Kanetix Forum

What is a reverse mortgage? I've seen a lot of commercials on the TV lately and was wondering what it was all about?

A reverse mortgage is a loan available to homeowners aged 60 or older. With a reverse mortgage you are borrowing money that, over the years, you have put towards owning your home. The amount you can borrow will vary by homeowner because you can only borrow on that part of your home that is debt-free. By this I mean, the amount of equity that you have built up.

There are a number of other details that you should know about when it comes to reverse mortgages. Some are favourable and some are not. A reverse mortgage is not for everyone.

Some quick details about reverse mortgages:

- The money you receive is tax-free.

- How you use the money is up to you. It can go towards anything.

- You can get a one-time lump-sum payment, regular monthly payments or make occasional withdrawals on an as-needed basis.

- You won¿t typically have to make any payments towards paying back the loan while you are living in the home. The loan plus the accumulated interest usually gets paid only when you sell your home, move to a new primary residence or upon death.

- The equity that you have built up in your home will decrease. Not by just the amount you have borrowed, but also by the interest that has accumulated.

- Interest rates for reverse mortgages are higher than what you would get on a normal mortgage or even on a line of credit.

- Setting up a reverse mortgage is not free. If required by the lender, you may end up paying for a home appraisal and covering the application, legal, and closing fees.

- A reverse mortgage is not intended for short term purposes. A penalty may be applied if, within 3 years of obtaining a reverse mortgage, the loan is repaid because you moved or sold your home.

- Upon death, your estate pays back the loan plus the accumulated interest.

Paul Sidhu, Principal Mortgage Broker at KTX Financial Ltd.

Neither Kanetix® nor the KanetixForum.ca is a mortgage broker or agent. Although this information has been passed along to you from KTX Financial through the Forum, we are not responsible for the opinions expressed by them. Mortgages can be complicated. When reading these answers, keep in mind each person¿s situation is unique. Individual responses may vary depending on your lender, geographic location, and specific circumstances. If you have a similar situation, always speak with your mortgage provider, or a licensed mortgage representative, for terms and conditions that may apply to you.

In addition to talking to a professional to learn more about reverse mortgages and other options available, you can find some handy information at the website for the Financial Consumer Agency of Canada at:

www.fcac-acfc.gc.ca