I have been in the mortgage and finance industry for more than 25 years, and lately I have been having more and more conversations about reverse mortgages in Ontario with people who have done exactly what they were told to do.
They worked hard, paid their mortgage, built equity in their home and prepared for retirement. And then they get there and think, I thought this was going to feel different.
You might be sitting in a home worth $1 million or more, with hundreds of thousands of dollars in equity, but still thinking twice about taking a trip, doing the renovation you’ve been putting off, helping your kids or simply spending a little more every month. Technically, you may be very financially secure, but you don’t necessarily feel financially free.
Many of my clients actually have significant investments. The issue isn’t that they don’t have money, it’s that they don’t necessarily want to cash those investments, and there can be very good financial reasons for that.
My career started with a bank, and for many years a large part of my business has been working with self-employed clients. That’s still true today. One of the challenges I see is that someone can have significant assets and substantial equity in their home, yet qualifying for traditional credit can be difficult because the income they declare doesn’t fit neatly within traditional lending guidelines. So if you want to access some of the equity in your home, what are your options?
The same conversation can come up in retirement. You may have money sitting in registered investments, but accessing it can have tax consequences.
An RRSP withdrawal is taxable income, and withdrawals from a RRIF are also taxable income and can affect income-tested benefits such as OAS if your income is high enough.
Sometimes it makes sense to use those investments, and sometimes it’s worth looking at other options first.
Often when people hear the words reverse mortgage, the immediate reaction is, Absolutely not. I’ve heard terrible things about those. You can lose your house!
I understand. I’ve heard it too. But much of what I hear simply isn’t true, which is exactly why I think we need to have a better conversation about reverse mortgages.
I Think We Need to Talk Differently About Reverse Mortgages
I’m not going to tell you that everybody over 55 with equity in their home should have a reverse mortgage because I don’t believe that.
If you have other resources available to you, or there is a less expensive way to accomplish what you want to accomplish, let’s look at that.
But I also don’t believe in dismissing an option before you actually understand it.
A reverse mortgage allows Canadian homeowners aged 55 and older to access some of the equity they have built in their home without having to sell it.
You continue to own your home, the funds you receive are tax-free, and unlike a traditional mortgage, there are generally no required regular mortgage payments while you continue to meet the obligations of the mortgage.
Also, this does not affect your existing Government payments.
Could that mean paying off the mortgage you still have and removing that payment from your monthly budget? Yes.
Could it mean finally doing the renovations that would allow you to comfortably stay in your home longer? Absolutely.
Could you use some of the money to travel, supplement your retirement income, pay for additional care or help your children while you’re still here to actually enjoy seeing what that help does for them? Yes.
But just because you can do all of those things doesn’t necessarily mean you should. That’s where the conversation needs to become personal.
What Are You Actually Trying to Accomplish?
This is the question I care about.
When somebody sits down with me, I don’t want to start with, “How much can we get you?”
I want to know what’s going on, I put on my past financial accreditation and planning hat to use.
Do you love your house and want to stay there? Do you have plenty of equity but find yourself watching every dollar that leaves your bank account?
Are you carrying a mortgage into retirement that is taking a large piece of your monthly income? Are you worried about spending your investments too quickly?
Or maybe you’re completely comfortable financially and you’re simply curious about whether using some home equity makes sense as part of your overall retirement plan.
Those are very different situations and they shouldn’t all get the same answer.
There are also costs to a reverse mortgage. Interest accumulates and, over time, that affects how much equity remains in your home. I think you should understand that clearly. I want you to see the numbers, understand what happens over time and compare the reverse mortgage with the other options available to you.
I’m very honest about this because I have absolutely no interest in convincing someone to take a mortgage that doesn’t make sense for them.
What I am interested in is education. Making informed decisons about your future and quality of life.
After more than 25 years doing this, I have seen how much fear and misinformation can influence financial decisions. Sometimes that fear protects us from making a bad decision, but sometimes it also stops us from even looking at an option that could potentially improve our lives.
And I think enjoying your retirement is too important for that.
You’ve spent decades building the equity in your home. Maybe the right decision is to leave every dollar of it untouched.
Maybe the right decision is to use some of it to give yourself more freedom now. There isn’t one answer that is right for everybody, which is exactly why I think you should understand your options before deciding.
Come and Learn About It
I hold ongoing Reverse Mortgage presentations in the Burlington and Oakville area where I explain how reverse mortgages in Ontario actually work, the benefits, the costs, the misconceptions I hear all the time and the situations where I believe they can make sense.
You can come, listen, ask me anything and decide for yourself whether it’s something worth exploring further. I’m very honest about both the benefits and the considerations because my job isn’t to convince you to get a reverse mortgage.
My job is to make sure you understand your options and support you with any questions. It is not for everyone, but it could be what changes your life.
If you’re interested in attending one of my complementary upcoming Burlington or Oakville reverse mortgage presentations, email me at lisa@claystonemortgageteam.com and I’ll send you the information for the next one.
