• What is the Purpose of a Reverse MortgageWhat is the Purpose of a Reverse Mortgage?

    To ask “What is the Purpose of a Reverse Mortgage” is like asking “what is the purpose of a loan”? The reason: a mortgage is just a type of loan. And a reverse mortgage is just a type of mortgage. Why do we get mortgages? Sometimes it’s strictly to buy a home. Other times it is to fund projects or purchases using our homes as collateral.

    What is the Purpose of a Reverse Mortgage? The same as a regular mortgage EXCEPT that reverse mortgages don’t make you pay regularly. You pay the accrued interest at the end. Why would you want to do this? One reason: cash flow. Reverse mortgages are a good fit for homeowners who can’t afford the payments. It might be a good fit if you have no desire to pay down your mortgage. If you CAN afford to make mortgage payments and your goal is to be mortgage-free; a reverse mortgage is probably NOT a good fit.

    Those are important distinctions. The rest of the answer to the question “What is the Purpose of a Reverse Mortgage?” requires rephrasing. What are the funds being used for?

    Here are some of the common uses of the funds from a reverse mortgage:

    1. Gift for down payment: a $350,000 gift amortized over 25-years is actually worth $534,818 (using 3.69% average interest rate).
    2. To increase purchase capacity. Many retirees who are downsizing use the equity in their homes to purchase a more suitable dwelling.
    3. Renovate to get full market value – a lot of retirees use the money for a fresh coat of paint & minor renovations to greatly enhance list price
    4. Purchase a rental property. Many retirees use the funds from their home to buy a condo and rent it out to increase their retirement income. Guess what they do when they decide to downsize? They sell their homes and move into the condo!

    Those are just a few answers to the question: What is the Purpose of a Reverse Mortgage!

    Please don’t hesitate to call or write below if you would like to check if a reverse mortgage is the right product for you.

    Robert Floris is a Mortgage Broker. His office is located at 651 Fennell Avenue East in Hamilton, Ontario. If you would like to speak with Robert, he can be reached at 905-574-9200 #215.

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