Reverse Mortgage Process

Understanding the Reverse Mortgage Process

A reverse mortgage is a specialized financial solution designed for homeowners aged 55 and older, allowing them to access up to 55% of their home's equity without traditional monthly repayments. Although it shares many similarities to traditional mortgages, a reverse mortgage has some unique steps in the process. So, without further ado, let’s go over the steps.

Step-by-Step Reverse Mortgage Process

1. Initial Research - the reverse mortgage process begins with research. Since this is a significant decision, make sure to understand the process and all of the implications so you feel comfortable. To help with this, a good idea for potential borrowers is to:

• Consult with a mortgage specialist, such as myself (for a free consultation)

• Compare different lenders and their products

• Understand potential hidden costs and terms

2. Lender Application – once you have selected the best lender and product for your situation, the process continues with a detailed application that includes providing the lender with:

• Personal information

• Date of birth

• Home address

• Asset and liability details

• Credit score authorization

3. Home Appraisal – since most seniors no longer have employment income, the security for the mortgage is primarily based on the value of the principal residence. This is why a critical step in the reverse mortgage process is the home appraisal, which:

• Determines the home's current market value

• Directly influences the borrowing amount

4. Document Compilation - borrowers must gather essential documentation and send them to the lender of choice. All of this can be scanned and sent in electronically to simplify the process. The information required includes:

• Personal identification documents such as driver's license or passport

• Property tax statements and proof of payment

• Existing mortgage statements and paperwork, if there is one in place

• Bank statements and investment statements to show asset balances

• Income verification documents, which may not be required

• Other documents may be requested based on your specific circumstances

5. Lender Commitment Review – this is a key step in the process and often is done at the same time as document compilation. During this stage of the reverse mortgage process, borrowers:

• Receive a formal commitment from the lender

• Similar to other mortgages, the lender indicates loan terms, amount, and interest rate

• Review what is required to get the loan, such as which documents

• Sign initial acceptance without final commitment

• This means that there is no obligation on your behalf, just on the lender’s behalf

6. Independent Legal Advice - this is a unique aspect of the reverse mortgage process that is mandatory in order to provide an extra layer of protection to seniors. This review:

• Is required by all lenders

• Ensures borrower understands all terms and costs

• Provides an opportunity to ask critical questions

7. Legal Signing - the formal legal signing involves:

• Working with real estate/mortgage legal companies

• Creating official documentation, similar to other types of mortgages. The most commonly used firms are FCT.ca or FNF.ca

• Securing the reverse mortgage against the home

8. Closing & Funds Disbursement - the final stage of the reverse mortgage process includes:

• Paying off any existing mortgage

• Receiving funds (lump sum or monthly payments, based on your selection)

• Beginning interest accrual on withdrawn amounts

Timeline and Expectations

The typical reverse mortgage process takes 2-6 weeks but is important not to rush. Borrowers should:

• Allow 4-6 weeks for comprehensive processing

• Consider starting 3-4 months before renewal of any existing mortgage to ensure a smooth transition

Credit Score and Income Considerations

While not primary qualification criteria, lenders still:

• Pull credit scores due to regulatory requirements

• Verify income to assess property tax payment ability

• Ensure borrower's financial stability

Potential Risks and Recommendations

While the reverse mortgage process offers financial flexibility, borrowers should:

• Thoroughly understand all terms

• Consider long-term financial implications as this is not “free-money”, just “tax-free”

• Seek professional financial advice from mortgage specialists, such as myself

• Compare multiple lender offerings

Conclusion

The reverse mortgage process provides a unique financial tool for seniors looking to leverage their home equity. By understanding each step, from initial research to funds disbursement, homeowners can make informed decisions that support their retirement financial strategy.

Free Professional Consultation

If you have any unanswered questions, uncertainties or would like to go over your specific financial needs and goals, please contact me at mike.a@reversemortgageportal.ca to set up a call. As a CPA, Chartered Professional Accountant, of over 20 years, I know the importance of understanding the full picture before making recommendations. I look forward to learning more about you and your financial needs so I can help you make the best decision.

Don’t forget to ask about our $400 rebate!