What are the pros and cons of reversing?

TORONTO, Nov. 23, 2021 (GLOBE NEWSWIRE) – A reverse mortgage is a type of loan available to property owners who are 55 years or older. With a reverse mortgage, the homeowner can use their home equity to borrow cash, either in one lump sum or in installments.

The best part is that there are no monthly payments. Instead, the loan and interest are paid off when the loan is moved, when the property is sold, or when the owner dies.

For those interested in a reverse mortgage loan, it is important to understand the pros and cons of this type of loan so that you can make the best decision for your family and financial needs.

What is a reverse mortgage?

A reverse mortgage is a popular loan for homeowners of retirement age. By leveraging their home equity, a borrower can choose to receive money as a lump sum or in monthly installments. The accrued interest is added to the mortgage balance so the amount owed increases but does not have to be paid until the home is sold or the owner moves.

To qualify for a reverse mortgage, a property owner must:

  • Be at least 55 years old
  • Use your home as your main residence
  • Have already paid off much of their mortgage
  • Keep paying property taxes and insurance fees
  • The location of the house

The benefits of reverse mortgages

Reverse mortgages can offer property owners many benefits, including:

Financing your retirement

Reverse mortgages can help retirees build a stable source of income and cover their living expenses. Especially for people with a fair amount of equity in their home but not much cash or savings, they can use a reverse mortgage to convert that equity into accessible tax-free money.

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Keep your home

Retirees don’t always have to sell their home and downsize to a cheaper location. With a reverse mortgage, they can keep their property and stay where they are comfortable and where they have taken root.

Access to tax-free proceeds

Reverse mortgages are tax free so you can keep 100% of the money you get from this loan. A reverse mortgage also does not affect your other retirement benefits (OAS) and Guaranteed Income (GIS) programs.

The disadvantages of reverse mortgages

It’s also important to consider the risks of reverse mortgages, such as:

Additional costs in the event of closure

While reverse mortgage borrowers don’t have to make monthly payments, they do have other application and closing costs. These include, among other things, fees for expert opinions, fees for independent legal advice and administrative or brokerage fees.

Higher Interest

When you take out a reverse mortgage, you may have to pay a larger amount of money in interest. The interest rates on reverse mortgages are slightly higher than on traditional mortgages or Home Equity Lines of Credit (HELOCs).

Prepayment fees

If you pay off part or all of your reverse mortgage, you may be able to pay prepayment fees to the lender depending on your contract.

Should You Take a Reverse Mortgage?

Reverse mortgages can be helpful for certain homeowners who are over 55 years old and want to receive up to 55% of the present value of their home while they still live and own it. If you know you have a lot of equity in your home and want to continue living in that home, a reverse mortgage might be the thing for you. Just make sure you can cover any upfront fees or ongoing maintenance costs of your home.

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Weighing the pros and cons – and seeking independent legal advice – can help you make the right choices for your home and live your best retirement.


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