Reverse mortgages have traditionally been viewed as an option for seniors who weren’t able to save as much as they would have liked for their retirements or who have unexpected financial needs crop up during retirement. While they definitely serve these needs, they can also be used as financial instruments for seniors who have properties worth over $1 million.
Free up Money for Investing
We’ve chosen $1 million as the figure for a high dollar value home since mortgage insurance cannot be taken out on a home worth over a million dollars. Why would someone with a home of this value consider a reverse mortgage? Simply put, it turns your home into a liquidity tool, giving you access to investment cash that you may not have given yourself room for when planning retirement.
This way, if a friend comes along with a great stock tip, or you see a company that looks like a good value, you can borrow up to 40 percent of the value of your home, or $400,000 on a $1 million home, to use for investments.
If you can borrow a chunk of your equity and invest with a comparable rate of return, your monthly cash flow situation could be much better and even be a source of monthly income.
Pay Medical Costs
On a year-long waiting list for a procedure you’d like to have done next week? It may be worth it to you if it means freeing up a year of your life to get around like a normal human being rather than being laid up with a medical condition. In the same vein, if you lack critical illness insurance and find yourself requiring time off during those crucial last few years of work, you can start looking at a reverse mortgage at the age of 55. This way you can take the time off you need to get better while still saving up for your retirement, as long as you plan to stay in your home.
Alternative for Seniors with Lower Incomes and High-Value Homes
The usual solution for seniors with high-value homes that want to free up money is a home equity line of credit (HELOC). However, if you report the usual lower income that a senior in retirement does, you may not qualify for a good rate on a HELOC or, in some cases, you may not even qualify at all.
As we’ve explored here before, a HELOC is a good idea for purchases under $10,000, while a purchase over $10,000 may make more sense on a reverse mortgage, due to the fact that the bank can bump your interest rate at any time. There are no monthly payments with a reverse mortgage unless you want to make extra payments. A HELOC also requires a monthly payment, which a reverse mortgage does not.
You Can’t Eat Your House
Many Canadian seniors are aging in place with a home that they’ve inherited or purchased in better financial times. The temptation to sell a higher-value home to move into a smaller one prior to retirement is high, but you may not want to leave a home that houses many memories and can serve as a nexus for family get-togethers. It makes a lot more sense to stay in your home with a reverse mortgage than to shoulder the upfront costs of moving, not to mention the dissatisfaction that comes with a step down in your standard of living. You don’t have to let your nice home go with a reverse mortgage.
Contact Horizon Equity today to find out more about reverse mortgages and how you can unlock the value in your high-equity home.