While it isn’t exactly news that reverse mortgages have entered the mainstream of retirement planning, trust in them has increased to the point that a fee-based financial adviser recommended them in this recent article in The Globe and Mail.
The piece was an advice column asking how two retirees with significant assets and an expensive lifestyle could retool their retirement plan to deal with a shortfall that they thought they had covered through investing with a mortgage loan. The couple was aged 80 and 78 and both were fully retired. The advisor, Warren MacKenzie of Weigh House Investor Services in Toronto, wrote that they had made a risky move. One of the alternatives that he suggested was a reverse mortgage.
MacKenzie is a fee-based financial advisor, meaning his firm does not sell investment or financial products, but instead is paid solely for advice. Checking out a retirement plan with such an advisor, even if you are just looking for a second opinion, is a great idea as their sole motivation is to give you the best advice, not to sell you a product.
Reverse Mortgages Protect against Depreciation
The couple had taken out a loan on their mortgage of $400,000 in order to invest. A reverse mortgage would make more sense because it insulates the borrower against a potential depreciation in the home value. A reverse mortgage is valuated based on the current market value and your home’s potential for depreciation. If there is a catastrophic depreciation, you never have to pay back more than the value of your home. In the case of the couple in the story, they had a million-dollar property in Toronto that will likely not depreciate significantly, but it’s a factor mid-stage retirees need to consider.
Reverse Mortgage as Income Booster a Better Idea
In the article, MacKenzie states “with a reverse mortgage, they could tap into the equity in their home to the tune of about $2,000 a month, live the lifestyle they enjoy, and they would be paying interest only on the amount they had borrowed.” This way they aren’t riding the risky waves of the stock market, they are just using their mortgage as pure income. While borrowing to invest isn’t unheard of, retirees in the middle of retirement should definitely consider less risky options than someone in their late 50’s or early 60’s who is looking to build a retirement nest egg in a short period of time.
Reverse Mortgages Have Come a Long Way
The other item that this piece illustrates is just how far reverse mortgages have come. Investment advisors and retirement planners have started to factor them into retirement plans, especially for people who have been hit with financial circumstances that may have prevented them from building a retirement nest egg the traditional way. Realistically, there’s nothing “traditional” about how many Canadians save for retirement anymore, and reverse mortgages have moved from being a fallback position to being a solid building block in a retirement portfolio.
Horizon Equity can help you factor a reverse mortgage into your own retirement planning. Contact us today to find out more about how a reverse mortgage can help you do the things you want to do in retirement.