Bloom Finance Company Ltd.
Licensed in ON #13338, BC #MBX600455, and AB
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Table of Contents
#1 What is a Reverse Mortgage?
#2 Some of the Myths Associated with Taking Out a Reverse Mortgage
#3 The Reality of Reverse Mortgages
#4 Increase Your Financial Freedom
A number of myths and misconceptions about reverse mortgages have developed over time, mainly as a result of some bad actors from the past who offered a similar product. It’s important that people understand the facts about reverse mortgages today, so they can determine if this is the right product for them and their families.
A reverse mortgage is a tool available to Canadian seniors to provide financial flexibility in retirement. A reverse mortgage allows you to access up to 55% of your home’s value in cash, tax-free. Reverse mortgages can be used for any number of things, including:
One of the primary benefits of a reverse mortgage is that there are no regular principal or interest payments required. Interest is added to the balance, and you only need to pay the balance when you cease to occupy the home. The proceeds normally won’t impact the government retirement benefits you’re receiving, and the proceeds are tax free.
Despite the amazing power of reverse mortgages to provide financial flexibility to 55+ Canadian homeowners and their families, there remain a number of misconceptions about this product. These are a few examples:
Myth: You No Longer Own Your Home
Some people are afraid they will lose ownership of their property if they take out a reverse mortgage. However, the opposite is true. A reverse mortgage allows you to access up to 55% of the value in your home, while retaining 100% ownership. This is true no matter how long you stay in your home, or what happens to home prices. Your home is yours.
Myth: You May Owe More than What Your Home Is Worth
Because of the home equity guarantee, if you take out a reverse mortgage, you and your family will never owe more than the fair market value of your home at the time you leave the home. If the mortgage balance were to ever exceed the home value, the lender absorbs the loss. But the best part is, if your home price goes up, you keep that value.
Myth: Your Children Will Lose the Family Home
While the mortgage does become payable when you move or pass away, your estate retains ownership of the home. This means your children would always have the opportunity to refinance the mortgage, or pay it off another way. The bottom line: your family is in control.
Myth: There Will Be No Equity in the Home to Give to Your Heirs
When a reverse mortgage is paid off, borrowers or their children still retain the equity in the home. While the loan balance grows over time, in a rising home price environment, so does the home value. This means that in a large majority of cases, there is still considerable equity in the home to form part of the inheritance reverse mortgage customers leave to their heirs.
Let’s summarize the realities of reverse mortgages:
The “Home Equity Guarantee”
A reverse mortgage comes with a home equity guarantee. This is a promise that a borrower will never owe more than their property’s fair market value in cases where real estate prices drop, and/or the loan balance exceeds the value of the home.
A Reverse Mortgage Gives Peace of Mind
Many borrowers like reverse mortgages because they’re “set it and forget it”. As long as you keep up with your property obligations, like paying your property taxes and insurance, and keeping your home in good repair, you’ll never have to make a payment on the mortgage during the loan term, and you can stay in your home as long as you want. Other products like HELOCs come with “loan to value caps”, meaning if the loan balance exceeds a certain limit, you’ll be forced to sell your home and repay the balance. That will never happen with a reverse mortgage.
Home Equity Can Continue to Grow
Some people worry that the balance on a reverse mortgage will eat into their home’s equity over time. However, as long as real estate prices continue to increase, home equity can also continue to grow alongside the mortgage balance.
Tax-Friendly
Reverse mortgage proceeds are treated favorably from a tax perspective. Unlike selling investments from your retirement portfolio to fund expenses, which usually comes with capital gains tax, according to the Canada Revenue Agency, reverse mortgage payments cannot be taxed as they are considered the same as loan advances from a traditional mortgage.
The Demand for Reverse Mortgages Is on the Rise
The demand for reverse mortgages is growing rapidly in Canada, for a few reasons. First, home prices have risen considerably in the past number of years, meaning many 55+ Canadians are realizing just how much wealth they have in their homes. Second, interest rates on reverse mortgages are as low as they’ve ever been. Lastly, thousands of Canadians are beginning to realize that their prior misconceptions about reverse mortgages are wrong, and are beginning to see the power of this product to transform their lives in retirement.
A Financial Boon
When you realize all the benefits of taking out a reverse mortgage, you will see how it can be a boon to any Canadian senior who wants to make the most out of their retirement years.
Increase Your Financial Freedom
What are your goals in retirement? Do you want to travel, renovate your home, or give money to your children or grandchildren to make a down payment? Reverse mortgages can give you that financial flexibility. When you start to dispel the reverse mortgage myths and look the realities square on, it becomes clear that this is a product worth looking into further.
Access up to 55% of the value of your home as tax-free cash and live retirement on your own terms.
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No monthly payments required
Never owe more than your home’s worth
Keep 100% ownership
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