Reverse mortgages let seniors pull cash out of their homes with a home equity loan for up to 50 per cent of their home’s value. Reverse mortgages have traditionally been viewed as an option for seniors who weren’t able to save as much as they would have liked for their retirement or who have unexpected financial needs during retirement. However, not every homeowner gets a reverse mortgage because of dire straits – some people with high value homes use them for investment income and more.
Reverse mortgages are here to stay, and they’re becoming a go-to solution for a growing number of older Canadians and Canadians planning for their retirement.
Canadians are saving less for retirement
Returns aside, people just simply aren’t saving consistently. Less than four in ten saved for retirement in 2014. Half of Canadians think they’ll run out of money within ten years of retiring and/or outlive their savings. A stunning 47 per cent of Canadians aged 55 to 64 say they don’t have a penny saved for retirement.
Canadians are also living longer. In 15 years, seniors will make up 23 per cent of the population, versus 15.6 per cent today. Unfortunately, costly health problems become more frequent around age 77, which can a problem if retirement savings aren’t enough to cover these extra costs. 91 per cent of Canadian boomers want to stay in their own home as long as possible. But home care isn’t cheap and it’s getting costlier every year.
Reverse mortgages can help cover costs from medical issues
On a year-long waiting list for a procedure you’d like to have done next week? It may be worth it to you if it means freeing up a year of your life to get around like a normal human being rather than being laid up with a medical condition. In the same vein, if you lack critical illness insurance and find yourself requiring time off during those crucial last few years of work, you can start looking at a reverse mortgage at the age of 55. This way you can take the time off you need to get better as long as you plan to stay in your home.
More homeowners than ever (24 per cent) are relying on their home(s) as their main source of retirement income. Fortunately for seniors, home values have surged 430 per cent in the last 30 years. The temptation to sell a higher-value home to move into a smaller one prior to retirement is high. It makes a lot more sense to stay in your home with a reverse mortgage than to shoulder the upfront costs of moving, not to mention the dissatisfaction that comes with a step down in your standard of living. You don’t have to let your nice home go with a reverse mortgage.
There are usually alternatives to reverse mortgages, like proper planning, downsizing, renting out a room in your house or an in-law suite, getting a home equity line of credit (HELOC) and more. But needs cannot always be foreseen, and even the most effective plan can go off the rails. A Monitor Deloitte survey last year found 845,000 – or 17.6 per cent – of Canada’s 4.8 million homeowners over age 55 had a serious financial need and were looking for options for retirement. The above options won’t work for many of those folks, and that’s why one in ten senior homeowners may rely on a reverse mortgage within a decade.
For more information or consultation on a reverse mortgage please contact Horizon Equity.