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GLOSSARY

Canadian Financial, Real Estate and Mortgage Glossary

How often this word is used
 
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62% - Often

Reverse Mortgage


Synonyms:equity release, home equity conversion mortgage, lifetime mortgage, reverse-annuity mortgage
Filed Under: financial-banking, investments, mortgages, taxation
Tags: reverse mortgage
 

Definition of reverse mortgage

reverse mortgage
1. A type of loan that allows elderly homeowners to convert built-up equity into cash. The loan comes due if the homeowner sells, moves, or passes away.
2. An arrangement, often used as part of a retirement plan, in which a homeowner can borrow on the equity held in his or her home causing a negative amortization. Homeowners over the age of 60 can borrow up to 40% of the value of their home and receive monthly tax-free payments from a lender. Also called a lifetime mortgage, reverse-annuity mortgage or home equity conversion mortgage.

Related Terms and Acronyms:

  • amortization   Amortization refers to the process of gradually paying down the principal of a loan. Each payment toward the principal reduces your loan by that amount. This is different than an interest-only loan payment where the principal balance is never reduced. Amortization for a mortgage loan in Canada is normally 25 years, but can be as few as 5 years.
  • annuitant   An individual who owns or is the recipient of an annuity.
  • annuitization   The process of turning a retirement plan or annuity into income in the form of periodic payments or a single lump sum.
  • annuitization options   The different income dispersal options available when annuitizing a retirement plan or annuity, such as the timeframe and list of beneficiaries.
  • annuity   A financial instrument that disperses a number of payments over a set period of time.
  • due-on-sale clause   A condition of a mortgage that states that the loan must be paid when the house is sold. Commonly used in reverse mortgage lending.
  • mortgage (mtg)   A mortgage is a contract stipulating a specific real property, typically a residence or building, as collateral for a loan. The mortgage incurs a rate of interest that varies according to term and other features.
  • negative amortization   A gradual increase in loan debt that occurs when the monthly payment does not cover the entire principal and interest due. The shortfall is added to the remaining balance which creates "negative" amortization.
  • passive income   Income coming in on a regular basis, with little or no maintenance.
  • total annual loan cost (TALC)   A method of finding the annual cost of a reverse loan.

More Related Terms and Acronyms

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