With retirement looming or potentially knocking, more Canadians are being left to ponder their options. There are many financing options out there surrounding their home. But there is one option that many are turning to: reverse mortgages. But it is important to understand reverse mortgage rates. Both what they currently are, and what they may wind up costing in the end.
Reverse mortgages are offered by two financial institutions: Equitable Bank and HomeEquity. The latter offers the Canadian Home Income Plan or CHIP. Understanding the rates – just one of the costs involved in a reverse mortgage – can provide more clarity on the financial viability of a reverse mortgage.
Keep in mind that reverse mortgage rates are not the only factor when it comes to assessing reverse mortgage costs. While the rate is definitely important, closing costs and administrative fees, appraisal costs, and potential legal fees need to be considered as well.
The closing costs and administrative fees in particular are meant to cover the cost of discharging a prior mortgage should there be one. When the prior mortgage has been closed out entirely, the CHIP reverse mortgage is then implemented.
These costs are generally added to the balance of the reverse mortgage. That is instead of having to be paid out of pocket, which can be beneficial to some.
HomeEquity Bank and their CHIP program offer a number of terms and corresponding rates. For a 1-year term, the annual percentage rate would be 4.54 percent, though they have special rates on their 1-year, 3-year, and 5-year terms.
On a 3-year CHIP reverse mortgage, the rates would be 4.74 percent and would include the $1,800 closing and administrative costs. Keep in mind that these rates can shift over time. That makes it is possible to get a different rate than what they currently offer.
Earlier this year, Equitable Bank began offering non-promotional reverse mortgage rates below the standard HELOC rate for the first time ever. The 4.44 percent term for one year is the lowest on record and comes in just under the average home equity line of credit number.
The longer the term on a reverse mortgage, the higher the rate that one can expect to pay. It is the cost of not having to pay back the loan immediately. For a long time, critics complained of the high costs of reverse mortgages. Those complaints are beginning to fizzle as rates continue to fall.
It does not mitigate the other fees involved in the process, but lower rates can mean serious savings over the life of a reverse mortgage. Talking to a financial advisor and a mortgage broker is the best thing that a potential borrower could do. It provides a much better understanding of whether or not a reverse mortgage is the best course of action versus another type of borrowing.
The interesting thing is that there have been recent cuts in mortgage rates. What’s more interest is that it comes at a time when reverse mortgages are hotter than ever. A report from November 2019 shows a new high of $3.98 billion on outstanding reverse mortgage balances. These numbers, which is a 14 percent increase from the prior year, come from the Superintendent of Financial Institutions. Compared to the 4 to 5 percent growth rate for regular mortgages, that is a huge increase.
Equity release solutions continue to be the driving factor. Home values are strong, the population is aging, household savings have been trending down for decades, and household debt loads continue to rise.
More and more Canadian seniors enter retirement cash-poor and house-rich. With falling rates, reverse mortgages will only become more appealing to those who may have been reticent to take money from their home equity.
At the end of the day, it all comes down to individual need. What works for some may not for others. Having equity in your home at least provides another potential option when it comes to getting the funds necessary for a major renovation, retirement income, paying off debt, or any other reason.
The first thing that you should do if you want to discuss a reverse mortgage is call Lotus Income. We are here to get you the most equity out of your home and put the most money into your pockets.
Reverse mortgages can seem like a complicated endeavor, so it is important to discuss all of your options first. We will help take you through the pros and cons of reverse mortgages and determine the right fit for your needs.
For Canadians at or nearing retirement, getting the funds necessary to live life comfortably is important. Even if retirement savings have been compromised, there are options available to you. Call Lotus Income today.