Pattie Lovett-Reid: Why reverse mortgages are something to consider, not fear

One of the most disliked financial products on the markets is gaining traction as more Canadians want to stay in their homes during retirement. The reverse mortgage.

I wondered if it was time to reverse our dislike of reverse mortgages.

First, why is this product so disliked?

Many worry that someone could step in and take over ownership of their home, and have ongoing concerns about owing more money than your house is worth. This is due to the interest charged on the money you have borrowed, and there may be fears that if one spouse dies, the other will have to move out.

None of this is true, however. And these unwarranted concerns likely play into the reasons why Canadians have been hesitant to embrace this product.

The fear of moving to a retirement facility and the personal disruption that can go along with moving out of the family home is real, and the pandemic has alarm bells ringing for cash-strapped Canadians looking to find ways to stay in their home during their golden years.

Along with this are concerns over funding retirement. Canadians are living longer and with that comes higher costs for home renovations, possible living assistance, home maintenance and higher costs in general.

With home prices escalating and Canadians aging, the reverse mortgage is now being looked at more closely as a retirement funding strategy. In fact, recent statistics from HomeEquity Bank show the average customer for reverse mortgages is 72 years old, the average mortgage size is $190,000, the average loan to value is 30 per cent, with an average credit score of 740.

And what are people doing with the money? Paying down debt and transferring wealth to family members.

I reached out to Yvonne Ziomecki of HomeEquity Bank for further clarification. She said:

“Pandemic has been a game changer for so many areas of our lives, what we hear more and more at HomeEquity Bank is that record numbers of Canadians now want to age in place, and many would consider tapping into their home’s equity to enjoy the retirement they deserve.

Our customers have been taking out CHIP to help pay off debt, to supplement their cashflow as well as to help their children / grandchildren get into the real estate market and to modify their homes.”

I get it. A reverse mortgage is a personal decision that may have some unwarranted shame attached to it. It is your retirement, and for seniors who want to stay in their home and pay off debt, help out a family member, eliminate mortgage payments and receive money tax-free (not interest-free), it might be the product of choice.

Here is what I know. You will not lose title or ownership of your home. You have to be 55-plus to qualify. You will only have access up to 55 per cent of the value of your home and similar to a conventional mortgage, your loan is secured by your home. Yet a big difference is there are no monthly payments required.

And how you receive the money is up to you, whether you get a tax-free lump sum payment or regular deposits to your bank account.

So before you rule this product out entirely, get to know the numbers. How much is your home worth today and where do you see it in 10 years? How much will the interest charge be? What is left based on the projections for potential estate planning purposes or even for long term care assistance?

Bottom line: for those who are struggling to make ends meet and have a lot of equity tied up in their home, this might be a financial lifeline worthy of further consideration.