The Reverse Mortgage Survival Guide

With the Baby Boomer generation on the verge of retirement (or at the very least hoping it’s coming soon!), reverse mortgages are becoming more and more of a thing… but what are they? Can they really help you pay for retirement or are they just there to rob you of the equity it took you years to build? They can be a powerful tool if you understand how to use them; here we’ll go over (almost) everything you need to do to put the equity in your home to work.

What is a Reverse Mortgage?

A reverse mortgage allows you to tap the equity, or value, of your home without having to move out. You can borrow all the value, some of the value or just wait until the time is right to borrow against your home. You won’t be on the hook for the mortgage unless you either sell the home or pass away. If it’s the latter, your home will go up for sale and the bank will take what’s owed from the estate; from here it’ll pass on to your heirs.

Do You Really Need a Reverse Mortgage?

You may have other options open to you like a home equity loan or home equity line of credit. A reverse mortgage shouldn’t be taken on lightly. Speak with a Canada mortgage broker to find out if this is the option that’ll fit you best.

Can You Afford It?

You’ll want to ask yourself if you really have enough equity to make a reverse mortgage work. If you have an existing first or second mortgage you may not be in the best financial situation to take advantage of what one of these has to offer you.

Should You Tap Into Your Equity Now?

Many homeowners have tapped into their equity too soon, taking away their options to age in place in their home or without funds for care later in life. If you’ve just hit retirement age you may not want to take advantage of a reverse mortgage just yet. You’ll want to talk to your financial planner or advisor to find out if it’s really the right time to borrow against your home. Just waiting 5 to 10 years can make a huge difference in how much you’ll have available.

Do You Have Other Options?

A reverse mortgage has a ring of finality to it. Many lenders may try and lead you to believe that you can “pay it off” and “nothing is forever”; if you take out a reverse mortgage you may end up having it until you sell your home or pass on your estate. You need to make sure that you’re doing what’s right for you, not what you’re being pressured to do.

Spend Your Money Wisely

You want to spend the money you get from your RM wisely; investing the money is usually a bad decision because you’ll end up accruing interest at a much faster rate than you could earn it back. If someone suggests you finance a purchase with RMs, you’ll want to be very wary.

You don’t have to borrow everything right now – taking out a little here and a little there can be one of the wisest ways to use your equity. You don’t want to spend it so quickly that you can’t pay your taxes or your homeowner’s insurance, do you?

Danny Papadopoulos is an experienced agent of Mortgage Central and an avid blogger for Homebase Mortgages. HBM is a Toronto mortgage broker that provides home mortgages, mortgages for the self-employed, home equity loans and lines of credit, debt consolidation, private mortgage and second mortgage lending. You can visit his Google+ page here: https://plus.google.com/111813832205593985095