Aren't the interest rates for reverse mortgages high?
Unlike a conventional mortgage, qualifying for a reverse mortgage is based strictly on the homeowner's Age and Property Value. Monthly mortgage payments of principal and interest are not mandatory with a reverse mortgage.
These unique features of reverse mortgages are reflected in their interest rates which are modestly higher than the interest rates for conventional bank mortgages, and still much lower than the interest rates of private mortgages. Also, unlike conventional mortgages, reverse mortgages have practically no income or credit requirements.
Keep in mind as well that reverse mortgages, unlike conventional mortgages, are not demand loans (they are not callable loans), which means the lenders can NEVER demand payment, cancel the loan, or force you to re-qualify as long as you live in the home, keep the property taxes and insurance up to date, and maintain the home in proper condition.
How come some homeowners end up with MORE equity after a reverse mortgage?
That's because the value of their homes increased enough to offset the costs of the reverse mortgage. Rising home values across Canada can offset much (or even all) of the reverse mortgage principal loan amount and interest.
This has not been uncommon in many big cities, especially in Ontario and British Columbia, where rising home values have outperformed many other investment types.
Can I end up owing more than the home is worth?
As the homeowner, you keep ALL the equity remaining in the home. Since well over 30 years ago (in 1986, when the reverse mortgage was offered in Canada), over 99% of homeowners have equity (cash) left over when their reverse mortgage is repaid.
Currently, on average, the amount of equity left over is more than 50% of the value of the home. How much equity you have will depend on how much you borrow, the home's value, and the amount of time that passes since the reverse mortgage is first put on your home. Keep in mind that, although not guaranteed, most homes will continue to increase in value, which can offset some (or even all) of the reverse mortgage's amount.
What happens if my home increases in value?
If your home increases in value, then your home equity increases - this means you have the option to refinance the reverse mortgage and pull out the additional equity in your home. If at any time you want more reverse mortgage funds, you always have the option of having your home re-appraised to determine how much more cash you are entitled to.
If your home increases in value, and you choose to do nothing, then it means when your home is sold, there would be more funds left over that would go to you or to your heirs.
What happens if my home decreases in value?
This won't affect the reverse mortgage, not in Canada. With a reverse mortgage, this risk becomes the bank's problem, and as long as (1) the property taxes and insurance are in good standing, (2) the property remains in good condition, and (3) the homeowner lives in the home, then the loan won’t be called under any circumstances, even if the home decreases in value.
The homeowners have peace of mind and can remain in their homes as long as they wish.
What are the fees with a reverse mortgage?
Lotus Income charges NO FEES to the homeowner. The only "out of pocket" expense for the homeowner is the home-appraisal fee. The other fees are ALL paid for out of the mortgage funds.
The 3 fees for a reverse mortgage in Canada are: (1) home appraisal fee (a one-time fee paid to the home appraiser, typically $250 to $450), (2) the fee for independent legal advice (a one-time fee paid to the homeowner's lawyer, typically $200 to $1000), and (3) the loan set-up and administration fee (a one-time fee paid directly to the reverse mortgage lender (the bank), which costs $1795.
Nothing is paid by the homeowner to Lotus Income. Again, the only fee that the homeowner pays out of pocket is the appraisal fee.