Your Personal Finances

Home Ownership

A reverse mortgage allows Canadians over 60 years of age to retrieve some of the money they have invested in their home without selling it. There are a number of ways you can access this cash. You can receive a lump-sum usually worth between 10% and 40% of the value of your home. You can receive the funds in the form of a regular monthly payment. Or, you can set one up like an emergency fund withdrawing what you need when you need it.

You (or your estate) pay back the money you have borrowed from your home's value plus interest when you sell or upon death. Unlike a traditional mortgage, there are no monthly payments.

Sounds like a great way to generate some income doesn't it? But, a reverse mortgage needs careful consideration. The interest rates are usually higher than normal mortgages and high set up fees are required. The interest charged can grow quickly and in some cases even result in very little value remaining in the home when it is sold.

If that happens, there could be very little left to pay for long-term care support when you are unable to live in the home any longer due to medical reasons. Or, the amount of money you are going to pass down to your kids could be impacted.

It is very important to seek professional financial advice about a reverse mortgage. Ask your advisor about the fees, how fast your debt will grow, and if there are income-generating alternatives such as a line of credit. You also need to see a lawyer as these contracts can be very complicated and confusing.

A reverse mortgage may be a potential income-generating strategy for some retired Canadian home-owners but it is not a substitute for a well-developed thought-out retirement plan.