How a reverse mortgage can help Canadians retiring with higher debt levels

April 16, 2015 · Print This Article

It’s no secret that many Canadians are heading toward retirement without much money saved up. According to TransUnion’s last credit trends report, the average Canadian’s debt rose 2.3% and in a recent survey of 1,500 Canadians aged 50-plus by the non-profit Investor Education Fund, only 2 in 10 households said they would have more than $250,000 saved for their retirement. And half of all households surveyed said they believe they will exhaust their savings in the first 10 years of retirement.

How a reverse mortgage works

Faced with these challenging statistics, many Canadian homeowners are considering the option of a reverse mortgage. If you are a Canadian homeowner older than 55, you can get up to 50% of your home’s value through a reverse mortgage. You are not required to make any payments and don’t have to pay any interest or principal until you sell the home or pass away. Essentially, the mortgage is paid off from the proceeds of the home’s sale.

Horizon Equity offers homeowners the ability to access a reverse mortgage through their lender, the Canadian Home Income Plan (CHIP). The money clients receive can be used for anything they choose, whether it be to save more for their retirement, go on a trip, help a loved one with school, or pay off debt.

There is a negative stigma around reverse mortgages that has prevented many Canadians from considering them. Much of this comes from news about problems with American reverse mortgages, which are not nearly as tightly regulated as the products on the Canadian market. There are very strict rules to avoid the kinds of scenarios that have given them a bad name.

Credit rating and income level are not factors for a reverse mortgage

A client’s credit rating and income level are not factors in a reverse mortgage. The CHIP home income loan is secured by property equity. As a result, the loan is automatically repaid when the home is sold. The only thing that is considered when you apply is that you have paid off at least 50% of your mortgage. Funds from a reverse mortgage are also tax-free. This can help you in a number of ways, including the fact that government benefits are not affected since these funds are not considered taxable income. You can also deduct CHIP interest charges from investment income from non-registered investments.

Steve Ranson, President & CEO, HomEquity Bank talks to The Globe and Mail

In a recent interview with The Globe and Mail, Steve Ranson, president and CEO of HomEquity Bank, says they currently have about $1.5-billion in mortgages outstanding. He projects about 2,500 new customers, or $250-million in mortgages, for 2015. “Our average clients are couples in their early 70s,” he says. “They’ve been retired for a certain time and they are on a fixed income. Interest rates are low so whatever they’ve been earning on their investments is less than they planned on and they’re saying, we need a little bit more money. They bought a house for $30,000 or $40,000, now it’s worth $400,000. They love their house, they don’t want to move, but the problem is how do you get at that equity? And that’s what we do.”

If retired Canadians are looking to live comfortably, and not stress over spending their pension within the first few years, Reverse Mortgages are something they should really consider. Applying for a reverse mortgage is simple. Just call Horizon Equity to speak to one of the CHIP Home Income plan specialists, and they’ll be happy to answer any inquiries you have.