If you’re a homeowner over the age of 55 with no major debts, you may be able to access the equity in your home without having to move or sell. Understanding the different mortgage financing options will help you make the best decision for your situation, whether you need extra money for maintenance or to update your home.
Types of Mortgage Financing
There are several mortgage financing options in Canada, and 3 recommended specifically for seniors.
- Refinancing This is usually the simplest option if you have the resources to cover monthly mortgage payments. It allows you to borrow up to 80% of your home’s value. You then repay the loan in monthly instalments over 25 or 30 years. This option often provides the best interest rate.
- Home Equity Line of Credit
This gives you the flexibility to borrow as much or as little money as you need, up to 65% of your home’s value. The minimum monthly payments are simply the interest on what you’ve borrowed, so it may take more time and discipline to pay back the loan. The interest rate for this option is variable, and the line of credit can be combined with a regular mortgage to a maximum of 80% of your home's appraised value.
- Reverse Mortgage
This option has a more complex contract. It lets you borrow up to 55% of your home’s value all at once or as fixed monthly payments. In most cases, the amount of the loan and the accumulated interest are only repaid when you sell your home or pass away. This option is ultimately more expensive, and seeking independent legal advice is highly recommended.
Making your Decision
Your decision will depend on your needs and situation, and on the policies of the different lenders. Consider the following questions as you review your options:
- Would you prefer to receive the loan as a single “lump sum” payment, in smaller monthly payments, or to use it as an annuity or a line of credit?
- What happens if you want to sell your home in the future?
- How will this decision affect your spouse or children?
- What happens if the amount you owe is more than the value of your house when it’s time to pay it back?
- Will there be penalties if you decide to pay off the loan early?
- Is there a “cooling off” period so you can cancel the agreement if you change your mind?