Reverse mortgages are becoming more mainstream in financial planning conversations for Canadian seniors. This is a logical outcome of an aging population seeking to access a primary source of wealth from home equity—to meet their financial, social, and health needs.
Why?
For a lot of different reasons, really. People need money to live their lives – pretty simple. The truth is, everyone’s situation is unique, but understanding how others use it can be interesting and reassuring. The below listed four common uses aren’t mutually exclusive, but account for a majority of the reasons people take a reverse mortgage.
- Consolidate other debts and to pay out another outstanding mortgage
- Lifestyle – renovations, in-home health care, vacations, and health reasons
- Help family
- Purchase a property
We could explore the above scenarios in more detail, but for this blog post, I’m going to speak about how people assess the reverse mortgage as an option. What are the important product features, benefits and costs that people pay close attention to.
| Factor | Why does it matter? | Details |
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| Annual Interest Rate
| Annual interest rates are applied to outstanding principal and accumulated interest and fees. Interest compounds semiannually on fixed rate terms and monthly on adjustable rate terms. Though rate isn’t always the most important factor, it is certainly a significant contributor to the overall borrowing cost | See current rates here Reverse Mortgage offer borrowers flexibility in terms of how they receive their funds. Click here and scroll to the Advances section to learn more. Recurring advances can help with budgeting needs and keeping principal balances down. Lump Sum is designed for people who leave no undrawn balance, using all funds at origination |
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| Partial Prepayment Privileges
| Some people want to make payments on the reverse mortgage, some don’t. There are limits to how much can be prepaid within a given timeframe. This is common with most standard mortgages. | - Prepay any interest outstanding once per calendar month
- Prepay up to 10% of your principal once per 12-month period (starting from your initial advance).
- After 5 years prepay in excess of 10% of your principal or the entire outstanding balance within 30 days of an interest rate reset date
- During years 6 to 10, prepay up to the entire outstanding balance with 3 months’ prior written notice
- After 10 years, prepay in excess of 10% of your principal or the entire outstanding balance at any time.
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| Full Prepayment Charge
| Circumstances change and borrowers choose to or need to repay the mortgage. As a Bank, we have committed these funds, so there are costs to us when this happens.
| For more info on this, check out our free calculator here Prepay in: - Year 1: 5 months’ interest
- Year 2: 4 months’ interest
- Year 3-10: 3 months’ interest
- Years 10 onwards: no charge
Important: If the borrower passes, there’s no prepayment charge and if the borrower moves into long term care, 50% of the charge is waived. |
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| Loan to Value (LTV)
| Determines how much of your home’s value you can access
| The calculation is straightforward: Eligible LTV x Home Value LTV is derived by the youngest borrower’s age, and the home’s value through an independent home appraiser Learn about this through our eligibility calculator
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| Online Access to Mortgage Balance
| Keeping track of your reverse mortgage balance, making payments or changes This is an important capability as many borrowers want to monitor and manage their mortgage online. Otherwise, Equitable Bank sends paper-based statements.
| Among other features, the myEquitable portal provides borrowers access to real-time balance information, statements, and options to contact Equitable’s customer support team. |
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| Upfront Fees and Closing Costs
| There are borrower-paid expenses related to getting a reverse mortgage. Some of these fees can be deducted from your mortgage proceeds, others will require you to make payment. | Click here for more information on the costs and fees. Costs include: - Equitable Bank setup fee
- Appraisal cost
- Legal costs
- Closing services fee
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There’s a lot to consider and it can be difficult to know where to begin and what factors to compare with other options. As is the case with all financial products, a reverse mortgage isn’t “one-size fits all”. It’s important to know your needs and to compare products, finding the one that’s right for you.
We hope this helps bring clarity to your study of the Equitable Bank Reverse Mortgage.