Many people have taken advantage of reverse mortgages as a means of converting home equity into cash. However, the rules are changing, and homeowners may not be able to borrow as much.
When you get a reverse mortgage, the bank will give you the option of receiving a lump sum, a line of credit or monthly payments. It is paid off (including interest) when you die, move or sell your house.
Currently, there are two types of reverse mortgages: “standard”, which allow borrowers to receive 56-75 percent of a home’s appraised value; and “saver”, where they receive less.
These will be merged as part of the rule changes. As a result, borrowers may find that they can’t access as much of their home’s value as they could with a standard reverse mortgage, but may receive more than with a “saver.”
Also likely is a cap on the amount borrowed in the first year of a loan, although the percentage is currently undetermined. If your home is worth $200,000, and you are eligible to borrow 75 percent ($150,000), the imposition of, for example, a 60 percent cap would mean you could only borrow up to $90,000 (60% of $150,000) in the first year.
As well, homeowners who need more than 60 percent of the loan to pay off their regular mortgage can take up to the entire amount they’re eligible to borrow immediately. However, a fee will be charged.
(Editor’s note: Changes were expected this fall; others will come later. This represents the situation at press time.)