By Alisa Aragon-Lloyd, as seen in "Reno + Decor" magazine - Vancouver Edition - Feb/Mar 2023
Perhaps you or a friend or family member have reached retirement age and dream about fixing up the family home to age in place or pay off debts so you don’t have to move. Many people, as they reach age 55+, realize they have miscalculated the expenses associated with retirement, such as property taxes, rising energy and utility bills, and the overall cost of living, which seems to get higher every year. If you’ve been living in your home for many years, do not want to sell and move and would prefer to renovate it to meet your needs as you age, consider a reverse mortgage to free up some funds.
So, what is a reverse mortgage? The good news is that if you are a senior, you don’t have to leave the family home if you consider a reverse mortgage, a specialized financial product for people 55+ who own their own home. It lets you stay in your home while benefiting from the value you have built up in that property over the years. Compared to a regular mortgage, a reverse mortgage can offer substantial monthly cash savings, so you have all the income you need to live the retirement of your dreams. Let’s explore how you can benefit from a reverse mortgage.
REGULAR MORTGAGES REQUIRE YOU TO PAY A LENDER. A REVERSE MORTGAGE PAYS YOU!
If you and your spouse are 55 or older and you own your home as your principal residence, you may be eligible to receive up to 55 per cent of your home’s current appraised value in cash. The specific amount you will receive is based on your age, your spouse’s age, the location and type of home you have, and your home’s current appraised value. No matter how much you receive, you never have to make monthly principal or interest payments (until you move or the house is sold, at which point the loan will have to be paid back, with interest), so you get the money you need without reducing your cash flow.
THERE ARE NO INCOME, ASSET, EMPLOYMENT, OR CREDIT REQUIREMENTS.
Since the amount you receive is secured against your home, qualifying is easy and hassle-free, even if you are living on a very limited retirement income.
YOU CAN RECEIVE THE MONEY WHICHEVER WAY WORKS BEST FOR YOUR LIFESTYLE. With a reverse mortgage, you can choose a single lump sum payment or as on-going monthly, quarterly, semiannual, or annual income. You can even choose a lump sum to begin with, followed by on-going advances over time.
A REVERSE MORTGAGE CAN BE USED TO CLEAR UP ALL YOUR REMAINING DEBTS. Maybe you still have a mortgage remaining on your house and the payments are cutting into your lifestyle. Maybe you have monthly credit card bills piling up. A reverse mortgage can be the ideal solution. In most cases, you can use the funds to eliminate mortgage payments and credit card debts, and still have enough left over so you can enjoy life more and not have to worry about money.
YOUR INCOME TAXES AND PENSION ARE UNAFFECTED.
As a retired person, one of your major concerns is how much you will be paying in taxes each year, since that can really affect your cash flow. Fortunately, the money you receive from a reverse mortgage isn’t considered income — even if it’s invested in an account or annuity with monthly withdrawals. This is because the home equity you are accessing has already been taxed since you purchased your home with after-tax dollars. Not only don’t you have to pay taxes on your reverse mortgage proceeds, but it also won’t bump you up into the next tax bracket. And since it’s not considered income, it won’t affect your Old Age Security (OAS) or Guaranteed Income Supplement (GIS) payments.
IT’S ALWAYS YOUR HOME.
You will never be asked to move or sell your home to repay your reverse mortgage, as long as you maintain the property and stay up to date with property taxes, fire insurance, and strata fees. Your equity and estate are fully protected since the reverse mortgage amount can never exceed your home’s value. Sure, the equity in your home will decrease over the years as you receive payments, but your home’s value will likely increase even more quickly over the same period. Generally, 99 per cent of homeowners have money left over when their reverse mortgage is finally repaid (when you move or die). On average, the amount left over is 50 per cent of the value of the home when it’s sold.
THE INTEREST ON YOUR REVERSE MORTGAGE CAN SOMETIMES BE TAX DEDUCTIBLE.
If you use the money you receive to make non-registered investments such as GICs and mutual funds, the interest costs on your reverse mortgage can be written off at tax time. This can help offset the taxes you owe on your income, RRIFs, or RRSP withdrawals.
Mortgage experts can introduce clients to all the benefits of a reverse mortgage. However, since they are not tied to any one lender or type of product, before recommending a reverse mortgage, they will do a thorough analysis of your situation, needs, and goals. Only then will they make an unbiased recommendation about which product is right for you. In most cases, that will be a reverse mortgage. But most mortgage experts also have access to innovative lines of credit and other home lending products that may better fit a person’s specific needs.