It’s no secret that the more you learn about Reverse Mortgages, the better they seem, often to the point where you begin to wonder if they’re actually too good to be true. I’ll tell you upfront; a Reverse Mortgage is very good, and very true.
The fact is, Reverse Mortgages are incredibly attractive for a number of reasons, however, they aren’t “free” money (albeit about as close as you can get in this day and age). What I mean be that is, aside from the minimal fees required to obtain a Reverse Mortgage in Canada, the only other cost you’ll incur is good old interest, but you NEVER have to make a payment.
With that said, one of the most frequently asked question I get asked when discussing Reverse Mortgages with a client is; “how much interest will I pay on a Reverse Mortgage?” Often followed by; “will the interest eat up all my equity?”
In this article I’m going to explain exactly how much interest you’re expected to pay on your Reverse Mortgage in 2017, as well as how the interest is offset in such a way that you’ll continue to build equity in your home, even with a Reverse Mortgage!
How much is interest on a Reverse Mortgage in 2017?
The interest you’ll pay on your Reverse Mortgage varies depending the term you choose. In this case, a “term” refers to the length of time you decide to have your agreement with the lender. Each term has an accompanying interest rate, annual percentage rate (APR), as well as associated closing and administrative costs.
Here’s what that looks like as of September 21, 2017
|Term||Interest Rate||Annual Percentage Rate
*APR is the estimated cost of borrowing for 5 years expressed as an annual percentage. It is based on a mortgage of $150,495 and includes the applicable closing costs.
**These fees may vary based on individual circumstances
*** Variable refers to the HomEquity Bank Prime Rate plus a fixed spread of 2.29%. The fixed spread is guaranteed for 5 years.
Prepayment and Payment Options on Reverse Mortgages
As long as you (the homeowner) lives in the home, you are not required to make any payments on either the principal or interest amounts of your Reverse Mortgage.
This is one of the most attractive features of a Reverse Mortgage, yet one of the biggest misconceptions Canadians have about the product.
However, should you decide that you want to make payments towards your Reverse Mortgage, you can rest assured that no prepayment charges apply:
- On regular interest payments of a fixed amount (by automatic withdrawal)
- On a single prepayment of up to 10% of the outstanding principal an interest made within 30 days following each anniversary date).
- After 5 years, on payments made within 30 days following an interest rate reset date.
Interest Rate Options for Reverse Mortgage clients
What happens if I want to switch to a different rate or term during my Reverse Mortgage?
If for any reason you want to switch your interest rate, you’re in luck!
If you’ve selected a fixed rate, it can switched to a different fixed rate or to the variable rate during or at the end of the the interest rate term. Keep in mind however, if switching rates during the current interest term, a rate differential may be applicable. On the other hand, if you have selected a variable rate, it can be switched to a fixed rate at any time.
Because of how the overall design an implementation of your Reverse Mortgage works you can rest assured that there will always be a plan that will fit your needs and will be flexible enough for you to help you accomplish the lifestyle and future that you have set out to have with your Reverse Mortgage.