Articles and Blogs

January 6^th 2022 - Philip Roe

Reverse mortgages are a growing possibility for those retiring cash poor. The ability to borrow against the equity in your home provides the possibility for cash that would otherwise not exist. But how much can you expect from a reverse mortgage?

Understanding the amounts in play as well as the benefits and downsides is important. Knowing how much to expect from a reverse mortgage is a good place to start, but there are more layers to peel back before making your decision.

How Does a Reverse Mortgage Work?

Before getting into amounts and totals, knowing the basics of a reverse mortgage is important. For starters, you have to pay off any outstanding loans or lines of credit that may already be secured by your home.

The most common type of loan is a mortgage, but it can also include something like a home equity line of credit (HELOC). You can even use the money from the reverse mortgage to pay off that loan should you so choose.

With the money that is left over, you can use it for just about anything. Make repairs or home improvements, cover any outstanding healthcare expenses, pay off debts, or even use it on regular bills. That’s the strong point of reverse mortgages: you can use them for just about anything.

You can get the money in one of two ways as well. The first is through a one-time, lump sum payment. Many opt for a little money up front while getting the rest in recurring payments over time. With payments, it’s up to you what timeline you can expect from a reverse mortgage. It depends what you need it for and when.

What Kind of Repayment Timetable Comes with Reverse Mortgages?

One of the great things about a reverse mortgage is that you don’t have to make any recurring payments during the life of the loan. You have the option of repaying both the interest and the principal together at any time.

If you plan to pay off your reverse mortgage early, check with the lender first. There might be a prepayment penalty that applies. Otherwise, there are certain conditions that will require the reverse mortgage to be paid.

You would have to repay the amount when you sell your home or move out of it, should you default on the loan, or when the last borrower on the title passes away. In the event of death, the estate would be responsible for paying off the loan amount.

The amount of time that the estate has to pay back the reverse mortgage can vary. For the most part, it is 180 days, but there are certain triggers that can result in an earlier or later payment date. Check with your lender for all the details so that you can know what to expect from a reverse mortgage.

What Are the Costs Involved with a Reverse Mortgage?

In Canada, you can borrow up to 55% against the home’s equity. So, let’s say that you have $200,000 equity in your home. You would be able to potentially borrow $110,000 against your home’s equity. But there is more to it than that.

Higher rates. The first thing to keep in mind is that reverse mortgages generally come with higher rates than traditional mortgages. For instance, it’s not outlandish to expect to pay somewhere between 4.99 and 6.49 percent on a reverse mortgage. That’s $5,500 to $7,100 based on the aforementioned rates.

Home appraisal fee. One of the factors involved in getting a reverse mortgage is a home appraisal. Even if you’ve had one fairly recently, you must get a current appraisal to determine the value of your home. Depending on who you go with, that could run anywhere from $250 to $1,000.

Setup fee. You will also be facing a setup fee. The amount depends on the lender – it can be a flat fee or a percentage of the appraisal value. Be sure to check with the potential lender first so that you can plan out the costs.

Other fees. There are a couple of other potential fees as well. Should you plan on paying off the loan early, there could be prepayment fees to be aware of. Additionally, some lenders may expect you to get independent legal advice.

So, How Much Can You Reasonably Expect from a Reverse Mortgage?

With all of those fees and conditions in mind, we come to the real question: how much can you truly expect from a reverse mortgage? Experts say that you can reasonably expect to take around 70 percent of the approved equity in your home.

So, on the aforementioned $110,000, the homeowner could expect to receive around $77,000. That amount can vary depending on the lender, so keep that in mind. Given the variety of things that reverse mortgages can be used for, the amount approved can dictate whether or not it is worth taking out.

Who Do I Ask About Reverse Mortgages?

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.