Table of contents‍

#1 No Payments Required‍

#2 The Home Value “Pie"

#3 Negative Equity‍

#4 What Would Happen Without the Home Equity Guarantee

#5 Home Equity Guarantee‍

#6 Peace of Mind, Even if Rarely Needed

#7 Could a Reverse Mortgage Be Right for You?‍

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A reverse mortgage is a unique financial product available to 55+ Canadians, which enables homeowners to access equity in their homes, without having to pay monthly principal and interest payments. This is a great solution for seniors who have a lot wealth built up in their homes, but need some help with cash flow during retirement.

Some people have prior misconceptions about reverse mortgages. This is mostly because in the past, some bad actors gave the product a bad name. However, reverse mortgages have changed meaningfully over time and today’s version of the product comes with very strong borrower protections. One of those protections is called the Home Equity Guarantee.

This is the guarantee that no matter what happens to your home price or the mortgage balance, as long as you maintain your obligations under the mortgage contract (like paying property taxes and home insurance), the most you’ll ever owe when it comes time to pay the mortgage off, is the fair market value of your home.

This article explains the power of this product feature to give you, as a potential reverse mortgage customer, peace of mind.

No Payments Required

Since reverse mortgages require no regular payments, interest is simply added to the balance. This means that the mortgage balance will increase over time. But just because the mortgage balance will increase, this doesn’t mean your home equity will necessarily decline! On our Product page, we illustrate how in most cases, because of home price appreciation, home equity continues to grow over time even with a reverse mortgage in place!

The Home Value “Pie”

The pie chart below illustrates the relationship between home value, the reverse mortgage balance, and home equity. Quite simply:

Home Equity = Home Value – Reverse Mortgage Balance

So for example, if your home was worth $500,000 and the reverse mortgage balance were $200,000, you would have $300,000 of equity in your home.

Negative Equity

In the very rare scenario where the reverse mortgage balance were to eventually catch up to the home value – for example, if home prices were to drop significantly in your area – the amount of equity in your home could theoretically become negative.

Using the example above, if after 20 years the mortgage balance had grown to $400,000, but the value of the home dropped to $350,000, using the formula above

Home Equity = $350,000 – $400,000 = $(50,000)

What Would Happen Without the Home Equity Guarantee

With other products like HELOCs, if the mortgage balance were to exceed the home value, the borrower could be on the hook to pay the lender for the negative equity of $50,000. This can pose meaningful financial challenges for seniors who don’t have enough income or cash flow to cover that bill.

Reverse mortgages have solved this problem with the Home Equity Guarantee.

Home Equity Guarantee

If the reverse mortgage balance is less than the value of your home, then the Home Equity Guarantee doesn’t come into play. When it comes time to pay off the mortgage, the outstanding balance is what you’d pay.

But if the mortgage balance were to be higher than the value of your home, that’s when the Home Equity Guarantee would kick in.

Quite simply, the amount you’d owe would be capped at the value of your home.

In the example above, all you’d owe would be $350,000, not the full $400,000.

Peace of Mind, Even if Rarely Needed

As mentioned above, negative equity is a very rare occurrence for reverse mortgages because:

1. The loan amounts offered at the outset are conservative in comparison to the value of the home (capped at 55%)
2. Since real estate prices are rising in most markets in Canada, home value growth often outpaces the growth in the mortgage balance

However, many reverse mortgage customers get comfort out of knowing they can set it and forget it. They and their loved ones will never be stuck with a bill when it comes time to pay off the reverse mortgage. This means peace of mind.

Could a Reverse Mortgage Be Right for You?

Hundreds of thousands of Canadians are realizing just how wealthy they are, when they consider the value they’ve built in their homes. They’re using their home equity to improve their quality of life in retirement, and pay for things like:

• Keeping up with expenses
• Giving a living inheritance to their loved ones
• Paying for accessibility renovations
• Pay off existing debt

If you’re interested in learning more about how you could access the wealth you’ve grown with a reverse mortgage, give us a call at 1-866-882-5666 or let us know how we can reach you here , and one of our experienced Bloom Representatives will give you a call!