Cash In On Your Home Equity
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It’s a typical scenario for Canadians today: You’re headed for retirement, and you’re starting to worry that your savings aren’t going to last your lifetime, or that you’ll carry big debt into your senior years. For several reasons, the retirement plan that worked for your grandparents may not be such a fail-safe strategy for newer generations. Fewer of us have company pension plans, and low interest rates mean the investments we’ve been trying to build aren’t so robust after all. Plus Canadians are living a lot longer. Right now, if you’re 65, there’s a 50-50 chance you or your spouse will live to at least 92. On the other hand, many of us are living in a house or condo that’s partially or fully paid off. A reverse mortgage is a loan specifically for Canadians age 55 or older, secured against the equity in the home. It’s a loan with no monthly mortgage payments and that you don’t have to pay back until you move out and sell the house, or until you pass away. Reverse mortgages have been offered here in Canada for 30 years, but there are still a lot of myths about them. The truth is, a reverse mortgage may not be for everyone, but it may be for you. Here are six of the most commonly held myths about reverse mortgages.
MYTH: I’LL LOSE MY HOME
Many people worry that getting a reverse mortgage can lead to getting kicked out of their home or giving up ownership, but this isn’t how it works. You keep the title to your house, and you aren’t ever forced to sell or move. Your obligations are to keep paying your property tax and insurance and keep your house in good shape. Not only are you at no risk of losing your home, a reverse mortgage can be the solution that allows you to stay in it for as long as you wish.
MYTH: I COULD GET CHEATED OUT OF MY MONEY
In Canada, the only company to offer reverse mortgages is HomEquity Bank. Because it’s a bank, it’s strictly regulated and supervised by the federal government. Canada’s banking system is considered one of the safest in the world. HomEquity Bank has been in business for 30 years and takes a very conservative approach to lending; for instance, your reverse mortgage will never exceed the value of your home. So you aren’t getting swindled, and in fact HomEquity regularly receives referrals from other banks and mortgage brokers.
MYTH: THE INTEREST RATES ARE UNFAIR
The interest rates on a reverse mortgage are higher than conventional mortgages. That doesn’t mean they’re unreasonable. They’re calculated this way because homeowners aren’t asked to make payments on the money until the house is sold, and that may not be for decades. Interest rates on reverse mortgages are considerably lower than other forms of debt like credit cards, retail store debt and private mortgages (if you don’t qualify for a conventional mortgage).
MYTH: A REVERSE MORTGAGE COMES WITH EXPENSIVE FEES
This myth probably originated in the U.S., where reverse-mortgage lenders haven’t been tightly regulated and have commonly charged $10,000 or more in fees. Certainly there are fees in Canada too, because in order for the bank to process your reverse mortgage it must conduct title searches, prepare documents and retain legal services. But here, these administrative costs are fixed, and don’t usually exceed $1,500 at the most. Your home also needs to be appraised, but that shouldn’t cost more than $400. Before signing the mortgage documents, all homeowners are required to get independent legal advice (usually costing $300 to $600) to ensure they understand the terms and are protected.
MYTH: I’VE BEEN SAVING FOR RETIREMENT, SO I’M SET
That might be true for you. But if it is, you’re in a minority. Surveys show that even though most Canadians believe they have enough saved up to last the rest of their life, less than a third actually have over $100,000 to draw from. Given our life expectancy is increasing, and that expenses like health costs can increase along with it, those savings are not likely to last.
MYTH: A REVERSE MORTGAGE ONLY MAKES SENSE AS A LAST RESORT
It depends on your financial situation, but there are several reasons why a reverse mortgage may be an ideal solution for you. If you’re holding credit card debt at a much higher interest rate, for example, a reverse mortgage allows you to clear that debt. It may benefit you if you’re trying to avoid the costs associated with moving or downsizing – realtor fees, home staging, movers and condo fees, for instance. The cash provided to you by a reverse mortgage is tax free, lower risk and long term. It can be a valuable tool to help you stay in your home in your retirement and conserve your savings.
Am I Eligible For A Reverse Mortgage?
YES if you and your spouse are over 55 and live in your own home. No health exam is required.
How Much Money Can I Get?
Depending on your age, you can get up to 55% of the value of your home, tax free. You can choose a lump sum of cash, or receive payments on a regular schedule.
Can I Make Payments?
YES. Repay the interest or principal any time you want, even if you’re still living in the house. You don’t have to wait until the house is sold or you’re not living there.
Have more questions? Answers to your questions are just a call away, toll free at 1.866.522.2447.
The first step in getting a reverse mortgage is to find out how much your house is worth. As a CARP Partner, HomEquity is offering CARP members a cash rebate of up to $250 towards a home appraisal. Visit www.chip.ca/carp today!