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November 23^th 2021 - Philip Roe

Reverse mortgages are providing Canadian seniors with options come retirement time. As more seniors enter their retirement year with less savings, they find themselves with greater equity in their home. So, taking out a reverse mortgage can make a lot of sense. But knowing reverse mortgage costs before taking out a loan can be an infinitely valuable tool.

The rates are one of the primary reverse mortgage costs, but they are far from the only one. This is your guide for what to expect when it comes to determining reverse mortgage costs. It can help you come to the most informed decision possible about obtaining a reverse mortgage.

Reverse Mortgage Costs: Interest Rates

The largest portion of your reverse mortgage costs will be the interest rates. Similar to how bigger banks post their mortgage rates, reverse mortgage rates are updated and posted on a regular basis. They are undoubtedly higher than traditional mortgage rates; around a full 2 percent or so.

The funds on a reverse mortgage are completely tax-free. Even better, there are no requirements for repayment until the homeowners sell, move, or pass away. This is a feature that none of the other solutions on the market can provide.

So, while the rates of a reverse mortgage (generally 4.5 to 7 percent) may be higher than that of a home equity line of credit (HELOC) or conventional mortgage, they are still lower than personal loans, credit cards, cash advances, or private equity lending.

Moreover, you won’t have to undergo a credit check on reverse mortgages since the equity in the home is the funding source. Poor credit can block you from obtaining one of the other mortgage types. With a reverse mortgage, that is one aspect that you won’t need to worry about.

Reverse Mortgage Costs: The Fees

The fees involved with a reverse mortgage are generally similar to that of a traditional mortgage. They include things like legal fees, administrative costs, and appraisal fees. The appraisal is mandatory when applying for a reverse mortgage because the entire loan is based on the appraised value of the home.

The appraisal fee is paid through an external property appraiser and can start around $250 or $300, ranging into the $750-$1,000 area depending on who you use.

Why Do You Need a Home Appraisal?

The key determining factor in how much you can borrow from a reverse mortgage is the current fair market value of the home. So, to get an accurate assessment on fair market value, a home appraisal must be conducted to begin the application process.

When the appraisal has been completed, the appraiser informs the lender of the fair market value on the home. Then, the lender can determine what amount the borrower is eligible to receive. Keep in mind that even traditional mortgages require an appraisal, so this is not out of the norm.

The appraisal also lets the lender know if the home is in good condition. Homes in poor condition could see a potential decline in value, which the lender would pay for. That is why the appraisal is so important for the lender.

Reverse Mortgage Costs: Legal Advice

Both lenders of reverse mortgages in Canada will require that you pay for independent legal advice. This fee depends entirely on the legal representation. It can be a few hundred dollars or range well into the thousands.

CHIP reverse mortgages in particular require that each homeowner seek legal advice for their own protection and benefit. Real estate lawyers can be very valuable when it comes to registering a property in particular.

Closing and Administrative Costs

Depending on your lender of choice, the closing and administrative costs may either be covered or simply rolled into the reverse mortgage. Closing costs and administrative fees are common with traditional mortgages as well.

Title Insurance. Most lenders in Canada, not just those offering reverse mortgages, require title insurance. Title insurance is meant to protect against potential losses in the event of a dispute over property ownership. You can purchase title insurance through a real estate lawyer for a cost of $100-$300.

Land Transfer Tax. This is a percentage of the total purchase price of the home. Every province in Canada has a Land Transfer Tax (LTT) that can vary within and will be payable at closing. Major cities like Toronto actually have a municipal LTT. Check out your province website for more information on transfer tax.

Home Inspection. While it is not mandatory, the buyer can have a home inspection done to ensure that there are no underlying issues that could potentially result in further costs. In most cases, the inspection will be used in an effort to facilitate a sale. Getting a home inspection in Canada will run between $200 and $400, though that will depend on the size of the home.

Who Do I Talk to About a Reverse Mortgage?

The first thing that you should do if you want to discuss a reverse mortgage is call Lotus Income. We are here to get you the most equity out of your home and put the most money into your pockets.

There are many misconceptions about reverse mortgages and the fees involved is one of them. Get the record straight and understand that, for the most part, the process is much the same as a traditional mortgage. Arming yourself with the proper information is a good first step towards potentially obtaining a reverse mortgage in the future.

Reverse mortgages can seem like a complicated endeavor, so it is important to discuss all of your options first. We can run through the pros and cons of reverse mortgages and determine if it is the right fit for your needs.

For Canadians at or nearing retirement, getting the funds necessary to live life comfortably is important. Even if retirement savings have been compromised, there are options available to you. Call Lotus Income today.