When Is A Reverse Mortgage Not Right For You?
A reverse mortgage in Canada isn’t always the right option depending on your situation.
There are times when it may be better to take a look at some of the other financial options available to you before choosing to go with a reverse mortgage.
It’s always a good idea to get independent advice about your personal finance options.
Let’s take a look at some of the key factors here and what you might want to think about when making your decision regarding a reverse mortgage and how it will work for your financial goals and situation.
(If you are new to the idea of reverse mortgages in Canada, I suggest you start by downloading my CHIP mortgage guidebook)
1. Your Financial Goals
There may be times when your financial goals are much more short term. Shorter term loans in this case may better fit with what you are looking for. The important thing here is that, should you take a short-term loan out, you have full intention to pay it back quickly, as many short-term loans have high interest rates that can accumulate and become a burden quickly, whereas a reverse mortgage is much more aligned with a longer-term loan as it doesn’t require any payment over the lifetime of the loan until the loan becomes due (when you sell your home or should you pass away).
2. Your Housing Situation – Where And How
Do You Want To Live In Retirement
Some people, upon retirement, desire a smaller home and intend to live off their pension, savings, as well as the money made from the sale of their original home. If you fit into this category, a reverse mortgage would not be a great fit, as you would be wanting to move and downsize anyways. If you want to live in your home still, however, and don’t want to downsize, then a reverse mortgage is the chance to take advantage of some of the equity that has been built up in your house over the years.
3. Your Level Of Savings And Pension
Available To Carry You Through Retirement
Those who have been lucky enough to save for a long retirement, or are lucky enough to have a decent pension to help supplement income, and don’t like the idea of carrying a loan from their home equity, would be in an ideal position to finance their own retirement. That’s a great position to be in, and it is becoming more and more rare as retirements become longer as we live longer and as pensions shrink. Should you find yourself in a less than ideal situation and don’t desire to go back to work or can’t go back, a reverse mortgage does offer the chance to supplement income and a pension, which is a big reason why we believe reverse mortgages are a great opportunity for seniors who are facing such situations.
4. Any Existing Mortgage And Fees For Closing It Early
There are many mortgage products out there, and some of them are structured in a way that favours the borrower less than others. Some mortgages, for instance, have exorbitantly high fees associated with prematurely closing a mortgage, or paying a mortgage in full. In many cases, retirees still have a mortgage on their home when they wish to obtain a reverse mortgage. This isn’t an issue should your current mortgage be in your favour – that is, you can use part of the proceeds from the reverse mortgage to pay off and close your current mortgage, and keep the remaining funds from the reverse mortgage and do as you please. However, not all mortgages will be worth it to close out early. In some cases, you may be better off to wait until the end of the term of your current mortgage.
5. Retirement Communities Or Assisted
Living Accommodation Options
This is a tough choice, and is similar to downsizing. Choosing to leave your home and move into a retirement community or assisted living is a large decision, and one that is not made easily. Should you be facing this choice, and you want to leave your home or are considering in the near future, then a reverse mortgage may not going to be the best choice for your financial needs.
Is A Reverse Mortgage A Good Fit For You
These are cases when a reverse mortgage may not be the best fit. There are certainly questions we get, though, about the nature of reverse mortgages and how they fit into a retirement plan that can confuse people, and we want to make sure people understand all they need to know about reverse mortgages before deciding whether they are right for them or not.
We often hear the concern that a reverse mortgage will affect Old Age Security (OAS) or Guaranteed Income Supplement (GIS) – however, a reverse mortgage does not affect these benefits you may be receiving or entitled to in any way.
Another concern we hear that often deters people is that they fear that a reverse mortgage taking out their home equity will make the amount withdrawn become taxed – however, the money you borrow through a reverse mortgage is absolutely tax-free. You can use your home value and turn it into cash without having to sell it, but you also get to receive this money tax-free.
The last concern we will cover here today is that we hear retirees concerned that should the housing market drop or interest rates increase, they may be facing a shortfall. This is never the case though, and should the housing price drop or interest rates go up, you are not responsible for the shortfall.
If you are wondering if your plans for a reverse mortgage make sense, then make sure and check-out our article on 8 interesting ways to use a reverse mortgage.
Deciding On Reverse Mortgages And How We Can Help
So before you make your decision about whether to get a reverse mortgage or not, consider the above-mentioned cases and if you fit into any of them. You may have more questions about reverse mortgages, or about whether they are a good fit for you – we are always here to help, and offer a free assessment and support where we can answer any questions you may have about your financial situation and reverse mortgages.
Reverse Mortgage Pros is a website run by licensed mortgage brokers from Dominion Lending Centres to help individuals all throughout Canada work out if a reverse mortgage is ideal for them.
Get A Free Reverse Mortgage Assessment In 90 Seconds
You can get a free reverse mortgage assessment – from a Chartered Accountant – who’ll then advise you if this is a good solution for you, or if something better works.
All it takes is 90 seconds – click here to get started.
A Canadian Chartered Accountant and licensed Mortgage Professional – creator of Reverse Mortgage Pros – the #1 reverse mortgage specialists in Canada. I make it my mission to educate Canadians about how reverse mortgages work so that you can make an informed and educated decision that’s right for you and your family.
June 3, 2023
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