A reverse mortgage allows Canadians over the age of 55 to retrieve some of the money they have invested in their home without selling it. There are a few ways you can access this cash; you can receive a lump sum which is normally between 10% – 55% of the value of your home. You can also receive the funds in the form of regular monthly payments, or you can set it up like an emergency fund withdrawing what you need when you need it.

Unlike a traditional mortgage there are no monthly payments while you live in the home. When you sell your home, or at the time of death, you or your estate pays back the full amount borrowed plus interest.

It sounds like a great way to generate some extra cash for retirement, however, before you run off and set up a reverse mortgage there are a few things you must consider. The interest rates are usually much higher than traditional mortgages; currently the lifetime rate is at 6.69% and the set up fees are normally quite high. The interest charged can grow quickly and in some cases even result in there being very little to no equity left in the home when it comes time to sell.

If this happens, and you are unable to maintain the home any longer due to medical reasons, you run the risk that there could be no money left to help pay for your long-term care support. Or, the amount of money you wanted to pass down to your children could be significantly impacted.

It is very important to seek legal advice when setting up a reverse mortgage because the contracts can be very complicated and confusing. You need to ask the representative about the fees you will be paying and how fast your debt will grow.

Do some research and consider other income generating alternatives like an All-In-One account or a Line of Credit. A reverse mortgage may be a great option for some retired Canadian home owners, but it is not for everyone.

If you are within 10 years of retirement, and you haven’t done so already, it is time to seriously sit down and run a Retirement Income Projection. A well-thought out plan, developed in advance will give you and your family options on how and when your assets will be used to support you in retirement.

If you would like more information on reverse mortgages, or would like to have an income projection run; please don’t hesitate to give me a call.

Have a great weekend,

Tracey

Source: https://publications.gc.ca/collections/collection_2010/acfc-fcac/FC5-16-2010-eng.pdf

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Note: All mortgage related transactions are provided by Centum One Financial Group. Any information in the enclosed note is provided by Tracey Marshall who is a registered mortgage agent under the Financial Services Commission of Ontario. Centum One Financial Group is not affiliated or related to Security Financial