Utilizing the Reverse Mortgage to its Maximum Wealth Management Potential
Despite what the name may imply, a reverse mortgage is not completely irreversible. If you choose the wrong product or spend the funds it generates without any strategy directed to a sustainable retirement, you could notice the equity you have worked hard to build in your home quickly dwindle. That is why it important to examine your current budget, your objectives for the future, the costs of services or other items you require, and your reverse mortgage options in advance of your cash flow need.
A reverse mortgage frees the equity you have built in your home with very little out of pocket expense – as little as $300 to $600 so long as no title issues are attributed to your property. None of the released funds are due back while you or your spouse continue to dwell in the property, nor will they be taxed, nor will they interfere with any pension, Old Age Security or Guaranteed Income Supplement you may be entitled to receive.
Reverse mortgages are also available with several interest options based on the length of the term you choose:
- Variable rate option with no fixed term
- Fixed rate six month term
- Fixed rate one year term
- Fixed rate three year term
- Fixed rate five year term
You may pay these interest premiums as you wish, but if you pay a full year’s accrued interest at the end of the year, you will qualify for a 0.5 per cent rate deduction on the following review date.
Financial problems result when homeowners take out a reverse mortgage to fund a lifestyle that is beyond their true financial means. A reverse mortgage is often the alternative to selling a home, allowing seniors to remain in their community, maintain their regular activities and afford new required expenses such as home care, cleaning services, or home renovations that make the property more accessible and comfortable. It is important to remember, however, that reverse mortgages are most financially beneficial when combined with a diversified investment portfolio and other sources of retirement income.
The funds you free through your reverse mortgage are yours to spend and receive however you wish: in one lump sum, several lump sums, or timely installments. Financial advisers suggest that these funds are optimized if a portion of them is allocated to a tax-efficient investment option, such as a conservative stock portfolio, RRSP mutual fund, income trust, etc.
For a better evaluation of your unique circumstances, discuss the reverse mortgage with a reputable financial planner. Virtually all homeowners have significant funds remaining after their home is sold and their home income loan is repaid, and usually the loan amount does not exceed 50 per cent of the property’s value at the time the property is sold.