Are you like the 32% of Canadians that do not have access to the funds they need to live their dream retirement? Before I became a broker, I had no idea this stat was so high. My grandparents were lucky enough to have a full retirement, living a lifestyle that supported them. But, I’ve discovered that my grandparents were a few of the lucky ones. So what can you do to not just plan for retirement, but have an amazing one at that?
If you are 55 years old or older and a homeowner, a reverse mortgage is a great option to look into, especially in the crazy year of 2020. A CHIP (Canadian Home Income Plan) reverse mortgage is a loan against your home's value. It gives you access to upwards of 55% of your home's equity, but that is not all. I want to talk about the top five benefits of reverse mortgages for people, so you can access the necessary cash for the lifestyle you want.
The Top 5 Benefits of a CHIP Reverse Mortgage
The Money is Yours to do With as You Wish
Do you want to take a trip? Maybe you would like to help your children or grandchildren with a downpayment on a house? How about pay off some additional debts? Or donate to your favourite charity? The money you receive can be spent any way that you want. And, did I mention that this cash is tax-free?
You Still Own The Property
You own the title and maintain ownership. The only requirement is that you maintain the property and make sure that you pay your property taxes and home insurance. You will never be asked to leave the property or sell it to pay off your mortgage.
There Are No Payments on Your Mortgage While Living in Your Home
The lump sum that you receive is still a loan and you will have to pay interest on it. However, this isn’t paid back monthly, like a line of credit or other loans. You pay the loan and interest with the home's sale when it is time to move or your house passes to your children. This process makes it easy for you not to worry about monthly payments, and everything is handled for you in one payment. I’ll show you an example of what this looks like below.
It Can Supplement Your Income
There are several options with a reverse mortgage to access the equity in your home. You can take a lump sum, some upfront and then at a later date, or even plan a monthly system over a set amount of time. It is all about whatever works best for you and your plans.
All of the Equity is Yours
When your mortgage is paid off, most people still have money left from their loans. The average amount of leftover is 50% of the home's value! There is also the No Negative Equity Guarantee that makes sure that the amount that you pay on your loan does not go above fair market value. You do not have to worry about the value of your home depreciating and you owing more money.
An Example of Keeping Your Equity
Let’s say your home is worth $500,000. The reverse mortgage you qualify for is $250,000. In this example, we’ll use 5% (not the actual rate, just an example rate).
Annual Interest: $250,000 x 5% = $12,500
Something to remember is that your home will continue to appreciate in value over the term of your mortgage, meaning even with the interest payment, you’ll still maintain value in your home. Your home needs to only grow at half the interest rate of your reverse mortgage, 2.50% in value ($500,000 x 2.50% = $12,500), so you don’t lose any money in home equity and you break even.
Clear as mud?
Let’s clear this up
I am passionate about coaching people to help them reach their financial goals. If the majority of your wealth is tied up in the value of your home, let’s have a conversation about using reverse mortgages in 2020. It is a useful tool for you to access your equity when you need it most. You shouldn't have to worry about cash flow while you are in retirement. You should be financially free to do as you wish.
In a post-COVID-19 environment, an additional stream of income or even just some extra cash is useful to have. We do not know if we will see ourselves in another quarantine in the near future, and it is always better to plan ahead.
Here to help coach you financially,