Table of contents

→ Buying a new home

→ Funding a divorce settlement

→ Refinancing an existing mortgage

→ Financing an investment property

→ Creating a living inheritance

→ Why consider a reverse mortgage now

Like many Canadians, you may think of reverse mortgages as a way to supplement retirement savings and pension income. But this is far from the entire story; the reality is that tapping into the equity you have built up in your home can be a financially savvy way to fund a slew of other projects and investments. Let’s dive into some of the ways you can put your home’s worth to good use.

Buying a new home

Many people contemplate a change of scenery at some point during retirement, either to downsize, improve accessibility, or relocate. Most people don’t realize that a reverse mortgage can be used to support a new home purchase.

Using a reverse mortgage in this scenario has multiple benefits, from preserving existing savings, to maximizing the proceeds from an existing home sale, and no regular monthly payments are required. If you’re moving to a higher cost location, using a reverse mortgage can also increase your purchasing power and maximize your comfort in retirement.

Funding a divorce settlement

The average contested divorce in Canada costs $12,875 - and can cost much much more. But as well as the legal and miscellaneous costs associated with the dissolution of a marriage, there’s a larger worry: can one partner afford to continue living in the family home by themselves? How can the other afford a new place for themselves?

Divorce for the over-55s (sometimes called ‘grey divorce’) is a tricky issue, as protecting shared assets and future quality of life is at the forefront of everyone’s concerns. Releasing the equity in the family home can be a convenient way to solve many of the issues facing couples in this situation. The money released via a reverse mortgage can be used to pay off other shared loans, to buy out one partner’s share of the home so that ownership is simplified and the moving spouse can fund a new purchase, or simply to pay for the ongoing costs associated with the now single-occupant family home. Doing this also protects savings and retirement investments for both parties. And in contrast to other loan types, a reverse mortgage does not rely on a long credit history, making it particularly attractive in situations where one spouse has been financially dependent on the other.

Refinancing an existing mortgage

For those whose monthly cash outflows are becoming untenable, who wish to free up capital, or who want to refinance their existing mortgage based on circumstance changes (in the property market, in interest rates, or personally), using a reverse mortgage to refinance an existing mortgage is a way to go. It’s important to factor in all the fees associated with both closing out your old mortgage and originating your new one, but as long as the math makes sense for you this can provide a welcome injection of funds and revitalize your retirement plans. Eliminating monthly mortgage repayments by taking out a payment-free reverse mortgage can significantly alleviate other financial burdens.

Financing an investment property

32% of Canada’s homes are rentals, and rental properties have long been thought a smart way to fund retirement - as they are in many ways similar to defined benefit pension plans, but with more upside. But in a red-hot property market, finding the necessary cash for a downpayment on an investment property can seem difficult, especially if doing so requires tapping into other investments or savings. Using a reverse mortgage on your primary residence leverages the equity you have already built in one property to purchase equity in another. This keeps your primary residence safe while funding an important investment vehicle that can provide valuable rental income, as well as the potential for capital gains.

Creating a living inheritance

Younger generations are finding it harder than ever to pay for education, purchase their own homes, and cover the costs of childcare, which is why 61% of those aged 55+ intend to pass on money to their heirs whilst they are still alive. Not only is this tax efficient, it means you can see the benefits of your contributions in action. But not everyone who wishes to do this can afford to set up a living inheritance without sacrificing their own safety net. A reverse mortgage effectively solves this problem; by utilizing the equity in your home - which would fall to your heirs in the future anyway - you’re able to access funds now, when they are needed. This means your heirs can benefit from your financial aid in the present, while you can retain your retirement savings and keep the family home in the family.

Why consider a reverse mortgage now?

Property has outstripped nearly all other forms of investment in Canada over the past few decades. The average property in the country is now worth over $700,000, and that equals a lot of equity sitting passive for a lot of people. It’s no surprise then that more and more Canadians are using the value of their homes to secure their retirement, and achieve their financial and lifestyle objectives.

‍