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Frequently Asked Questions
A conventional mortgage is a homeownership loan that is paid down on a monthly or in some cases weekly or bi-weekly) basis. As the principal and interest on the loan are paid down, the equity in the home increases (or the percentage of the home's value that exceeds the balance of the mortgage).
A reverse mortgage is a life-term loan against the accumulated equity in a home that requires no repayment while the client(s) continue living in the home. The money plus interest is paid back when the homeowner dies, sells the home, or permanently moves out. Because there are no monthly payments, the amount owed grows larger over time. Reverse Mortgage clients, like conventional mortgage borrowers, continue to own their homes and are fully responsible for property taxes, insurance, and repairs.
No. The homeowners will be approved for a maximum amount. They can register this amount, or any amount less than this on title as the Maximum Proceeds for their Reverse Mortgage. Whatever amount is registered, the homeowners can choose how much they wish to receive initially and they may request Subsequent Advances up to the limit of the remaining proceeds at any time they choose. Subsequent Advances are subject to underwriting.
Homeowners can also choose to receive Schooled Advances on a monthly, quarterly, semi-annual or annual basis over a set period of time. In addition, Subsequent and Schooled Advances can be combined.
For Subsequent Advances, clients can expect to receive their money within 2-5 days from the time the request is processed. As with their initial funding, clients have the option to have the funds forwarded directly to their personal banker or financial advisor.
The Reverse Mortgage must be registered in first position on title. This means that any conventional mortgage or other home-secured borrowing, such as a secured line of credit, must either be paid off or moved into second position. Reverse Mortgage funds can be used to retire these loans.
Protection of Home Ownership
With a Reverse Mortgage, title to the home remains in the homeowners names and they can continue to enjoy all the benefits of home ownership. It simply gets registered as a mortgage on title. Home ownership is never at risk and at no time will the homeowners be asked to move or sell to repay the loan. When they pass away, the home becomes part of the estate as it normally would and the mortgage and interest are repaid by whatever means their heirs choose.
Yes. At any time, homeowners are free to sell their home and move. Once the home is sold, the Reverse Mortgage becomes due. However, homeowners may be able to transfer the Reverse Mortgage to a new home. The Reverse Mortgage also becomes due if the homeowners move out of the home.
Yes. Although the Reverse Mortgage is not designed for rental properties, it does provide the flexibility for homeowners to rent the home for short periods of time.
Repayment of the Reverse Mortgage (principal plus interest) is guaranteed not to exceed the fair market value of the home at the time it is sold. In the event that the fair market selling price of the home is not enough to repay the Reverse Mortgage in full, the lender will limit repayment to the amount received from the sale of the home. No other assets in the estate will be touched. If the proceeds from the sale of the home exceed the balance on the loan, the estate retains the surplus.
Repayment, Interest and Costs
Yes. Although the Reverse Mortgage is designed as a life-term loan, clients have the option to repay in full at any time. Prior to 36 months, a prepayment amount applies unless the repayment is due as a result of the death of the last surviving homeowner.
Interest payment options are also available.
A Reverse Mortgage has up to 7 fixed and variable interest rate options. Interest is added to the outstanding balance and is compounded semi-annually. An interest rate discount is available for interest payments.
There are no costs to request a Reverse Mortgage estimate. If homeowners proceed beyond an estimate, a fee is required to cover the cost of the appraisal of the home (usually $175-$400 in major cities but may be higher in rural areas or in the case of unique properties). Homeowners are required to seek independent legal advice from a lawyer or legal professional of their choice. The fees for this review range from $500 to $900. Finally, there are closing costs which are deducted from the proceeds at the time of funding and cover the costs normally associated with obtaining a mortgage such as title insurance, registration on title, and other administration costs.
In the case of a couple, when one spouse dies, nothing changes. Upon the death of the surviving partner, the home becomes part of the estate in the usual manner, and the estate repays the initial mortgage and accrued interest as it would repay any other outstanding debts. If the client is a single homeowner, the home becomes part of the estate when they pass away, and the full amount of principal and accrued interest is paid by the estate. In addition, the Reverse Mortgage can be repaid from other funds, if the heirs do not wish to sell the home.
The home continues to remain an asset in the estate. However, the beneficiary then becomes responsible for repaying the full amount of principal and interest due on the Reverse Mortgage. The Reverse Mortgage can be repaid from other funds in the estate, or by a conventional mortgage or other type of loan, or by any other means the heirs choose.
Reverse Mortgage funds are received tax-free and are not counted as income for tax purposes. As a result, the money will not affect Old Age Security (OAS) or Guaranteed Income Supplement (GIS) benefits, and it will not result in a higher income tax bill in the year the funds are received.
Clients will receive their money within approximately 2 - 5 days from the time the legal advisor forwards the Reverse Mortgage contracts to the lender. Clients may choose to have the Reverse Mortgage funds forwarded directly to their personal banker or financial advisor.