If you’re at or nearing retirement age and wondering about ways you can access cash that helps you support your retirement, a reverse mortgage could be the right financial tool for you. Reverse mortgages are a way for Canadian homeowners aged 55 years or older to access tax-free cash by leveraging the equity from their homes.
Understanding a reverse mortgage
To qualify for a reverse mortgage, you must be the homeowner and live in the home as your primary residence. You must also be at least 55 years old. The amount of cash you’ll be eligible for depends on the home’s location, its value, and your age.
The cash you receive is tax-free, and you can opt to have it paid out in a lump sum or over time. The loan becomes repayable if you move or sell the home. If you pass away before paying the loan back, your estate is responsible. Before that, however, you aren’t required to make any regular payments on the loan.
Using your reverse mortgage to support your retirement
Many people face financial uncertainty during their retirement. It’s a time when income is greatly decreased, and retirement savings might be used to cover bills. Accessing a reverse mortgage can help you through those times by providing you with funds up to 55% of the value of your home. That money can be used for virtually anything you like, such as:
1. An emergency fund
Money from your reverse mortgage can be used to help you cover unexpected expenses, such as healthcare costs, home repairs or renovations, or to help a family member who needs financial support. If, for example, you require in-home nursing care, your reverse mortgage can be used to cover that. If your mobility declines and you need to make your home more accessible, you can use your reverse mortgage to renovate your home.
Having a reverse mortgage available to you for such scenarios means you don’t have to dip into your retirement savings to cover unexpected costs.
2. Pay off high-interest debt
You may enter your retirement years facing high-interest debt. This can eat away at your retirement savings, giving you less to live off monthly, meaning your savings won’t stretch as far. Your reverse mortgage can pay off high-interest debt so your savings can go to other important expenses and can last longer.
3. Protect your retirement investments
One of the great unknowns of retirement is how the economy will affect your retirement investments. If you retire at the start of an economic crisis, your investments could lose value, and you won’t know if they will recover in time. If you then withdraw from your retirement accounts, your savings could be depleted, and you may have to cash in some of your investments. If you have a reverse mortgage, you can withstand economic storms and leave your retirement investments alone.
4. Live the lifestyle you want
Whether you want to travel, have a second home closer to the grandchildren, or just want to indulge a bit, a reverse mortgage can offer you the cash you need to do exactly that. You get financial freedom, and you don’t have to make regular payments on the loan.
5. Help your family members
Whether you have adult children who are looking to buy their first home or grandchildren who are considering post-secondary education, the money from your reverse mortgage can be used to help your loved ones get into a better financial position.
Whatever comes your way in retirement, if you need access to cash, a reverse mortgage might be the right financial choice for you.