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.
About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel