Reverse mortgages, which allow senior citizens aged 55 and over to borrow money against the equity in their home, are becoming increasingly popular in Canada. According to a study by HomEquity Bank the number of seniors applying for reverse mortgages grew by 42 percent in the final quarter of 2011. As of December 31, the bank’s reverse mortgage portfolio stood at $1.2 billion: 17 percent higher than the end of 2010. During 2011, the company originated $239 million in reverse mortgages, which indicates a 16 percent year-over-year jump.
So What Exactly Is a Reverse Mortgage?
A reverse mortgage is a loan that is secured by your home. The bank will provide you with a certain sum of money, and the repayment is guaranteed using your house as collateral. Because you are able to repay the outstanding amount through the eventual sale of your home, the bank doesn’t require you to make payments on the principle or interest for as long as you continue to own the property.
When you or your heirs are finally ready to sell, the loan is then repaid out of the sale price, and you or your family get to keep the remaining amount. Alternatively, if your heirs wish to keep the home, they can also choose to pay off the loan from other funds.
Keep Your Home But Enjoy its Value
It isn’t hard to see why reverse mortgages are such an increasingly popular option. Available to Canadian homeowners over the age of 54 without the need to qualify based on income, health or debt, a reverse mortgage allows individuals to enjoy a significant boost to their cash-flow without having to sell their homes. The arrangement can be ideal for seniors who are no longer pulling in a lot of money on an ongoing basis, but have significant assets tied up in their homes.
Previously, older homeowners would have been forced to sell their house and downgrade to cheaper property or a rental in order to free up the money. With a reverse mortgage, however, they can enjoy cash-in-hand to be used on anything from home renovations to travel, without having to give up their home.
Shifting Demographics
The popularity of reverse mortgages also indicates a demographic shift as baby boomers retire. According to Statistics Canada, the number of seniors will continue to grow rapidly until 2031; by 2036, it projects that those over the age of 65 will make up almost a quarter of the Canadian population. This provides excellent incentive for banks to provide long-term solutions for retirees, and the growing ranks will continue to propel the need and desire for retirement tools such as reverse mortgages.
Is a Reverse Mortgage Right for Me?
Of course, a reverse mortgage is not right for everyone. Interested individuals should speak to a financial advisor or lawyer to determine whether a reverse mortgage is the best fit for their lifestyle and plans for the future. For those who qualify and would benefit from the influx of cash, a reverse mortgage can provide an ideal way to free up some equity without the burden of extra bills and repayments. Contact Horizon Equity today to get started or get more information about a reverse mortgage.