Reverse Mortgages

What's a Mortgage?
A mortgage is a loan that allows you to buy a home or other property by securing the loan against the property you buy. Read more in our beginners' guide to mortgages.
Where Can I Get A Mortgage From?
You can apply for a mortgage from a bank or other financial institution, such as a credit union, building society or specialist mortgage lender. Although you can apply directly, using an independent mortgage adviser might help you find the right deal.
What's A Repayment Mortgage?
This is the most popular type of mortgage where the borrower repays the loan each month over a set term - usually between 20 and 30 years initially in the UK - until the capital and the interest are repaid.
What's an interest-only mortgage?
With an interest-only product, the borrower repays the interest charged against the loan for the term, but doesn't repay the capital itself. At the end of the fixed term the capital remains to be paid and it's expected that methods such as savings or investment plans will have been put in place by the homeowner to cover the debt.

Interest-only mortgages are now far less common than they used to be for residential home purchases, although they're still commonplace for buy-to-let mortgages.

Many people have heard about reverse mortgages, but they're not entirely sure of how they work. What is a reverse mortgage, and how exactly do they work? Most importantly, homeowners want to know if they're eligible. In order to determine that though, if you're considering this type of mortgage, you first need to know the basics of a reverse mortgage.

A reverse mortgage is a mortgage that is taken out against the equity built up in a home. A reverse mortgage however, differs from a home equity loan or a home equity line of credit in the way that they are only eligible to homeowners over a certain age; and payments on them are also not due until the home is sold. A reverse mortgage can be a great option for some, but there are a few strict requirements that must be met; and some might find another option, such as a HELOC, a better option.

In Canada, a homeowner must be 55 years of age or older before they can qualify for a reverse mortgage. Because a reverse mortgage is based on the equity within the home, an appraisal will then need to be done on the property to determine its value. Once the amount of equity has been established, a homeowner can then generally borrow up to 40% of that equity through a reverse mortgage.

What types of mortgage are available?
There are many different sorts of mortgage to choose from with varying features and benefits. Some of the more common types include:

Standard variable rate (SVR) mortgages
Fixed interest rate mortgages
Tracker rate mortgages
What's the LTV ratio?
LTV stands for loan to value and the ratio is the amount of the mortgage expressed as a percentage of the property's value. The lower the LTV, the greater the equity in the property. The LTV is one of the considerations taken into account by lenders when you apply for a mortgage.
What's MMR?
MMR stands for Mortgage Market Review, which came into effect in April 2014 and changed the way lenders look at your ability to repay a mortgage.

As a result, many lenders now ask to see your bank statements and might ask you questions about your spending habits, in order to assess your affordability ensure you don't over-commit yourself financially.
How much can I borrow for a mortgage?
This depends on a number of factors, but since the MMR lenders now usually look at how much you can afford per month rather than using a miltiple of your annual salary.

However, some lenders might also cap your affordability at a salary multiple, such as four times a joint salary.

They will also consider things such as any income from a second job, bonuses, tax credits and maintenance payments and, since lending rules were tightened, they also increasingly investigate borrowers' ability to repay.

This means looking at your credit history and also your monthly outgoings, examining not just how much you spend but what you spend it on, to help assess your ability to manage should interest rates rise.

Upon approval the homeowner is then given the money, usually as a lump sum, and no payment is required until the home is sold, or the owner moves. Should the owner pass away and the reverse mortgage is still on the property, the loan will then need to be repaid. Another requirement of reverse mortgages in Canada is that the current mortgage on the home must not exceed 50% of the home's current value.

Many things need to be considered when taking out a reverse mortgage. Homeowners that have family members may not wish to leave their loved ones with such a debt; but they can be a great option for many people who are already living on a fixed income and need a large amount of money.

Also, those who have close family but are taking out the reverse mortgage in order to help family may feel as though the slight risk is worth the huge reward. Every situation is so unique that homeowners really must look at their own needs, and determine which route is best for them before taking on a reverse mortgage, or any other type of home loan.

One of the main problems Canadian homeowners have when looking for a reverse mortgage is finding a lender that offers them. There are very few lenders that deal with these types of home loans and so, those looking for them are usually best off working with a mortgage broker, who will have access to all the lenders in the country that offer reverse mortgages. And, a broker won't just be able to put you in touch with a lender, but also get you the best rate with that lender too!

How much of a deposit do I need for a mortgage?
This will depend on your circumstances and the mortgage provider. While '100% mortgages' - where you can borrow 100% of the property's value - have now almost entirely disappeared, it's still possible to get a 95% mortgage, where you pay a low deposit of 5% of the property's value.

Government schemes like Help to Buy, shared ownership and Right to Buy can also help you access a mortgage with lower up-front costs.

But many lenders ask for a 10% deposit or more, and many tend to save the best rates for borrowers with a deposit of 25%.

That means you'll have to save for a deposit, as borrowing a deposit usually isn't an option.
What mortgage fees will I pay?
It's important to consider all the fees and costs of buying a home before you apply for a mortgage.

Some lenders charge an arrangement fee to cover the cost of setting up a mortgage. On top of this, the lender may charge a booking fee upon application and this is usually non-refundable, even if the mortgage doesn't go ahead.

You'll sometimes have to pay a valuation fee and legal fees as well to cover the lender's conveyancing costs - these will be in addition to paying for your own conveyancing work and any other surveys you get to assess the property's value.
Do I have to pay mortgage fees up front?
Sometimes some or all of these fees can be added to your mortgage debt, but this will work out more expensive in the long run than paying up front, due to the interest charged on the fees.

Low-fee or fee-free mortgages include these costs in the overall cost of the mortgage, so it might work out cheaper to take a low-fee mortgage with a slightly higher interest rate.
Can I move house?
Some mortgages can be ported if you want to move house, meaning you can take your mortgage deal and its remaining term with you and use it on your new property. However, you may have your affordability and credit score rechecked and the situation could be complicated if the new property is worth significantly more or less than your current home.
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