At some point along the road to retirement, many people start thinking about taking out a reverse mortgage. It’s a popular tactic for those in or nearing retirement, but is it right for you? Here are a few things to consider.
First, let’s define the term. A reverse mortgage is essentially a way to convert your home equity into cash. To qualify, you must:
• Be at least 55 years old. 1
• Live in your home for at least six months of the year as your primary residence. 1
• Have paid off any outstanding loans or lines of credit that are secured by your home.1
If you meet these and other requirements, a lender will provide a loan of up to 55% of the current value of your home.1 You can repay the principal and interest in full at any time, unless you sell or move out of your home, in which case the loan comes due immediately. The loan itself can be taken as a lump sum, or with some of the money up front and the rest taken over time. The money can be used to cover any unexpected expenses that may arise, repay other debts, or just help with your regular expenses in retirement.
Understand, reverse mortgages aren’t right for everyone. For one thing, they tend to come with a variety of costs, including a higher interest rate than for a traditional mortgage, plus a home appraisal fee, setup fee, legal fees for closing costs, and more. Also, a reverse mortgage can create headaches for your children, as they will be required to repay the loan if the home passes to them.
There are also many alternatives to reverse mortgages. So, if the time comes when you start pondering your options, please give me a call first! Together, we can look at your situation and choose the right option for you.
1 “Reverse mortgages,” Government of Canada, https://www.canada.ca/en/financial-consumer-agency/services/mortgages/reverse-mortgages.html
