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January 18^th 2022 - Philip Roe

Retirement savings is a major concern for Canadians everywhere. Those approaching retirement are looking for different avenues to meet their retirement income needs, take care of major projects, and pay off debt. That said, there is one important question that Canadian seniors need to understand: how much does a reverse mortgage pay?

In order to understand the question better, and understand how much a reverse mortgage pays, we need to look at all the factors. The costs, the amount of equity in the home, and so on. All of these things will provide the necessary information towards determining the viability of a reverse mortgage.

So, how much does a reverse mortgage pay? Let’s get into it.

How Much Does a Reverse Mortgage Pay? An Overview

Before we get down to brass tacks, understanding the how and why of reverse mortgages is just as essentials. Perhaps the most important piece of information is that you cannot take out a reverse mortgage if you have outstanding loans against the home or can’t pay those loans off using the reverse mortgage.

The most common type of home loan on the market is a mortgage, though there are also home equity lines of credit (HELOC). The beauty of a reverse mortgage is that it can be used for just about any purpose. Renovations, debt, medical bills, or anything, really.

Even better, you can get the money from your reverse mortgage in one of two ways. The first is a lump-sum payment. The second is a small payment up front followed by regular payments. Whatever is easiest and most comfortable to you.

Next, as we determine the answer to “how much does a reverse mortgage pay”, we look at the repayment schedule on this type of loan.

How Do You Pay Back a Reverse Mortgage?

Perhaps the most attractive feature to reverse mortgages is that they do not require regular payments. Most reverse mortgages don’t come due until the end of the term, where both interest and principal have to be paid at once.

There are some prepayment fees to be aware of. Depending on the lender, there are penalties for paying back the reverse mortgage early. There will also be certain conditions that need to be met before the reverse mortgage gets paid.

A reverse mortgage would need to be repaid in the event that the home is sold, or the primary residents move out. Should the loan be defaulted on – and each lender has their own specific guidelines for that – it could also require repayment of the reverse mortgage. Finally, it would need to be repaid in the event that one or all of the titleholders on the home passes away.

In the event of passing, the estate would then be responsible for paying back the reverse mortgage. Typically speaking, this happens 180 days from the passing, but it is important to check with your lender first.

The Costs Behind Reverse Mortgages

So, now that we know the repayment schedule and basic terms of the loan, it’s time to get into the costs. In Canada, borrowers can take out a loan up to 55% of the home’s current equity. So, if you had $200,000 in equity in your home, you could potentially qualify to borrow up to $110,000 against the equity in the home.

That said, there are fees and costs that can eat into the total that you walk away with. How much does a reverse mortgage pay? Well, that depends on the equity in your home and the costs for each of the prerequisites.

The first thing to keep in mind is the higher rates. Reverse mortgages have rates that are almost double that of traditional mortgages. Even at its lowest, reverse mortgage rates were around 4.5 percent. That can over $4,000 on the aforementioned equity amount.

You will also be required to pay setup and home appraisal fees. The latter is particularly important because the equity in your home comes from the appraisal value. Expect to pay $250-$800 for a home appraisal depending on who you use.

The setup fee depends on the lender; it can be a flat rate, or it can be a certain percentage of the appraisal value. Check with the lender first so that you don’t get any unexpected surprises.

Okay, Now How Much Does a Reverse Mortgage Pay?

Now onto the star of the show. Knowing all of the fees and charges incurred by taking out a reverse mortgage, we can determine how much that reverse mortgage is really worth in the end. Most experts state that you can reasonably take about 70 percent of the approved equity in your home.

On the aforementioned $200,000 equity, in which you can borrow against 55 percent, you would be left with $110,000. After all of the fees involved, the homeowner can reasonably expect to receive about $77,000 or so.

Keep in mind that the amount can vary depending on the lender and their fees. Reverse mortgages can be used for a lot of different things, making it a more viable option for major projects. Being able to provide retirement income, perform a major renovation, pay off debt, or anything else provides options that other loans do not.

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.