My Financial Tips

Have you heard of Reverse Mortgage? You surely don’t have to work with finances for you to know about this financial product: As Toronto real estate agent, almost every day I hear about someone who went for it. One of the house loans available is called “reverse mortgage”. Using this product, you can get the money according to the value of your house.

People use it quite often in England, where it is known under the name “Equity Release”. The typical client using the reverse mortgage is a person over 60 years in need of some more cash, not willing or not able to keep the monthly payment schedule.
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Basic rules
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Basically, the client using the reverse mortgage is entitled to cash according to the cost of his home, with interest growing in time. You don’t have to worry about paying the money back, because it can wait only after you sell the house. This means that in the meanwhile you or your spouse can still live there, until you leave for a retirement home or until your death comes. Typically, clients can take credit ranging between $20,000 and $500,000. It should not exceed 30% of the house value, or 40% if the client is over 70. Now we will go through some pros and cons of this financial product.
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Benefits
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The mortgage is tax-free. You don’t have to pay any monthly amount. You are still the official owner of your house. This is an excellent option for people whose house is mortgaged or who have other liabilities to pay, and who want to remove the regular payments from their budget. The interest can be paid step by step. In this case the debit sum does not increase. If the client decides to mortgage another property in his ownership (partly or fully), it is possible. If you wish to end your mortgage any time, you can do so with no additional charges, provided that you have used this product for the minimum of 3 years.
The interest rate diminishes step by step. Even in the case when the debt is higher than the house value, the bank is not allowed to foreclosure. The client doesn’t have to be afraid of having to pay more than the well-deserved price of his house, even in cases when the house value gets smaller for whatever reason.
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Cons
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The opening fee is approximately $1,300. After a few years’ time, the amount of money you had borrowed may be equal to the value of your house you bought using your lifelong savings. If you borrowed $50,000 at the interest of 10%, the loan reduplicates every 7 years. In specific numbers, the loan will equal $100,000 after 7 years and $200,000 after only 14 years. Even if you are lucky and the house price is growing gradually, the debt is growing too and finally there might be nothing left.
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If we recap what we said before, the equity release is a suitable financial product for people who need to get some money in a considerably short time, who own some property and don’t have sufficient regular funding. Differently to the home equity line of credit, your house still remains in your property as long as you live there, and you can get the release mortgage no matter how insufficient your income might be or how much you owe elsewhere. It is important to acknowledge the fact that the debt multiplies within not such a long time, therefore if the client starts using the reverse mortgage when still young and with insufficient income so that he/she is not able to keep the regular payment schedule to pay off the interest rate, the debt may become close to the total property value, leaving the client with not much financial supply left. Detailed information about reverse mortgage may be obtained from your financial planner.