Canadian seniors who are feeling the financial effects of the COVID-19 pandemic are showing interest in reverse mortgages as a way to stay in their current homes.
With a reverse mortgage, Canadians aged 55+ can borrow funds against home equity. No payments are required, and the loan can be taken as a lump sum or in monthly payouts. The loan becomes due once the homeowner sells or leaves the home.
This is an important solution to consider if you or your loved ones are looking to free up home equity while remaining in your home. After all, people are living longer. In fact, the United Nations calls longevity one of the most significant social transformations of the 21st century. While this is certainly positive news, it also poses concerns about whether we’ll have enough money to maintain a good quality of life into our twilight years.
It’s difficult to make ends meet at the best of times, but even more challenging on a fixed income. From a young age, we’re encouraged to save for retirement – and we do the best we can but, the reality is that, many retirees find themselves struggling to cope financially. The debt they take into retirement, combined with the burden of rising living costs and increased healthcare expenses can make this new phase of life stressful instead of enjoyable. This is where a reverse mortgage can come in to save the day.
How does a reverse mortgage work?
While you may not have been able to pay off your mortgage before retiring, it’s safe to assume that you’ve built up some equity in your home. A reverse mortgage allows you to borrow up to 55% of that equity without having to make regular payments as you would with a traditional loan. The money you receive is tax-free and doesn’t affect the property’s title and ownership, nor does it impact any other income you receive from government programs such as Old Age Security.
Offered exclusively for homeowners aged 55 years and older, a reverse mortgage allows you to free up equity to be used as you see fit. While interest rates tend to be a bit higher than with a traditional loan, they’re offset by the fact that repayment isn’t required until the loan comes due, which occurs when you move out of the home, sell it or it becomes a part of your estate. At that time, the reverse mortgage, including interest and principal, is paid off from the proceeds from the sale of the home.
It’s important to note that the home you use to secure the reverse mortgage must be your primary residence. If you’re a snowbird and reside outside of the home for an extended period of time, make sure you talk to your mortgage agent to ensure you qualify.
Retirement is a significant milestone and should not be a burden. It’s a time for enjoying life and doing what makes you happy. Make sure your retirement is filled with meaning and purpose, and free from financial stress.
Have questions about whether a reverse mortgage makes sense for you or your loved ones? Take our Reverse Mortgage Assessment and find out!