Table of contents

#1 Reverse Mortgage versus a Home Equity Line of Credit (HELOC)

#2 Reverse Mortgage versus Renting

#3 Reverse Mortgage versus Selling Investments

#4 Qualifying for a Reverse Mortgage

#5 How a Reverse Mortgage Works for You

#6 Reviewing the Benefits

#7 Experience a Stress-free Retirement‍

#8 Reverse Mortgage FAQs‍

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A reverse mortgage is a financial product designed to provide financial flexibility to seniors as they prepare for, and enjoy their retirement. There are a number of other alternatives to access cash to fund retirement expenses, but reverse mortgages offer some unique benefits.

Reverse Mortgage versus a Home Equity Line of Credit (HELOC)

Taking out a reverse mortgage allows you to access up to 55% of your home’s value in cash proceeds, while continuing to own and remain in your home. You can use this money in one or more ways:

• To give a gift to your children or grandchildren
• To take a dream vacation
• To improve your existing home
• To make a major purchase
• For daily living expenses
• To pay down existing debt

On the other hand, you might consider taking out a home equity line of credit (HELOC). This method also allows you to have access to the equity in your home and receive cash, as you need it. However, there a few significant drawbacks for seniors.

1. Since HELOCs require borrowers to pay interest, the government says that income stress tests are required before a customer can access the product, meaning many retired borrowers don’t qualify. This isn’t the case for reverse mortgages, which require no regular principal or interest payments.
2. If the HELOC balance rises past a certain level, the bank can force the borrower to repay the balance, which usually means selling their home. A reverse mortgage on the other hand has no “loan to value cap”, meaning you can stay in your home as long as you like, no matter what happens to the loan balance or home value.
3. If a HELOC balance exceeds the value of the home, the borrower is on the hook for the difference, which can present serious financial challenges for seniors. On the other hand, reverse mortgages come with a home equity guarantee, meaning the most you’ll ever owe is the fair market value of your home. This means peace of mind.

Reverse Mortgage versus Renting

You may also choose to sell your home and rent a property. This option can provide a cash windfall on the sale of the home. However, it also comes with some downsides.

First, it usually means leaving the home that you love. If you want to spend your retirement years where you are, this option won’t work for you.

Second, selling your home means giving up control. You’ll be a tenant, versus a homeowner. Some people don’t mind the change, but others prefer to have the freedom to make changes to their property, like accessibility renovations.

Lastly, if you don’t own your property, you can’t continue to benefit from home price growth in the future. Many reverse mortgage customers like the fact that the wealth they have in their homes can continue to grow.

Reverse Mortgage versus Selling Investments

Many seniors turn to selling investments like stocks and mutual funds before thinking about options like reverse mortgages. Certainly this is a fast way to access cash, but is this right option for you? Some things to consider include:

• Selling investments usually means you’ll owe the government capital gains tax on the profits you’ve made on those investments. On the other hand, reverse mortgage proceeds are tax-free.
• You should think about the return you would expect to earn from the investments you’re selling, versus the interest rate on a reverse mortgage. Selling an investment portfolio that could earn you 5% or more per year isn’t free.
• Many seniors already have a disproportionate amount of their wealth in their home, versus other investment assets. Selling investments increases that concentration, making your net worth more dependent on the real estate market.

You should talk to your financial advisor about the relative benefits of selling investments versus accessing your home equity through a reverse mortgage.

Qualifying for a Reverse Mortgage

To be eligible for a reverse mortgage loan, you need to meet the following criteria:

• Both you and your spouse must be at least 55 years old
• You need to own your home

When a lender reviews your qualifications for a reverse mortgage, they will also assess the following:

• The real estate’s location
• The condition of the home
• The home's appraised value

If you and your property meet some basic criteria, you could receive tax-free cash quickly and conveniently.

How a Reverse Mortgage Works for You

A reverse mortgage allows Canadian seniors to access some of the wealth built up in their homes, while remaining in place and continuing to own 100% of the home. Property owners can use the tax-free cash they receive to improve their home, pay for healthcare expenses, or supplement their retirement income, among other use cases. Not every financing option or alternative housing choice offers this type of flexibility. A reverse mortgage could be your solution for financial freedom in retirement.

Reviewing the Benefits

With a reverse mortgage, you can enjoy the following

• No required monthly principal or interest payments
• Retain ownership of your property
• Stay in your home as long as you wish, as long as you keep up with your insurance, tax and maintenance
• Benefit from the home equity guarantee, which promises that no matter what happens to the mortgage balance or home price, you’ll never owe more than the fair market value of your home

Experience a Stress-free Retirement

Do you want to enjoy a retirement that is stress-free? If so, you should review the benefits of taking out a reverse mortgage. This type of loan product continues to gain popularity in Canada – and for a good reason. It offers unique advantages that Canadian seniors won’t find with other retirement income solutions.

Reverse Mortgage FAQs

How is a reverse mortgage designed?

Basically, a reverse mortgage is like a traditional mortgage, except instead of having to pay down the balance, interest is simply added to the amount you borrow. The balance, including interest, is paid back when the last borrower leaves the home.

Can you get out of a reverse mortgage?

You can pay off your reverse mortgage whenever you want by selling the property or refinancing with another loan product. You can also pay off the mortgage with cash. In certain cases, prepayment charges will apply.

How much tax-free money can I get from a reverse mortgage?

The amount of money you receive is calculated based on a few simple factors – the location, type and condition of the home, the appraised value of the real estate, and the age of the borrower(s). You can receive as much as 55% of the home’s value tax-free.

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