Is a retirement mortgage part of your retirement plan?
If you own your own home, it’s likely some of your retirement plan will include accessing the equity in your property. If at all possible, you should explore these options, possibly in conjunction with a well thought-out retirement mortgage plan, with the help of good advisors. And you should try to do this well before you stop working. According to Ipsos-Reid, almost a quarter of Canadian Baby Boomers worry whether they have enough for retirement. What’s even more concerning is that almost 40% of Canadian adults say they haven’t saved a penny for the future.
Three potential retirement scenarios to consider:
1. Selling your home and downsizing at retirement.
Selling your home and moving into a smaller home or condo should serve to minimize your living expenses. In addition, you can use the surplus cash from the sale of your home to invest in a diversified portfolio of investments that ensures safety and income, as well as some growth. Make sure you talk to a good financial planner and/or investment advisor to get the best mix of investments for your long term needs. And don’t succumb to pressure to downsize if you’re not ready. Another Ipsos-Reid study has found that 93% of seniors don’t want to move out of their home. If this is you, you’re not alone!
2. Set up a home equity line of credit.
If your home is, or soon will be, mortgage free, and if you still have a source of income to qualify, this might be a good option. Setting up a Home Equity Line of Credit, or “HELOC”, will enable you to access the funds tied up in your home. Although there are some initial setup costs, there is no ongoing cost if you don’t use it. And once you have it set up, you can use it when needed, either by writing cheques, doing a transfer to your bank account, or sometimes even using an ATM. If you do carry a balance, the interest rate charged is much less than on an unsecured line of credit, and you only need to pay the interest monthly. And if you’re able to periodically make extra payments, there is no penalty to pay off part or all of the outstanding balance whenever you choose. Talk to an experienced mortgage broker to find out if you qualify and for what amount.
3. Arrange a reverse mortgage.
If your income is limited, you probably don’t qualify for sufficient funds in the HELOC option, and having to make monthly payments can be stressful. If a HELOC isn’t the right solution, and you feel strongly about staying in your home, a reverse mortgage is another option to investigate. The way a reverse mortgage works is that you determine a maximum amount that you will borrow – no more than 50% of the value of your home – based on your age. You can then receive the funds in one bulk payment, several payments, or monthly installments, based on your requirements. No monthly payments are required; rather, your interest on the reverse mortgage accumulates over time. The mortgage is paid off when your home is sold or when you and your partner (if applicable) permanently move out of your home. While there are costs associated with the setup of the reverse mortgage, it is quick to arrange and the money received is not taxable (and therefore, does not impact OAS and GIS, or any pensions you have). As long as you continue paying your property taxes and property insurance, and keep up with any maintenance, you have the security of knowing that you can keep your home as long as you wish. If you would like to see if this option is right for you, make sure you talk to a Certified Reverse Mortgage Specialist, such as myself.
Do your retirement mortgage planning as early as possible
Whether you decide to downsize, set up a home equity line of credit, or arrange a reverse mortgage, make sure you get advice from the experts in considering your options. I can’t emphasize enough that the earlier you explore which option is best for your unique situation, the less stress you will experience when it is time to implement your plan.
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