth, reverse mortgages are becoming a more popular option for seniors. More and more Canadian seniors are retiring cash poor and home rich.

Understanding how to turn that home equity into much needed cash is hugely important. Instead of struggling with lack of funds, a reverse mortgage can provide flexibility and stability. Knowing about those reverse mortgage misconceptions can provide clarity like never before

Reverse Mortgage Misconceptions: The Bank Owns Your Home

With a traditional mortgage, you borrow from the bank to buy a home, but the bank owns the home until you pay off the mortgage. So, it only stands to reason that the bank would own your home with a reverse mortgage.

The simple fact of the matter is that the bank does not own your home when you take out a reverse mortgage. The lender registers their position on the home’s title as they would for any mortgage instrument.

The main difference here is that the homeowner retains ownership of the home and title. This is a huge difference between traditional and reverse mortgages. Reverse mortgages are paid for through the equity in the home, not simply borrowing a loan amount from the lender.

Being able to get the funds needed while maintaining ownership in the home is one of the major positives of reverse mortgages.

Reverse Mortgage Misconceptions: The Estate Can Owe More Than the Home

Another of the major reverse mortgage misconceptions is that the estate will owe more than the home is worth. It is important to note that reverse mortgages are classified as non-recourse debt. That means that if the borrower defaults, the issuer can seek the home but no further compensation. That even includes instance where the collateral asset doesn’t cover the full value of the home.

What does this all mean? Well, when the last homeowner dies, bringing a reverse mortgage due, the estate will never pay more than fair market value on the house. The estate is fully protected. That is not something that can be said for any other type of mortgage in Canada. All of those are full recourse debt.

Reverse mortgages, simply put, will never cost more than the market value of the home. That is a reassurance that can make taking out a reverse mortgage safer and simpler than ever.

Reverse Mortgage Misconceptions: Borrow at the End of Retirement

Perhaps the largest misconception is that the end of retirement is the best time to take out a reverse mortgage. This is something of an “old school” financial planning method. That method is about providing cash-flow.

The “old school” model is about drawing down any non-taxable assets in order to provide supplementary retirement income. When those are depleted, you would draw from registered assets to provide that supplementary income. And when those are gone, you either downsize, re-invest, or sell your home to provide the funds needed until death.

But there are two major problems with that. The vast majority of Canadian seniors don’t want to sell their homes. Secondly, there is a missed opportunity when it comes to tax-saving advantages of a reverse mortgage at the beginning of retirement.

With reverse mortgages, seniors can borrow against the equity in their home for any purpose. Whether that is for renovations, paying off debt, or creating retirement income, it doesn’t matter.

So, seniors can choose to receive monthly payments from their reverse mortgages. That provides the reliable, steady income necessary for those who have not adequately saved for retirement. And it can mean peace of mind during retirement.

Who Do I Talk to About Reverse Mortgages and How to Apply?

The first place that you need to start when inquiring about reverse mortgages is with the team here at Lotus Income. We have years of experience that can get you the answers that you need. The most important thing when it comes to finding a reverse mortgage is knowledge. Being armed with the answers to your questions can mean the difference between a favorable loan and one that you regret.

Reverse mortgages have their own unique set of pros and cons and definitely are not suitable for anyone who qualifies. Discussing with a professional is a great first step and will at least give you a better understanding of this type of loan.

Call our team today or check out our FAQ page to find the answers to your questions. We can get you started down the path to a reverse mortgage today.