Reverse mortgages are an increasingly common solution used by an aging Canadian population. It’s designed to allow homeowners to stay in their homes indefinitely as long as they are alive and residing in the property.
First a personal story about my parents and reverse mortgages.
My parents sacrificed a lot for my brothers and I. They gave us every opportunity to succeed, be our best and have a good comfortable life.
Both of my parents were newcomers to Canada and put in an honest day’s work everyday for decades. As an adult having benefited from the privilege and luxury of growing up in Toronto I can’t imagine the hardships of immigrating to a new home without a strong support network, raising 3 children, running a small business etc…
It’s a remarkable and familiar story that I’m sure many of you can relate to.
Now they are well into the golden years of their life and enjoying the fruits of their beautiful labour. Time with family especially their grandchildren, working in the garden of the family home and enjoying a bit of travel.
However there is an unfortunate reality we are being faced with.
Living out their retirement is costing them way more than they ever imagined or planned for.
In my work as a mortgage broker talking to people of all walks of life I’m discovering that this is not a unique challenge for just my parents but a whole generation that is aging in an increasingly more unaffordable city.
As the average life expectancy continues to rise, retirement savings are being stretched further over many more years. Many Canadians are looking for ways to supplement their income as they enjoy the golden years.
The solution is in their family home.
For most of our parent’s the biggest store of accumulated wealth is their home. However, accessing the built up equity and value is not an easy task. I’ve discovered that families and household decision makers are not fully aware of all their financial options.
Difficult discussions around downsizing and leaving the community that they love in order to make ends meet.
Fortunately, there is a way to tap into the built up equity without having to move or sell.
I’d like to introduce you to the Reverse Mortgage.
A Reverse Mortgage allows homeowners 55 or older to access up to 55% of the equity in your home as tax-free money. Not only are you are able to retain ownership, but there are no monthly payments for as long as you live in the home.
The reverse mortgage is a really neat and flexible tool that can be used and applied many different ways to solve a lot of money problems and stresses.
For example – it can be applied to alleviate and eliminate accumulated debt, increase monthly cash flow, help out family members, provide an early inheritance, make home improvements or even take that dream vacation.
The skinny on reverse mortgages.
If you’re 55 or older, you can borrow as much as 55 per cent of the value of your home. Principal and compound interest don’t have to be paid back until you sell the home or die. To keep the loan in good standing, homeowners only need to pay property tax and insurance, and maintain the home in good repair.
Reverse mortgages used to be a fringe product. They are now the fastest growing segment in the Canadian mortgage landscape.
Reverse mortgage transactions have more than doubled in Canada in less than four years to $3.12 billion according to June 2019 data from Canada’s banking regulator.
And the use of reverse mortgages is accelerating. Reverse mortgages rose 22 per cent in June 2019 from the same month a year earlier, versus 4.8 per cent for the total market.
Despite the prevalence of reverse mortgages in Canada there is still a lot of resistance and misinformation on the subject.
4 common reverse mortgage myths
Myth #1 : The bank owns the home.
Fact: You always maintain title ownership and control of your home, and you have the freedom to decide when and if you’d like to move or sell.
Myth #2: You will owe more than your home is worth.
Fact: Clients can qualify for up to 55% of the appraised value of the home, 33% on average. Due to reverse mortgage lender’s conservative lending practices, you can be confident that there will be equity left in the home when the loan is repaid. In a market like the GTA the formula is very conservative and reverse mortgage lenders report that over 99% of home owners cashout with equity at the time of sale.
Myth #3: A reverse mortgage is a solution of last resort.
Fact: Many financial professionals recommend a reverse mortgage because it’s a great way to provide financial flexibility. Since it’s tax-free money, it allows retirement savings to last longer.
Myth #4: You cannot get a reverse mortgage if you have an existing mortgage.
Fact: Many of HomeEquity Bank’s clients use a reverse mortgage to pay off their existing mortgage and other debts, freeing up cash flow for you to use as you wish. How great would it feel to be free of regular mortgage payments?
Where to begin the conversation about reverse mortgages?
It starts with a conversation about money in general.
I recently went through this with my family and it was a cathartic deep conversation for us all. There is often a lot of emotion tied up with money, finance and family history so it’s important that the right approach is taken.
I invite you to download our guide – How to Talk to aging parents about finance
Reverse mortgage resources
Home Equity Bank have been in the reverse mortgage game for decades with their well publicized CHIP Reverse Mortgage.
You may have already seen some of their content through the media.
I’m partnered with Home Equity Bank to bring a unique mortgage solution to my clients.
Based on recent personal experience and my unique position as mortgage broker, reverse mortgages are something I’m advocating for. I’d love to chat with you or your family about it if it’s appropriate.
If you would like to learn more about how a CHIP Reverse Mortgage can benefit you, please contact me and I’ll be happy to answer any questions you may have and provide you with more information so you can make the right choice.
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