How to Get Rid of Your Debt with a Reverse Mortgage
Are you among the millions of Canadians with an ever-increasing credit card and line of credit debt? Find out how a reverse mortgage can help you get rid of this debt once and for all.
Being stuck in a never-ending cycle of minimum payments and high-interest rates is no way to live out your retirement. Carrying debt could become a burden too heavy to carry, forcing you to sell your home.
Should your limited income and/or high level of debt rule out access to a traditional mortgage, your nesto advisor may recommend that you apply for a reverse mortgage.
A reverse mortgage can enable you to receive the funds you need to clear out all or most of your debt obligations.
How Can I Apply for a Reverse Mortgage?
Your reverse mortgage application will look the same as the application for your typical mortgage although there are a few additional criteria to be met to be eligible for a reverse mortgage. These are:
- Every person named on the property title (i.e. yourself and your spouse) must be aged 55 or over.
- If you still have a mortgage or any other lien on the property, it will have to be paid from the reverse mortgage proceeds or other sources of funds. The remaining amount (reverse mortgage advance less current mortgage/liens) will be advanced to the applicants.
- A reverse mortgage can only be registered to your primary residence.
When filling out your reverse mortgage application, you must provide the account numbers and balances for every debt you wish to repay with these funds.
Once your lawyer has signed and completed all the necessary paperwork, the reverse mortgage lender will provide the predetermined amount of funds for you to pay off your debt.
How do I Pay Off My Reverse Mortgage?
Much like a regular mortgage, a reverse mortgage will accrue interest.
The difference is that the interest on a reverse mortgage, as well as the principal amount that was paid to the homeowner, only requires to be repaid once a property is sold or after the homeowner passes away.
A reverse mortgage allows you to retain ownership of your home. However, since you are still the owner of the property, you remain responsible for paying any and all property expenses, such as property taxes, heating, condominium fees (if applicable). You are also still responsible for retaining valid homeowner insurance and for maintaining the property. That much hasn’t changed.
Of course, if you wish to reduce the amount of interest your reverse mortgage accrues, you are free to utilize the following privileges without incurring penalties:
- Paying interest monthly (and maintaining the same equity in your home)
- Paying 10% of principal annually.
Aren’t Interest Rates Higher for Reverse Mortgages?
Yes, they are. This is due to a number of risks factors but is mostly because you don’t have to make regular monthly payments on a reverse mortgage. However, some lenders may provide flexible repayment if you so desire.
Furthermore, interest rates on most conventional credit cards–which can reach 20% in certain cases–will be higher than the interest rate on a reverse mortgage (approximately 6.5% of as writing this article). For the objective of eliminating debt, that difference alone is a relief that translates into more money in your pockets at the end of the day.
Are you ready to leave credit card hell behind and live the retirement you have always dreamed of? If so, speak with your nesto advisor today to find out about reverse mortgages.