When a reverse mortgage is the right solution - Ingrid Bjel McGaughey - Mortgage Broker

Reverse mortgages in Canada:

Top 3 “why’s” and “when’s”

We’re seeing an uptick in people asking whether a reverse mortgage is right for their situation. While it’s not for everyone, it can make a lot of sense in certain specific circumstances. Here are the top 3 scenarios where a reverse mortgage makes sense:

1.  The “Bank of Mom & Dad” (or Grandma & Grandpa)

With home prices at all-time highs in Toronto and the surrounding areas, it’s getting harder for first-time homebuyers to come up with a down payment or to qualify for a mortgage under the increasingly stringent mortgage rules. Some parents opt to help by co-signing on their kids’ mortgage, but this doesn’t work in every situation. This is especially true if the parents or grandparents are on limited incomes, or if they don’t want the financial restrictions that come with co-signing.

Seniors have to be at least 55 to be considered, and setting up a reverse mortgage to help children (or grandchildren) with a down payment is an option to look at. It allows them to free up some of the equity in their own home, and gift it to their kids or grandkids without restricting their own cash flow.

2.  Improving lifestyle and having some breathing room in retirement

As noted in many articles, Canadian seniors are carrying debt into retirement, or taking on new debt in retirement, while underestimating the cost of living. The resulting stress is significant, especially for those on fixed incomes. Using a reverse mortgage, they are able to pay off debt, increase cash flow, and to have a little wiggle room to do things otherwise not possible, such as travelling and enjoying their retirement years.

3.  A temporary fix

Often, people I’ve worked with are not looking for a long-term solution. They’ve been in situations such as the main income earner having passed away, leaving behind debts to unwind and a lot of unknowns. They don’t want to rush to sell their property either, as it may make things even worse. Experts usually suggest waiting at least a year, if not longer, before selling the home, and making sure that the surviving spouse is emotionally and physically ready.

Accessing equity in the property using a reverse mortgage, usually for a period of three to five years, helps to buy some time to settle the estate. Additionally, this allows for time to figure out what the next steps look like, both financially, and in terms of lifestyle.

Learn more about how reverse mortgages work. For more information about mortgage options for people getting ready for retirement, click over to this post.

And for more ideas for folks wanting to help their kids or grandkids to buy a home, you can take a look at this blog post.

And if you have questions about your own situation, please get in touch. I’m happy to help!

Photo [c] Nongnuch Leelaphasuk for vecteezy.com