Reverse mortgages were the subject of heavy criticism when they first became available. As the first batch of baby boomers are going through retirement and finding that even the best-laid retirement plans can leave them coming up short, reverse mortgages are becoming an accepted way to patch gaps in retirement plans or cover unforeseen large expenses like home improvements.
The Investment Executive – Reverse Mortgage Use Rising
This piece reports on the drastic 16% increase in reverse mortgages in the last quarter of 2011. Experts attribute this to a couple of factors, but settle on the fact that seniors taking out reverse mortgages have generally been retired for five to ten years and are starting to feel inflation’s pinch. Low interest rates mixed with the financial burdens of these recent retirees were part of the reason for the rise.
It’s important to note that while interest rates on reverse mortgages are not the same as a typical bank mortgage rate, they are still much lower than most expect going in. This is why, as the article states, financial planners are including reverse mortgages in a financial plan for retirement. They do advise against randomly taking out a reverse mortgage without an element of financial planning involved. It is possible that the money you need could come from other sources, such as a bank loan. If the money is needed for a smaller expense, such as a home improvement or paying off debt under $10,000, a reverse mortgage may not be preferable due to the legal costs involved in taking one out.
Postmedia News – Reverse Mortgages an Income Lifeline for Seniors
This article describes the very real and personal situations that seniors are faced with when they need to take out reverse mortgages. One retiree owned a small business with her husband. When he passed away her finances were crunched when she had to subsist on one income rather than two.
Another situation was a consultant who hadn’t yet entered retirement but wanted to renovate a second property and pay off debts before entering retirement. In his case, he was using the funds to prepare for retirement rather than using them in retirement.
With interest rates just above those of traditional mortgage rates, a reverse mortgage is a very attractive option for seniors. Some of Horizon Equity’s clients aren’t even people who necessarily need to take out a reverse mortgage, but seniors who want to use reverse mortgages as financial instruments since the cost of borrowing is less than if they dipped into RRIFs to cover expenses or trips. For those who do need the money, it’s a way for seniors to stay in their homes longer while still covering debts and other expenses.
If you want to find out more about reverse mortgages, contact Horizon Equity. We’ll get your questions answered right away.