As the average age of our Canadian population gets older (currently Canada has over 5 million people over 65 yrs old)*, it is no doubt that you or your loved one may be faced with growing concerns about the ability to live life without financial constraints or difficulties. It may be mounting medical expenses or the limitations of living within a fixed income, or carrying debt load into retirement.
On the other hand, it may be the time to enjoy travelling or helping out grandchildren with university tuition, even the purchase of a home in sunnier climes. Perhaps it’s time to enjoy an active retirement and downsize into a smaller home!
Whatever the situation may be, a Reverse Mortgage might just be the perfect fit for you to find that extra income you hold in your home.
WHAT IS A REVERSE MORTGAGE:
A Reverse Mortgage is a loan secured against the value of your home.
Unlike a loan or a regular mortgage, with this type of mortgage, you are not required to make payments. You only repay the loan when you move or sell your home.
A Reverse Mortgage is a means for homeowners, aged 55 years or older, to access a portion of the stored value in their home to use today while still retaining ownership. In effect, converting the equity to cash, which can be received in a lump sum payment, regular payments or a combination of the two.
- Payments from a reverse mortgage are tax-‐free income.
- Reverse mortgages do not have to be repaid until you sell your home or you or your surviving partner pass away.
- The freedom to eliminate monthly payments can be a benefit for stretched budgets.
- You can repay the loan at any time.
- If the investment market takes a downturn, a reverse mortgage could fill the gap until your investments stabilize or reach maturity.
- The amount you owe can never exceed the value of your property.
- Advantages of Revers Mortgages Continued…
- You and your beneficiaries will not be responsible for any shortfall if interest rates increase and housing values drop.
- Interest paid on the reverse mortgage is tax deductible if the proceeds were used to earn investment income
A CASE SCENARIO
Mr. and Mrs. Walsh 82 and 78 years old, found that the town home they were in no longer suited them as Mr. Walsh has deteriorating health and was having trouble managing the stairs. They were ready to find a nice little condo to settle into.
Mr. and Mrs. Walsh had some concerns, as, now that they were on pensions, they were unable to qualify for the difference they needed. They owned a $400,000 townhouse with a $250,000 mortgage.
Sold their current home for $400,000.
Purchased a $230,000 condo with a $125,000 down payment, proceeds of which were from the sale.
- They got a $105,000 CHIP Reverse Mortgage on the new property to cover the difference.
- No income
- No credit requirements and most of all no payments for as long as they live in their home
- If one partner passes away, nothing changes
- Provides them with complete control over their home and with peace of mind and living life on their terms!
There are some out of pocket costs associated with setting up this type of mortgage (Appraisal and legal advice) with the set up fees coming out of the proceeds of the loan. The interest rate is a bit higher than if you were purchasing a home but still competitve with variable or fixed rate options available.
Unlocking the value in your home with a Reverse Mortgage may just be the answer to bring you peace and security in your financial health. As always, get professional advice from a mortgage professional who will help you determine whether or not this product is right for you!
* Statistic provided by Employment and Social Development Canada
Article written by Jordan Thomson, Professional Mortgage Planner with City Wide Mortgage Services (DLC) who is always working to help her clients achieve the best mortgage products to bring them financial health and happiness.