Are you a baby boomer who plans to stay put in the family home? You’re not alone. It was first thought that baby boomers would downsize en masse, but that simply isn’t happening.
My mother and father are the perfect example. They live in an oversized house in the trendy beach area in Toronto. The house is aging and falling into disrepair, but they refuse to sell. They love the neighbourhood too much. They’ve put down roots. The last thing they want to do is leave their family, friends and the church behind by moving to a condo in the suburbs.
And they’re not the only ones who feel this way. Nine in 10 older Canadian homeowners plan on staying put in their retirement years, finds a recent report by HomeEquity Bank. 60 percent of those aged 65 or older said that maintaining independence is the number one reason to stay in their home during retirement. And more than half (51 percent) of people aged 75 or older said it was important to stay close to family, friends and/or their community.
Staying put in your home is fine if you have the savings, but a lot of older Canadians haven’t saved nearly enough for retirement. 40 percent report savings less than $100,000. Similar to my parents, they find themselves, in the unfortunate predicament of being “house rich, cash poor,” with all their money trapped in their house.
My father is fortunate. He has a gold-plated government pension plan. But he’s one of the lucky few. These days employer sponsored pension plans are few and far between. In fact, less than one third of employees in the private sector have a pension plan at work. If you’re hoping to live on government benefits, think again. Canada Pension Plan and Old Age Security are only supposed to provide one third of your retirement income.
That leaves you to fill the two-thirds gap, but if all your money’s trapped in your house that can be a real problem. That’s where a reverse mortgage can come in handy.
What’s a Reverse Mortgage?
A reverse mortgage is a loan secured against the value of the home, but unlike a traditional home equity line of credit or a conventional mortgage, it doesn’t require monthly mortgage payments for as long as you live in your home. Funds from a reverse mortgage can be taken out in a lump sum, scheduled payments, or both. And a reverse mortgage is a tax-free, lifetime loan, for up to 55 per cent of your home’s value. Available to Canadians aged 55 and older, who own their home, with a minimum property value of $150,000, considering a reverse mortgage is a wise tool for consideration, with the collaboration of a trusted financial advisor.
When a Reverse Mortgage Makes Sense
In the past, some people used to view a reverse mortgage as a loan of last resort. That’s just not the case. In fact, many older adults have leveraged their home equity to help pay off debt, to improve cash flow, to offer financial assistance to their kids, or for proactive efforts like desired home improvements or to help fund long-awaited travels. It’s an empowering tool baby boomers can leverage to help retire more comfortably in the home that they love. While a reverse mortgage isn’t right for everyone, it can make sense in certain circumstances.
Many baby boomers assume that they can tap into the equity that they’ve built up in their home over the years with a home equity line of credit (HELOC). But there’s no guarantee you can. Your bank may be hesitant to let you borrow from your home by way of a HELOC if you’re on a fixed income. That’s where a reverse mortgage can come in handy.
If you’re thinking about taking out a reverse mortgage, it helps to have an unbiased second opinion. Feel free to reach out to me if you’re interested in exploring the benefits a reverse mortgage has to offer in further detail.
Note: This is a sponsored post by CHIP Reverse Mortgage from HomeEquity Bank, but was written and edited by me.
Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians, available now on Amazon and at Chapters, Indigo and major bookstores, and as an Audiobook on Amazon, Audible and iTunes.