Homeowners aged 55+ have increasingly been turning to Reverse Mortgages in the past 12 months to maintain their lifestyle, offset increasing living costs, and remain in their homes.
What is a Reverse Mortgage and What Does It Provide?
A Reverse Mortgage is a financial instrument that provides certain homeowners access to the existing home equity.
Unlike a typical mortgage, there is no income requirements to qualify for a Reverse Mortgage.
Most Reverse Mortgages are set up where no monthly mortgage payments are required. The mortgage does not need to be repaid for as long as the borrower remains living in their home.
Reverse Mortgages can be set up in many unique ways. Some homeowners choose to receive a lump sum deposit (i.e. $100,000 into their bank account), while others elect to set up automatic monthly deposits of any eligible amount (i.e. $2,500 each month).
The monthly deposits are typically a top-up to homeowners’ monthly income, allowing homeowners to enjoy their current lifestyle.
A lump sum deposit is often requested for a renovation, going on a long overdue vacation, or even providing early inheritance.
Why Are Reverse Mortgages So Relevant Now?
- Historically high inflation rates are increasing costs of everything including groceries, gas, and transportation costs. This results in less income remaining on other things such as leisure, entertainment, and other activities.
- More and more seniors wish to age in the comfort of their own homes. Selling an existing home and buying something across town where real estate may be cheaper may cost up to $100,000 in fees (real estate commission, lawyer and notary fees, moving expenses, etc). There is a case to be made where using a Reverse Mortgage may be the optimal alternative to paying these fees.
- While some clients choose to sell their existing stock portfolio to access their savings, others elect to use a Reverse Mortgage. This solution allows the homeowners to wait for the stock market to potentially recover from the recent sell-off.
- Keeping the existing home allows the homeowners to participate in a potential recovery of the real estate market. Selling their home in a current down market eliminates any future appreciation of this asset.
- Reverse Mortgages can be set up so that no repayment is required for as long as homeowners live in their home or sell the property.
More Information on Reverse Mortgages
For some homeowners, the concept of having a Reverse Mortgage is still a definite no. However, the financial industry has adapted to homeowner expectations and market demands over the years. As a result, a Reverse Mortgage today is a significantly different product from a Reverse Mortgage of the past.
Reverse Mortgages now offer much better rates. In early 2022 one could get a fixed rate on their reverse mortgage below 5%. That has never been the case in the past.
As of January 2023, rates for Reverse Mortgages fluctuate between 7% and 8% (the Prime Rate is 6.45%).
Reverse Mortgages provide tax-free benefits meaning that no OAS or CPP is affected.
It is important to keep in mind that a Reverse Mortgage is a mortgage product, and there are costs associated with getting one. We help our clients structure their Reverse Mortgage so that it is an optimal solution that works for them. Contact us today!
Do you have any questions?
Reach out to our team of experienced professionals at Access My Home Equity today for a free consultation:
Email: info@accessmyhomeequity.ca
Phone: 604-362-4467
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In the article below, we shared a unique strategy how using a reverse mortgage can help family get into the real estate market:
How To Use A Reverse Mortgage To Help Family Purchase Real Estate