Why Choose a Reverse Mortgage Over a HELOC or a Private Mortgage?

As the cost of living and mortgage payments has increased, it may be challenging to meet your retirement income needs and access the cash flow you need to live a desired lifestyle and keep the roof over your head. One advantage that many retired Canadians possess is home ownership. Tapping into some of the equity you have built in your home can help you obtain the additional funds you require. In this blog, we will look at three options to access equity from your home if you are 55 years or older – a HELOC, a Private Mortgage, and a Reverse Mortgage. A Sunlite Mortgage reverse mortgage broker offers all three options and will go through specific advantages and risks based on your age and risk profile.

Tap into your home equity

If you wish to stay in your current home, there are three popular methods to tap into your home equity: a Home Equity Line of Credit (HELOC), a private mortgage, and a reverse mortgage.

HELOC lenders typically allow homeowners to access up to 65% of their home’s value. With a HELOC, you can borrow money as needed, based on an agreed-upon amount, and you’ll be required to make minimum monthly interest payments. Unlike a conventional mortgage, there are no fixed scheduled payments towards the loan’s principal, offering you the flexibility to repay the loan at your convenience.

A private mortgage allows you to qualify for a mortgage based on the equity in your home. The interest rates are usually higher, and no payments could be required. More homeowners lose their property under this option than with a HELOC and reverse mortgage combined, as the private mortgage industry is less regulated.

A reverse mortgage is another common way homeowners tap into their home equity. Specifically, a reverse mortgage is designed for Canadian homeowners aged 55 and above. It allows you to access up to 55% of your home’s value and receive the funds as tax-free cash, all without the need to move or sell your property. While you continue to live in your home, there are no required monthly mortgage payments to worry about. The entire loan amount only becomes due when you decide to move, sell the house, or through the estate after the homeowner’s passing. Qualifying for a reverse more is very easy.

Advantages of a Reverse Mortgage

A Reverse Mortgage offers several benefits, one of the most notable being the absence of monthly mortgage payments. This feature is particularly valuable to Canadians 55+ when cash flow can be a concern. Here are some of the other benefits of a Mortgage:

• Simplified underwriting: A Reverse Mortgage caters to Canadians aged 55+ who rely on a fixed income and might face challenges qualifying for a HELOC.
• No need to requalify: Unlike a HELOC that requires continuous credit score checks, a Reverse Mortgage eliminates the need for requalification, ensuring access to funds without credit score barriers.
• Death of a spouse does not impact a reverse mortgage: With a HELOC, the passing of a spouse may prompt the bank to conduct a credit score review of the surviving spouse. With a Reverse Mortgage, the loan doesn’t become due until both homeowners no longer live in the home.
• Fixed-term rate options: A Reverse Mortgage provides fixed-rate choices, allowing borrowers to lock in rates for up to five years. On the contrary, a HELOC’s interest rate floats and fluctuates with the Bank of Canada’s prime rate, leading to increased borrowing costs in times of rising interest rates.

Next, we will look at both the benefits and the risks of all three options. Contact us to learn more about how you can use a Reverse Mortgage to tap into your home equity.