How To Opt Reverse Mortgage Loan In Canada
Posted by Tmjaswani in MortgageA reverse mortgage (known as lifetime mortgage in the United Kingdom) is a loan available to seniors (62 and older in the United States), and is used to release the home equity in the property as one lump sum or multiple payments.
The homeowner’s obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves (into aged care).A reverse mortgage is analogous to an annuity where the principal and interest are paid with homeowner’s equity.
In a conventional mortgage the homeowner makes a monthly amortized payment to the lender; after each payment the equity increases within his or her property, and typically after the end of the term (30 years) the mortgage has been paid in full and the property is released from the lender.
In a reverse mortgage, the home owner makes no payments and all interest is added to the lien on the property. If the owner receives monthly payments, or a bulk payment of the available equity percentage for their age, then the debt on the property increases each month.
The cost of getting a reverse mortgage from a private sector lender may exceed the costs of other types of mortgage or equity conversion loans. Exact costs depend on the particular reverse mortgage program the borrower acquires. For the most popular type of reverse mortgage in the U.S., the FHA-insured Home Equity Conversion Mortgage (HECM), there is an insurance premium of 2% of the loan and a 2% origination fee in addition to normal closing costs, which are typically several thousand dollars, but vary depending on the third-party costs (appraisal fees, title searches, etc.) which must be undertaken.
In addition, a monthly service charge (between $25 and $35) is usually added to the total amount of the loan. To apply for an FHA/HUD reverse mortgage, a borrower is required to complete a 45-minute counseling session with a HUD-approved counselor. The counselor will explain the legal and financial obligations of a reverse mortgage. After the counseling session, the borrower receives a certificate of counseling that is required before the loan application can be processed.
The appraised value of the property, whether any health or safety repairs need to be made to the house, and whether there are any existing liens on the house. The interest rate, as determined by the U.S. Treasury 1 year T-Bill or the LIBOR index. The age of the senior (The older the senior is, the more money he/she will receive).
Whether the payment is taken as line of credit, lump sum, or monthly payments. Line of credit will maximize the money available, while lump sum provides the cash immediately, but the interest fees are the highest. Monthly payments are set up as a Tenure payment. You receive them for the rest of your life no matter how long you live.
The location of the property, and whether the maximum loan amount is subject to the maximum loan limits. These limits change on a county by county basis. There are also efforts to create a national maximum, so you need to check periodically for those numbers. If those numbers go up in your area, you can refinance the reverse mortgage and increase the funds you receive.
The structure of a Jumbo Reverse Mortgage is very similar to a standard HECM - you are able to tap into the equity of your home and will not be obligated to pay it back until the home is no longer used as your primary residence (in the event of your death or should you decide to move).
There are no monthly loan payments with either loan and the money you take out can be used for any purpose. Like the HECM, the amount you owe on the Jumbo loan will never exceed the value of the home.
As recently as December 2007 the Senate Committee on Aging spent time discussing the aggressive marketing and sales techniques being used by mortgage institutions to attract senior homeowners into purchasing reverse mortgages.
As larger populations of seniors are turning 63 every year, the demand for reverse mortgage loans is on the rise. There was a 56% increase in these types of loan in 2006 from the prior year. The Federal government in December 2007 removed the restrictions on the number of outstanding reverse mortgage loans they would underwrite at any given time. Prior to the new legislation, the original limit was 275,000.
Resources: Get Canada Mortgage Loan Use Reverse Mortgage
