Thanksgiving weekend is upon us and that means spending time with family. You’re all sitting together, having conversations, and enjoying yourselves. But, does your family ever talk about the hard topics? Such as, where your parents, or older relatives, will live out the rest of their lives?
Will be in the house they are living in now, or is a move essential?
Will they have enough money to get by when they rely on a fixed income, or would you have to supplement their incomes?
These are tough ideas and questions to ask ourselves, but necessary if we want to see our family taken care of as they get older. The fastest growing segment of mortgagors in Canada are in their retirement years and the reverse mortgage is the reason why.
A reverse mortgage is simply a mortgage that uses the home’s equity to maintain the loan. Hence why you hear there is no payments required to be made, but actually the interest owed on the loan is paid by the equity in the home, and later when the mortgage is paid off it all gets paid off. This is the big reason why reverse mortgages are only for 50% or less of the value of the property. That gives plenty of room in the current equity. And, as the value of the property
grows every year it will be enough to keep that loan to value lower over time.
What makes this a great option for older people on fixed incomes is that it allows them to get access to home equity without the traditional payments, and qualifying terms. So, if you wanted to down-size but still need a mortgage to do so, this can help make the down-
sizing option a reality. The mortgage payment does not have to be barrier to get qualified and
most importantly the reverse mortgage will allow your cashflow to be left alone.
So, retiring and moving into that bungalow, or other, more mobile friendly homes, becomes possible.
As per Statistics Canada, 1 in 3 retirees have debts still on the books, and 20% of people over 70-years-old are still paying something off. Debt repayment on a fixed income can really derail plans during retirement. Their limited resources and repaying a loan can really take away from someone’s lifestyle. Unlike an RSP, all money taken from home equity is tax free, making a reverse mortgage a solution that can finally pay off these debts, and will help make those later years in life a little more golden.
Being prepared for retirement requires managing the liabilities and equity side of your balance sheet. In other words, you need to look at not just your savings but your debts and equity as tools to live more comfortably in your golden years.
If this is something that you think could help your elderly loved ones, don’t hesitate to reach out to see what the options are!