If there is a product in the financial services arena that people seem to universally dislike, it appears to be the reverse mortgage. I seriously don’t know why. What I do know, is that given the aging population, our love affair with real estate, the high levels of debt and the need to fund retirements, this product may be really hitting its stride.
A good place to start are the benefits.
Think about the popularity of Netflix in the midst of a pandemic. It was a lifeline for households left with few entertainment alternatives during long periods of lockdown. A reverse mortgage just might be the lifeline for households who have few alternatives to fund their retirement yet want to enjoy the next third of their life the way they dreamed of.
Let’s face it, life has a way of throwing you a curveball when you least expect it. When planning for retirement we all know there are risks however, I guarantee very few planned for a pandemic and the damage it could do to household savings, including your retirement savings. The reality is there are many external factors that can disrupt your financial life: high inflation, living longer than you ever imagined, poor health, limited savings, loss of a job, and the list goes on.
However, before you believe it is all doom and gloom it doesn’t have to be. Think of the fable of Aesop where the goose lays a golden egg each day and if allowed to live would have been a source of continued wealth. Your home, that you were savvy enough to invest in, has the potential to become your golden egg for as long as you choose to live there.
Given the continuous rise in real estate prices, our homes have become a pillar of financial strength for many. A golden resource that could be capitalized on if desired or needed.
I’ll explain – If you are over the age of 55 and you need or want access to capital, a CHIP Reverse Mortgage might be the answer.
Unlike traditional mortgages there are no monthly mortgage payments, you can spend your money from your home as you like and it is tax-free. Repayment is only required if you move or sell and it should be noted you retain full ownership of your home.
Over the past six years, HomeEquityBank shares that the reverse mortgage solution has become increasingly popular among Canadians, with customers sharing the following reasons they’ve turned to this financial product to live their best retirement:
1) To take care of your finances – paying off your mortgage, credit cards, and debt can provide you with an opportunity to have a new financial beginning.
2) To pursue passions and interests – ever thought of starting a new business, or travelling more?
3) For gifting – gifting to adult children who might want to get into the real estate market, you might even want to consider it an advanced inheritance that you get to enjoy with them.
4) For health expenses – Aging can be expensive from medication to private plans for in-home care.
5) To do renovations – Lifestyle or accessibility renovations? Do what you want to do to stay in place comfortably and safely.
6) As an income supplement – drawing down some money from your home offers you a degree of financial flexibility to enjoy as you see fit.
A CHIP Reverse Mortgage is simply access to the capital you have built up in your home. You can’t eat a brick in retirement, but you can draw some money out of your home and take yourself out for a nice dinner.
In the interest of transparency, there are associated costs with this product including: legal fees, appraisal fees, and mortgage interest.
A reverse mortgage is not for everyone, but it can work for more people than you think and for some it will be their golden egg. I would encourage you not to turn your back to this potential golden goose, without fully understanding all of it has to offer. Next month, I will break down these costs in detail, so you can clearly see the risks, rewards and the benefits.
~ Pattie Lovett-Reid
Chief Financial Commentator