Category Archives for Reverse Mortgage
Reverse Mortages Provide More Options For Canadian Seniors
Unlike the U.S. market, Canada does not have as many mortgage options for seniors looking to tap into their equity during retirement.
One solution that is gaining more interest for those over 60 years of age are reverse mortgage programs.
Reverse mortgages have actually been around for quite awhile, but have only become marketed on a regular basis in Canada over the last few years.
The reason for their growing popularity again comes back to choice and options related to retirement financing of home equity. According to Statistic Canada, 77% of a senior’s net worth is tied up in their home equity and over 1.5 million seniors own their homes mortgage free.
So with the bulk of retirement assets tied up in real estate, it only makes sense that owners may want to draw against their investment during their senior years.
The alternative to mortgage would be to sell the property and downsize into a lower cost property in order to free up cash. But some consumer based research reports also indicate that over 80% of seniors do not want to move, so selling the home to extract value is not an option for them.
In the 1990’s retirement and pension funds benefited significantly from the stock market and as a result, seniors tended to use their home equity for estate planning purposes. However, in the last 10 years, stock market returns have been down, leaving many with inadequate sources of capital to finance retirement, especially with the average life expectancy continually going up.
Add to all of this the fact that the overall population is aging as baby boomers reach retirement age and you can see that there will continue to be a growing demand for financial vehicles like reverse mortgages that allow retirees to more easily tap into their retirement resources without having to up root their lives at the same time.
While reverse mortgage programs do have certain restrictions, they are much easier to qualify than a traditional mortgage and no payments are ever required on an approved loan for as long as the borrower lives in the home being mortgaged.
And the funds being generated can be used for any purpose from supplementing existing cash flow, to starting a hobby, home improvement, in home medical care, travel, helping family members, and so on.
If you’re considering a reverse mortgage or would like to know more about how they work and if they may be a fit for your situation, I suggest that you give me a call and I’ll make sure you get all your questions answered.
Reverse Mortgage Pros and Cons
As our population continues to age on a relative scale, there is more interest in reverse mortgage for retirement planning.
For those of you interested in a reverse mortgage program, here are some of the pros and cons you may want to consider.
Pros
- A borrower that received a reverse mortgage will retain home ownership and will be allowed to continue living in their residence for as long as the mortgage is outstanding. All the benefits of home ownership will basically be retained by the owners.
- Because the property value is likely going to rise over time, the net cost of loan will be offset by property appreciation effectively reducing the overall cost of the loan in the process.
- The monies received from a reverse loan program is not considered income for tax purposes as all funds are being provided through a debt instrument. For seniors utilizing loan advances to help pay for their living, the mortgage funds will have no impact on Canada Old Age Pension, Canada Pension Plan, or Quebec Pension Plan.
- In the event that a borrower chooses to utilize funds from a reverse mortgage for investment purposes, the resulting interest payments generated by the mortgage will be tax deductible. However, interest costs cannot be deducted for tax purposes until the mortgage has been paid off.
- There are no restrictions with respect to the borrower’s use of funds other than the lender will not pay directly pay property taxes on behalf of the borrowers.
- There are no payments due or payable on the mortgage until the last borrower passes on, sells the property, or the home becomes unoccupied.
Cons
- Depending on the interest rate in effect over time, the interest costs can accumulate quite quickly against the remaining equity in the home.
- The related administrative fees associated with reverse mortgages are higher than conventional mortgages, making the overall cost of financing higher.
- If the property does not appreciate during the time of the mortgage, there could be very little equity left after sale and mortgage retirement, leaving very little in the way of inheritance to heirs of the borrower(s).
If you would like to get more information on a reverse mortgage or would like to discuss different scenarios that relate to yourself or a family member, then I would suggest that you give me a call and we can go over everything together.