More and more, Canadian homeowners who are at least 55 years old are choosing a financial product called a reverse mortgage. But what is a reverse mortgage and is it the right decision for you?
What is a reverse mortgage?
Essentially a reverse mortgage is, is a loan that allows you to borrow from the equity in your home. It is unique from other products (like a second mortgage), however, because you do not have to repay the loan as long as you continue to own and live in your home. The cash you receive from a reverse mortgage may be paid out to you in a lump sum, or you may receive monthly payments as if it were an extra paycheck.
Why do people get reverse mortgages?
There are a variety of reasons why someone might choose to get a reverse mortgage. Many choose this option because their retirement income simply isn’t enough for them to live the type of lifestyle that they would like to live – it helps to give their income a needed boost. Others may choose a reverse mortgage because they have a specific purpose for which they need extra money – such as travelling or starting a business.
Really, though the money from a reverse mortgage may be used for whatever purpose you choose. As long as you are at least 55 years old and have sufficient equity in your home, you can qualify.
How does a reverse mortgage affect my homeownership?
Many people mistakenly think that getting a reverse mortgage means giving up your home ownership. But this is not the case. You are still the homeowner. And you have the option to make repayments on the reverse mortgage or not as long as you own the home and live in it.
Be aware, however, that if you only make small repayments – or none at all – that your beneficiaries may have to sell the home in order to pay off the reverse mortgage to settle your estate.
This may leave you wondering if a reverse mortgage is a right choice for you. And the answer is that it really depends. While a reverse mortgage could very well diminish how much you will have left in your estate after you die, it could also mean that you would have to rely on family for financial support in your senior years – and this may just be a better gift for you to leave them.
Still not sure if a reverse mortgage is right for you?
Reverse mortgages have pros and cons to them, but in the right circumstances, they can be a very powerful financial tool. The best way to know if a reverse mortgage is a right choice for you is to speak to an experienced mortgage broker who can discuss your various options with you.