Rising costs of living are leaving many retirees worrying about whether they have enough income to cover their living expenses – everything from gas to food, let alone any home renovations or vacations. Simply maintaining their standard of living can be a challenge given rising prices but stabilizing income.
Fortunately, there is a solution that allows retirees to not only meet their daily costs of living, but also enjoy their retirement.
Reverse Mortgages Are A Good Option
Firstly, if you are new to the concept of a reverse mortgage, make sure and download our free guidebook here.
Retirees have a unique financial situation. Without steady income, and taking into consideration the rising costs of living, taking a loan out on your house is just not feasible. And the only other option traditionally is to sell your house to gain access to the equity you’ve built up. That’s where a Reverse Mortgage comes into play. For Canadians 55 and over, a reverse mortgage allows you to access the equity you’ve built up (up to 55% of your home value) in the form of a mortgage, but without having to make any payments, interest or principal, until you either sell the house or move.
That’s right. No payments, whatsoever, until you decide to sell or move.
That means you can continue living in your home, continue to enjoy your lifestyle and financial freedom, and even take the vacations and make the home renovations you were looking forward to in your retirement.
Another Way To Think About It: Home Pension
What you are really doing when you take out a reverse mortgage is essentially turning your home into a pension. This is actually what they call the product in Japan and some other parts of the world.
If you are in the situation where you are cash poor but house rich – then this is a great solution for you.
The way to think about this is like any other financial investment – you put your own time and money into your house over the years and now you get the option to enjoy this ‘investment’ like no other.
A Low Risk Retirement Fund
Because you get to keep your home for life – and still keep it as an asset in your books – reverse mortgages are almost zero risk.
The only concern is that your home equity growth might slow and the reverse mortgage balance grow. However, there is a ‘cap’ on the product. You can never owe more than your home is worth.
And, in fact, 99% of Canadians who have taken out a reverse mortgage have had equity remaining when it was removed from the house. In this sense, it has proven to be a very effective retirement vehicle.
It All Seems Too Good To Be True…
This is something we have examined in our article looking at the features of this mortgage product.
This is a very common response – and very smart too – as most situations in life like this they usually are too good to be true!
However, this isn’t free money. The lender will still charge an interest rate and – while you don’t pay it – it still accumulates on the balance you borrow. Currently, rates are on the low end of the historical spectrum.
This interest and the balance borrowed will then be taken care of once the owners of the mortgaged home pass away (the home will either be sold or re-mortgaged to pay it off at this point). So this is not a ‘free lunch’.