Many Canadians view reverse mortgages as a way to increase their retirement income or to pay for travel or home renovations, etc.
When used in this way, a reverse mortgage is similar to a mortgage refinance – borrowing money from your home equity in order to get the cash that you need. More and more, however, Canadians are asking the question of whether they can use a reverse mortgage to purchase a home. And the answer may come as a surprise to many – because the answer is yes.
How can you use a reverse mortgage to purchase a home?
There are three ways that a reverse mortgage may be used for buying a home. They are as follows:
1. Buying your first home – If you are a retiree that has savings but doesn’t own a home, then using a reverse mortgage to purchase a home can actually be a great strategy. Being a homeowner means you don’t have to worry about your rent getting raised and possibly being forced to move out.
Say for example, that you wish to buy a home worth $500,000 but you don’t have enough saved. You can make up for the shortfall using a reverse mortgage. The advantage of doing this as opposed to a standard mortgage is that you don’t have to make any mortgage payments on the reverse mortgage until you decide to sell your home – so it’s not going to put a dent in your retirement income.
2. Downsizing – many retirees find that their homes are bigger than they really need anymore and they decide to downsize and move into a smaller homes. Getting a reverse mortgage could allow you to finance the new home while keeping the funds that you receive from the sale of your current home. These are funds that you can use to invest and increase your retirement income.
3. Purchasing a second home or cottage – have you always dreamed of having a vacation property in your retirement? A reverse mortgage could help to make this dream a reality.
Say for example, that your home is worth $900,000 and it’s mortgage-free. You wish to buy a smaller second property. Part of the cost of the second home could be covered using a reverse mortgage. This would allow you to enjoy your vacation home during your retirement while also benefiting from its appreciation should you choose to sell at a later time.
How can I qualify for a reverse mortgage?
In order to qualify for a reverse mortgage, you must be a Canadian homeowner and be at least 55 years
of age. The amount of money that you can receive from a reverse mortgage depends on a combination
of factors including the location and value of your home and the age of yourself and your spouse.
The maximum that you may receive from a reverse mortgage is 55% of your home’s value and the older
you are, the closer to the maximum you can get.
To apply for a reverse mortgage, you will need to work with a professional mortgage broker who can
provide you with an estimate of how much you could qualify for and who can review your information
and help you with the application.
Once you qualify, you will have the option of receiving a lump sum of cash, monthly installments, or a
combination of the two. It really just depends on how you plan to use the money and what works best