Five Pros and Five Cons of Reverse Mortgages
If you are a Canadian over the age of 55, you have probably heard about reverse mortgages and you may be wondering if they are right for you. Simply put, a reverse mortgage is a loan which makes use of the equity in your home. You may choose to receive that loan as a lump sum or in smaller regular payments.
While reverse mortgages do have many advantages, there are also some drawbacks to consider. Before you decide whether to apply for a reverse mortgage or a different mortgage solution, let’s look at some of the pros and cons:
The Pros of a Reverse Mortgage
- One of the biggest advantages of a reverse mortgage is that you do not have to pay it back for as long as you live in your home. You may therefore choose to never pay it off while you are living and instead let your estate pay for it after you have passed.
- Money you receive from a reverse mortgage is tax-free. Therefore you can enjoy the full value on anything you choose from vacationing to treating your grandchildren.
- Your reverse mortgage will not adversely affect OAS and GIS payments.
- The amount that you owe on your reverse mortgage will never exceed the value of your home – even if interest rates rise or home values decrease.
- You may choose to repay the loan at any time.
The Cons of a Reverse Mortgage
- Reverse mortgages do have some upfront fees when you apply. You will be responsible for appraisal and legal fees and possibly some other costs as well.
- The interest rate on reverse mortgages is higher than it is on traditional mortgages.
- When you die, any balance owing on your reverse mortgage must be paid by your estate. This could means reduced inheritance for your beneficiaries.
- If you decide to sell your home within three years of taking a reverse mortgage – or if you die during that time period – you will be subject to a penalty.
- There are only two lenders in Canada that are authorized to sell reverse mortgages.
To determine whether a reverse mortgage is right for you, you need to determine whether the pros outweigh the cons for you. Reverse mortgages are powerful tools that have helped many Canadians, but there are also other mortgage options to choose from. A professional mortgage advisor from Matrix Mortgage Global can help you decide if a reverse mortgage is right for you. Call us today at 1-877-371-5293.