So the standard idea of mortgages is that the bank lends you money and you pay it back over the next 25 years at a rate that is renewed every 5 or 10 years and if everything works out you will pay that off by the time you die. The origin of the word mortgage pretty much says it all as it originates from the old French words meaning death pledge. But what happens if you pay off your house and you’re still alive?
Several things can happen in this scenario, you live comfortably in your home until such time as you can no longer or you sell it and move to something possibly smaller and hopefully pay cash for it as well. But what if the pensions aren’t enough to sustain a comfortable life. This is the scenario many people find themselves in these days. Your house is paid for but all of its equity is locked in its value. You don’t want to take a conventional mortgage as you don’t want to refinance and have a payment again. This is where reverse mortgages become a viable option. This is how it works.
Reverse mortgages have been around for years many people think they have a bad reputation and I would think it’s mostly because they don’t quite understand how they work and why they work for so many Canadians. Basically it starts with an appraisal and we determine the current value of your home.
While they do consider your age and the property they also consider how long you may possibly live. The idea is to lend you a portion of the value of your property to a maximum of 55% and that money goes directly to you. The Reverse mortgage is then set up and interest is charged on the money but it is accrued against the property. Accrued basically means that while you are not paying a payment the interest is then added onto the property which is why they start at no higher than 55%.
The younger you are then the lower the percentage they would lend because the longer you live the more room for interest they would need. At the time of your death the estate would then pay out the reverse mortgage and the interest that has accrued, the balance of the sale price would go into your estate.
Brokers for Life works closely with Home Equity Bank who are the people who manage the CHIP program in Canada. Our agents are trained and work with Dominion lending CHIP desk who are direct representatives of the program. Contact our team today to gather more information.
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