This Really Is "Having Your Cake" and "Eating It Too"
Myths About Reverse Mortgages
More and more financial planners and wealth advisors recommend reverse mortgages in Canada as an important component of a comprehensive tax-efficient retirement plan. Most myths in Canada about reverse mortgages come the USA, where reverse mortgages have very different rules and lack the safeguards used in Canada.
Myth: The Bank Will Own My Home
Fact: The homeowner always maintains control and title ownership of their property and home, and the homeowner is free to decide when (and if) they ever want to sell the home or move.
Myth: People With Reverse Mortgages End Up Owing More Than Their Home is Worth.
Fact: In Canada, the homeowner will never owe more than the home is worth because of a reverse mortgage. Any shortfall would be the bank's loss, not the homeowner's, Conservative lending practices allow the homeowner to receive a maximum of 55% of the home's appraised value. 99% of Canadians with reverse mortgages have plenty of equity remaining in the homes after the reverse mortgage is repaid.
Myth: The Interest Rates Of Reverse Mortgages Are Very High
Fact: The interest rates are far lower than those of home equity loans and private mortgages, and only modestly higher than the rates of conventional mortgages, all of which are "demand loans." Keep in mind that reverse mortgages in Canada are not demand loans - the bank can not cancel the loan once it's been issued to the homeowner. Moreover, no payments are required, and there are no strict income or credit requirements, all of which hinder Canadians aged 55+ from obtaining conventional mortgages in the first place.
Myth: Reverse Mortgage Are Loans Of Last Resort
Fact: More and more wealth managers and financial professionals recommend reverse mortgages in Canada because of their unique financial flexibility. Homeowners use this tax-free money to keep their other investments and savings in tact, making them last longer and further growing their estates.
Myth: A Homeowner With An Existing Mortgage Cannot Get A Reverse Mortgage
Fact: Many homeowners use their reverse mortgage cash to clean up their finances and pay off their existing mortgages, debts, and so on.
Myth: HELOCs (Home Equity Lines of Credit) Are Better Than Reverse Mortgages
Fact: HELOCs are "demand loans," just like conventional mortgages, private mortgages, and home equity loans. With these loans, the lender "demand" or "call" the loan, and require payment in full, at any time, for any reason. Moreover, HELOCs require monthly payments. HELOCs can be a short-term borrowing option for people who can easily pay the interest and loan in the near future. But as demand loans they have significant risks of non-renewal, or worse, outright cancellation. A reverse mortgage, on the other hand, is a long-term financial solution that is not a demand loan and can even prolong your retirement savings.
Myth: The Reverse Mortgage Lender Can Foreclose At Any Time
Fact: A reverse mortgage is a lifetime product. In fact, as long as property taxes and insurance remain in good standing, and the property remains in well-kept condition, and the homeowner lives in the home, the loan will not be demanded even if the home were to decrease in value. With a reverse mortgages the homeowners can stay in their home as long as they want.
Myth: A Surviving Spouse Will Get Stuck Paying The Loan Off
Fact: Nothing changes to the reverse mortgage if only one of a home's owners passes away. The surviving spouse can remain in the home without having to make any payments on the reverse mortgage until he/she chooses to sell the home.
"I’ve lived in the same house for over 30 years. I know everybody in the neighbourhood; we’d all spent years together. It’s like my neighbours are a second family. When I retired, I really thought I’d have to downsize and move to be able to afford a comfortable retirement. I reached out to my mortgage broker and she recommended a reverse mortgage. The reverse mortgage made it easy for me to stay in the home I love, close to my family and friends – even after retiring. I don’t know where I’d be without a reverse mortgage." - Joanne B