Millionaires – But Still Poor…
The last 20 years have seen a record number of millionaires in Canada.
The UBS Wealth Report estimates that over 2 million Canadians – over 5% of the population – are millionaires.
Except many of them are still cash poor.
There’s no yachts, champagne or fancy lifestyles – because almost all their money is tied up in their home.
You may not be a millionaire but you might have a large chunk of your wealth tied up in your home – in this article I’m going to discuss the options for folks who are “house rich, cash poor” – or “millionaires but still poor.”
As always, you can read the article below or watch this video version:
What Is A Reverse Mortgage (In 20 Seconds)
A mortgage available to homeowners 55 and over that doesn’t require you to repay any money – no monthly payments.
You can get up to 55% – usually 10% to 55% of your home value – depending on your age, property type and location.
You can get as much money as you qualify for, but any existing mortgage on your home must be paid off first using the funds.
Designed to help you tap into your home equity for retirement and to continue to live in your home.
Check out my free reverse mortgage guide for more.
Millionaires… On Paper
If you own assets more than $1M higher than the value of any debt, you can be a “paper” millionaire.
For example, you might own a home worth $1.2M with a $200,000 mortgage – in which case your net worth is $1M but it’s all tied up in your home.
It’s increasingly common to find millionaires – or folks with massive amounts of money tied up in their homes – who are retired but struggling.
How Did We Get Here?
Rising home values – especially in big and mid-sized cities – meant that if you simply bought and held for long enough, you’ve seen a fantastic return on your real estate investment.
At the same time, interest rates have remained low for quite a while now – especially the last 20-30 years.
Meaning that the ability to accumulate wealth through housing has been a two-way path: cheap debt and a strong performing asset (strong housing market).
There are very few (almost zero) situations in life where you get to buy a strong performing investment at an extremely low interest rate.
This has provided the opportunity for generating a lot of wealth.
Lacking Financial Freedom…
However, having all this money tied up in your home hasn’t translated into giving people financial freedom.
In fact, the opposite has occurred – the cost of continuing to own and live in the home has gone up but cash flows haven’t gone up enough to match it.
Every single home eats through your cash – whether that’s a mortgage or Home Equity Line of Credit, repairs, taxes and so on.
You might be in the position where your home should be providing you financial wealth – as your biggest asset – but instead is providing nothing but financial pain (repairs, taxes and everything else).
This is how you end up will millionaires who are still poor.
Your House And Cash Flow
A house doesn’t pay for groceries or medical bills… it creates more bills than it pays for!
It doesn’t provide any form of income, like other retirement investments (it’s illiquid).
But you still need somewhere to live (and have likely lived in your home for a long time)…
So selling it to cash out doesn’t fix the problem that you need shelter and accommodation.
And that’s not forgetting that it’s your home, your baby, a place with familiarity, memories and all kinds of positive associations.
It’s easy to see why selling and moving elsewhere (downsizing or renting) isn’t particularly appealing either.
Solutions To The Problem
Tapping into the equity in your home in a smart way is the way to resolve this.
One way to flip the script is to think of your home as a “house pension” which is part of your retirement plan and retirement funds can change your perspective.
Where traditional lending – like a mortgage or Home Equity Line of Credit (HELOC) – doesn’t work for you, a reverse mortgage is a great option to do this.
This is why Canadians are currently turning to reverse mortgages in record numbers.
The Home Pension (Reverse Mortgage)
Your home can work just like an RRSP, TFSA or other form of retirement savings.
You can take lump sums – a large amount of cash upfront.
Or take a certain amount every month and use it to have more financial freedom in retirement. Doing this is a great way to save on interest – something I discuss in this article: Better Than A Lower Rate – Get 0% Interest On Part Of Your Reverse Mortgage
Or combing both options can be combined as well – taking lump sums whenever you want on top of monthly payments.
There is more flexibility as to how you use a reverse mortgage like a “home pension” than most people realize.
In this way, you can use it like an RRSP or TFSA or other retirement savings and there are some additional benefits too (such as reverse mortgage funds being tax free – something I cover in this article)
Millionaires – But Cash Poor – Summary
Many folks have a lot of money tied up in their home and are quite wealthy – even millionaires – but are struggling financially.
Owning your home has been – and continues to be – a great investment but it’s expensive.
Taking out equity from your home in a smart manner is one way of no longer being a “millionaire but still poor.”
A reverse mortgage is one of the best options for this due to the limitations of other options.
Get A Free Professional Reverse Mortgage Assessment In 90 Seconds
If you’re interested in using this strategy – or just want to know how much you qualify for – I can help.
I’ll show you what each lender offers, including all the hidden costs, a full lender comparison table and help you figure out the smartest way to borrow.
Of course, I will also show you the rate – as well as costs and fees – on future withdrawals if you want to use the strategy I just talked about.
It’s completely free and only takes 90 seconds:
ReverseMortgagePros.ca/Assessment
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.
