Reverse Mortgages and Divorce

April 22, 2014 · Print This Article

It’s an unpleasant topic, but one that more and more Canadians who are reaching retirement, or even in retirement, have to deal with. Older Canadians are divorcing at a higher rate than they have in the past. Divorces among the baby boomer generation for those over the age of 50 have doubled over the last two decades. A “grey divorce” presents greater financial challenges for older divorcees, including the need to split assets that may have accumulated over a lifetime. This can be a significant blow to retirement savings including pensions, RRSPs, and other investment vehicles that must now be divided equally.

Softening the Blow

It goes without saying that the less lawyers are involved in a divorce, the more money divorcing couples will be able to hold on to. Deborah O’Connor divorced at 50, and the cost of the divorce and separation itself added up to over $150,000. However, with the division of larger assets, it can be difficult to keep lawyers entirely out of the picture even in the most amicable of divorces, and these costs alone can eat into retirement savings before they are divided.

Older divorced Canadians frequently look at returning to work or, if not yet retired, working for a longer period to restock their retirement savings. This can be a severe blow to those already in retirement, who must look at reducing their standard of living or potentially moving in with family to make it work. But there are other ways to access funds in retirement – including a reverse mortgage.

How a Reverse Mortgage Can Help

In order to qualify for a reverse mortgage, your current mortgage must not exceed 50% of the home’s current value. This puts spouses who are remaining in the home through a buyout from the divorcing spouse in a position to take advantage of a reverse mortgage. This is an especially attractive option for someone who is already in retirement, and may not easily be able to work to build up retirement savings again.

The advantage of a reverse mortgage over another form of loan, such as a HELOC, is that you do not have to make monthly interest or principal payments. The loan only needs to be paid off when you sell your home, and since the loan cannot be for more than 50% of your home’s value, you or your estate will still be left with a significant amount of capital when you do sell your home.

There are upfront costs to getting a reverse mortgage, including legal consultation fees and an appraisal, but these costs are very minimal compared to the amount of the loan against the equity in your home.

Contact Horizon Equity today to find out more about the CHIP Home Income Plan and how we can help you get a reverse mortgage.