More Canadian homeowners choose reverse mortgages to get extra money
A growing number of Canadians are using their real estate as a source of additional income.
According to the recent report by HomeEquity Bank, reverse mortgage originations exceeded $1 billion in 2022 for the second consecutive year.
“The interest in reverse mortgages is intensifying as more people search for options to finance their retirement. They realize their home can be part of their retirement plans allowing them to stay in the home they love and meeting their financial needs,” – noted Vivianne Gauci, a senior vice president at HomeEquity Bank.
“People now live longer, but they often lack savings. In addition to it, the current inflation has made everything even more expensive.”
A reverse mortgage lets homeowners who are at least 54 years old access up to 55% of their home’s value and get that money in a form of a lump sum, instalments, or a combination of both variants. The cost of both loan and interest is repaid only in case of a home sale or a homeowner’s death.
There are many benefits to reverse mortgages. They allow homeowners to spend more retirement years in a home they love, provide additional income, and don’t require monthly payments. The extra money from a reverse mortgage is tax-free. Moreover, it doesn’t affect such government benefits as Old Age Security or the Guaranteed Income Supplement.
Although reverse mortgages don’t require any monthly payments, the interest rates on them are usually higher. Right now, they vary in about a 7-8% range, so they can quickly eat most of the profit from the sale of the property. At the same time, most homeowners have faced a sharp gain in home equity due to growing home prices over the previous years.
Reverse mortgages let senior homeowners access the equity they’ve built up in their homes in a form of tax-free lump-sum or monthly payments.
Another important feature of this product is that it doesn’t allow you to owe more than your home is worth. The debt is usually repaid when the property is sold or the homeowner dies.