Are You House Rich?
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Today’s younger generation is often house poor, with their income siphoned into a new home they’re nowhere close to owning. As we get older, though, we often become “house rich.” We’ve paid off a good portion of our mortgage, the house has rocketed up in value, and we’d have an impressive pot of money if we were to sell. Only problem is, we don’t want to sell.
“Our home is very special, and that’s why we want to stay there,” says Bea, who, along with her husband, Ed, decided on a CHIP Reverse Mortgage. Even though their children are grown, the house is close to their hearts, and Bea and Ed wanted to keep it as long as possible. But they needed money to complete some necessary upgrades, including a new roof.
A reverse mortgage is a loan specifically for people age 55 and up who have some equity in their home, want to turn it into cash, but don’t want to give up ownership of their home. You are not required to make monthly payments, and the loan is tax-free, so it doesn’t affect your old-age benefits. The maximum home equity you can tap into is capped at a conservative 55%. That means that for 99% of clients, there’s cash left when the loan is eventually paid back. (The average amount left is over half.)
“If you sell your home, you’ll be living off the proceeds. All you’re doing now is you’re not selling your home, and living off the proceeds… you are basically worry-free,” says Ed. Of putting a reverse mortgage into place, he says: “It was the simplest thing to do.”
Just how simple is it? Here’s a step-by-step outline of what the process might look like for you.
1. Decide if a reverse mortgage might be right for you.
It’s not a solution for every situation, so take time to consider whether it’s right for yours. Are you 55 or older? Are you facing rising or unexpected expenses, or do you have high-interest debts you’d like to pay off with a lower-interest loan? Are you hoping to take vacations, help your children, increase your monthly income or direct your investments elsewhere? Chris and Sandy spend at least a quarter of the year in Florida, so they felt it made sense to invest in a property there. If you’re considering a reverse mortgage, you should also be prepared to keep your home and property in good condition while you continue to live there.
Still not sure? Consult a financial advisor and talk it over with your family members. Ed and Bea discussed it with their kids. “They thought it was a great idea,” says Ed. “No matter where they’ve gone or where they’ve lived… they always know that home is there. We said, this makes sure we stay there.”
2. Make the call.
The next step is to get in touch with a reverse mortgage lender. (HomEquity Bank is the only company in Canada that offers reverse mortgages. It’s been in the industry for 30 years, and is federally regulated.) You aren’t yet committed, but now you do have the opportunity to arrange an independent appraisal of your home and find out what your loan amount would be.
3. Fill out the application.
Naturally, there’s paperwork! The folks at HomEquity Bank will help you fill it out. Before you sign, though, you’ll be required to get advice from an independent lawyer. That’s for everyone’s protection. John, who is semi-retired and wanted to keep his parents’ home after they passed away, took out a reverse mortgage to cover funeral and house expenses and increase his monthly cash flow. He praises the straightforward documentation he received and describes the whole process as “smooth,” adding: “It was involving, but it was very thorough, and gave me peace of mind.”
4. Pay the fees.
The total fees for the legal and appraisal services and other admin costs like title searches are usually not more than $1,500. (Don’t be put off by stories about unregulated lenders in the U.S. charging steep fees – it doesn’t happen here.) Says John of his reverse-mortgage loan: “It was the best financial decision amongst all the options available to me.”
5. Get your money.
You can receive either a lump-sum amount or regular payments, or both. You can take a small portion of your equity now and save another portion for any unexpected needs down the road, like illness.
Ultimately, what you choose for yourself depends on your lifestyle and situation. “Use it for an RV, use it for real estate investment, remodel your home so you can stay there maybe another 10 or 15 years,” says Chris.
6. Keep up your home.
As long as you stay in your home, you don’t have to make payments on the reverse mortgage. But you do have to hold up your end of the bargain: pay your property taxes, maintain house insurance, and keep your home in good repair.
7. Repay the reverse mortgage when you sell or move.
Although you always have the option to pay back interest or principal whenever you want, the loan and interest must be paid back after the house is sold or you decide to move out. Since the house will likely go up in value, there’s typically money left even after the reverse mortgage is repaid. In fact, 99% of clients have equity remaining – on average, over 50% of it – at the time the house is sold.
In the meantime, you are able to live where you want, the way you want. “It’s terribly important that we don’t have to sell our house,” says Chris’s wife, Sandy, adding for emphasis: “Terribly important.”
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!