If you’re nearing retirement you’ve likely heard of a reverse mortgage. But, understanding what it is and if it’s the right financial solution for you at this point in time — that’s tricky!
A reverse mortgage is a financial product that allows Canadian homeowners, including those in Ontario, who are typically 55 years of age or older, to access the equity in their homes without having to sell or move out of their property in order to finance their retirement. It’s like using your house as an investment account you can draw money out of to supplement retirement income, cover medical expenses, or even home renovations without actually taking out a loan to cover those costs. However, a reverse mortgage may not be suitable for everyone, so it’s essential to carefully consider all the pros and cons before proceeding with one.
But, what if, you went ahead with a reverse mortgage, and you’ve changed your mind?
Can a reverse mortgage be reversed?
The short answer is Yes! it is possible to reverse a reverse mortgage, but the process and options for doing so may vary depending on the specific terms and conditions of the reverse mortgage agreement and the policies of the lender.
A few of the most common ways a reverse mortgage can be reversed are:
You could repay the loan
If you, as the homeowner or your heirs want to keep the home, you can choose to repay the reverse mortgage in full. This includes the loan principal, accrued interest, and any applicable fees. This repayment can be done through various means, such as using savings, refinancing with a traditional mortgage, or using other funds to repay the debt from another investment account you might have.
You could sell the home
If you no longer want to or are unable to keep the home, you can sell the property. The proceeds from the sale can be used to repay the outstanding reverse mortgage balance, and any remaining funds will go to you or your estate.
You could refinance the mortgage
In some cases, homeowners may have the option to refinance the reverse mortgage into a traditional mortgage. This could be beneficial if you wish to continue living in the home without the ongoing obligations of a reverse mortgage.
You could create a repayment plan
Some reverse mortgage lenders may offer repayment plans to allow borrowers to repay the loan over time. This can be an option if you want to retain ownership of the home and can afford to make regular payments.
You could use a life insurance policy
In certain situations, the borrower may have purchased life insurance specifically designed to pay off the reverse mortgage debt upon their passing. This can help beneficiaries keep the home without having to repay the loan out of pocket.
Whichever approach you decide to take, it’s essential to remember that the terms and conditions of reverse mortgages can differ from one lender to another, so it’s crucial to review your specific agreement and discuss your options with an experienced mortgage broker so that you make the best decision possible for you and your family.
You might also be thinking why would someone need to reverse a reverse mortgage?
Life can change quickly and sometimes we can make decisions in haste which we later regret. Over the span of my career, I have seen many reasons why someone might need to reverse a reverse mortgage including:
They have had a change in financial circumstances
Life circumstances can change unexpectedly. If a reverse mortgage borrower experiences a significant improvement in their financial situation, they may choose to reverse the reverse mortgage to repay the outstanding loan balance and regain full ownership of the home.
They might have to relocate
Some reverse mortgage borrowers may decide to move to a different location, either to be closer to family, downsize, or for other reasons. In such cases, they may want to reverse the reverse mortgage by selling the property and using the proceeds to repay the loan.
The home is no longer suitable
As homeowners age, their housing needs may change. If the home is no longer suitable due to mobility issues or other factors, the borrower may opt to reverse the reverse mortgage and move to a more suitable living arrangement.
Their estate planning impacts the reverse mortgage
Heirs or beneficiaries may prefer to keep the family home after the borrower passes away. To retain ownership, they may choose to reverse the reverse mortgage by repaying the loan using personal funds or other assets.
They might want to pay off the loan to avoid increasing debt
Reverse mortgages accrue interest over time, which means the loan balance can grow significantly. Some borrowers or their heirs may prefer to reverse the reverse mortgage and repay the loan early to avoid accumulating additional debt.
There has been a change in the housing market
If the housing market experiences a significant increase in property values, the borrower or their heirs might find it beneficial to reverse the reverse mortgage by selling the home at a higher price, which can help cover the loan balance and potentially leave additional funds to be used for other things.
No matter the reason as to why you might need to, it’s important to remember that reversing a reverse mortgage involves repaying the outstanding loan balance, which includes the principal amount, accrued interest, and any applicable fees. The specific options and processes for reversing a reverse mortgage can vary based on the lender’s policies and the terms of the agreement so paying attention to the fine print is very important.
If you are considering a reverse mortgage or need assistance with reversing an existing reverse mortgage give me a call at 705-315-0516 or click here to book an appointment to meet with me. I highly recommended we take a look at all your options and your specific situation so that I can give you personalized advice based on your circumstances and help you make informed decisions regarding your financial situation and homeownership goals.