For most people, it’s no secret that the money you bring in decreases after you retire, so senior borrowers only have a few options…the good news is that the requirements for a reverse mortgage are basic.

With talk of a looming recession, it’s no wonder borrowers in need of funds are considering using their homes as a source of income.

Yet despite their rise in popularity, Bloom a Canadian reverse mortgage provider, reports that there are still common misconceptions about reverse mortgages insinuating that they only hurt seniors. But that is not true. Like any other financial product, a reverse mortgage has pros and cons.

It’s not the last resort.
The problem with reverse mortgages in Canada is that they are often looked at as a last resort. But you don’t need to wait until you are in a dire financial situation to tap into your home’s equity.

With a reverse mortgage, you can borrow money against the value of your house (capped at 55%) without having to sell it. To be eligible, you must be a homeowner and at least 55 years old.

The best part about it is that you don’t have to make regular principal or interest payments, so why not take advantage of that hard-earned equity to relieve some financial stress?

Until you relocate, sell, or pass away, you are not obligated to repay this money which is one of the best ways to avoid taking on more retirement debt.

It is safe.
Reverse mortgages in Canada are strictly governed, like traditional mortgages, which means provincial and federal regulations safeguard borrowers.

For example, earlier this year, The Office of the Superintendent of Financial Institutions (OFSI) updated the rules covering various home loans, including reverse mortgages, to ensure that lenders and borrowers can meet their obligations.

Ultimately, every homeowner considering a reverse mortgage must seek independent legal counsel from a lawyer.
Thanks to home price growth in Canada, it’s highly unlikely that you will ever owe more than the house is worth. However, if this happens, the home equity guarantee ensures that your debt is limited to the fair market value of your home, provided you uphold your obligations under the mortgage contract (like paying property taxes and homeowner’s insurance).

It can bring peace of mind.
For instance, a home equity line of credit (HELOC) requires an income stress test, which many retirees don’t qualify for. Other types of loans, such as personal loans, lines of credit, and credit cards, also have income requirements. The good news is that the requirements for a reverse mortgage are basic — i.e., the lender wants to ensure that you have enough resources to sustain their property obligations like tax and insurance. The location, type, and condition of the home, the assessed value of the real estate, and the borrower’s age are used to determine how much money you will receive.

Plus, since you don’t pay tax on the money you borrow it’s not considered income, so it doesn’t impact government benefits, such as your Old Age Security (OAS) and Guaranteed Income Supplement (GIS).

When you look at the other popular alternatives, such as selling your home, downsizing, renting, or moving into assisted living, they all involve moving, which is only an option for some. At the end of the day, a reverse mortgage enables you to fund your lifestyle while remaining in your home.

The idea that there may be less money in your estate to leave to your children or other beneficiaries can be difficult, but so is struggling to make ends meet or being forced to sell a home you’re not ready to leave.

If you’re still debating whether to use your home equity to access some financial relief, ask your lender questions to ensure you understand how it works and how it can affect your home equity over time before you apply.

Could a reverse mortgage be the right solution for you to manage your budget in retirement?
Visit bloomfin.ca to learn more about reverse mortgage solutions for 55+ Canadians.

This article is provided for general information purposes only. Seek independent advice for your personal finance decisions.

https://www.cpacanada.ca/en/news/canada/2021-08-03-reverse-mortgages
https://www.canada.ca/en/financial-consumer-agency/services/mortgages/reverse-mortgages.html
https://www.canada.ca/en/financial-consumer-agency/services/retirement-planning/sources-retirement-income.html
https://www.oaken.com/oaken-blog/retirement/should-you-consider-a-reverse-mortgage/
https://www.bloomfin.ca/resources/what-is-the-home-equity-guarantee
https://www.mpamag.com/ca/specialty/specialized-lending/reverse-mortgage-boom-could-be-on-the-way-report-suggests/415455
https://www.bloomberg.com/news/articles/2022-10-28/canada-s-expansion-slows-to-1-6-in-3q-as-recession-looms

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