Reverse Annuity Mortgages

What is the purpose of a Reverse Mortgage?

These mortgages are designed for seniors, generally those over 65 years of age, who need funds to pay off an existing mortgage or for other debts, but cannot afford to make payments on a monthly basis.

They allow a senior to remain in the house providing they have the required equity to qualify. Location and quality of the property are also important factors. Houses in small towns or isolated areas don't usually qualify.

How does a Reverse Annuity Mortgage work?

These types of mortgages are available for approximately one third of the value of the home, depending on such things as age, marital status, and the current interest rates. The proceeds may be taken as a lump sum, guaranteed monthly payments, or a combination of the two.

Essentially, Reverse Annuity Mortgages are like a conventional mortgage, only in reverse. Instead of making payments to the lender each month, through a Reverse Annuity Mortgage, the lender pays you the monthly payments.

In many Reverse Annuity Mortgages, the principal amount of the mortgage loan along with accumulated interest is not due until the owner passes away or sells the home. There is no requirement for monthly payments but there is the option of paying out the mortgage at an earlier date.

Tax Ramifications

The payments being received under an Income Annuity Mortgage are taxable however, the interest that accumulates on the mortgage or loan is deductible and usually offsets any tax payable.

Who should consider obtaining one?

Those who wish to leave their estates to their heirs should not consider a Reverse Annuity Mortgage because it would eliminate some or all of the equity in the home. In fact, while most mortgages decrease over time, these types of mortgages will increase as interest accumulates.

However, for those seniors requiring extra income and who do not wish to sell their homes, a Reverse Annuity Mortgage may be ideal.

Who Offers RAM's?

They are offered by the TD Bank, the Royal Bank, and a company called Canadian Home Income Plan (C.H.I.P.). Reverse Mortgage.