A reverse mortgage isn’t just for those looking to bolster their retirement income – it’s also a smart financial instrument for retirees who want to give money to their adult children for large ticket items such as weddings, a down payment on a home, and more.
Give Money Without Touching Retirement Savings
When you retire, your money is usually locked up in RRIFs, pensions and other financial vehicles that penalize you if you withdraw more than the prescribed amount. These penalties can come in the form of extra taxes or fees and in some cases, can be substantial.
While a reverse mortgage does have upfront costs associated with it that may be similar to some of these fees, getting a reverse mortgage will keep you from touching the principal in your retirement investments, which can have consequences for your later retirement.
Gifting Your Legacy in Advance
It’s much more rewarding to see the happiness you can bring your family than to know that they will be taken care of when you are gone. Most inheritances come at a time in an adult child’s life when they already have major expenses such as homes and their children’s education mostly paid for, including the costs of borrowing that they may have incurred by taking out mortgages and getting loans. You can save your adult children these costs by giving them their legacy while you are around to see them enjoying it.
Reverse mortgages – only for large cash gifts
If you are looking at getting a reverse mortgage, you can receive up to 50% of the equity in your home. Because of the appraisal and legal costs, we don’t recommend taking out a reverse mortgage for less than $10,000. The upfront costs are generally around $800-$1000, depending on lawyer’s and appraiser’s fees.
What Reverse Mortgages Have Done for HomEquity Bank Clients in 2014
HomEquity Bank administers the CHIP Home Income Program which Horizon Equity sells to our clients. Here are some recent examples of what some of these CHIP Home Income clients have done in the past year with gifts to their adult children:
• An 84-year old Ontario widow gifted her daughter, living abroad,$350,000. The daughter is experiencing tough times due to divorce and her mother provided an early inheritance to help at a time when it is most needed.
• A couple living in British Columbia gifted $600,000 to each of their two sons, allowing them to buy their first homes.
• A 78-year-old Ontario widower is gifting $100,000 to his two adult children to help with their mortgages.
• A Vancouver couple arranged a $325,000 reverse mortgage and allocated $100,000 for a son going through a divorce; $100,000 for a son looking to grow his prosperous business; and $100,000 for a son with a struggling business. The remaining $25,000 was allocated to a family trip.
What can you imagine your family doing if you gift them their legacy in advance? Contact us at Horizon Equity to find out more about reverse mortgages and how they can help you help your family.