Debt Consolidation with a Reverse Mortgage

Are you dealing with pent-up debts and struggling to take care of payments? Don’t feel bad if this is the case – everyday living doesn’t come cheap. From renovations to travel, groceries to car maintenance, furnace inspections and otherwise, there are plenty of causes for debt accumulation, especially as the years go on. If you’re a senior struggling with finances, debt consolidation through what is known as a reverse mortgage may be a suitable solution. Let’s explore how the process works in more detail together!

There is one main national provider of reverse mortgages across Canada, HomEquity Bank. They call it the “CHIP” reverse mortgage, which is an acronym for ‘canadian home income plan’. They have the most options and comprehensive plans. There are also some smaller lenders that can be considered, but for the purposes of this article, we will outline those from the main provider.

Who is Eligible for a Reverse Mortgage?

For a CHIP reverse mortgage specifically, you can be as young as 55 years old. In fact, our own team here at the Seniors’ Lending Centre is happy to help you fill out, submit, and monitor your application. You don’t need mortgage insurance, and there aren’t any high taxes to worry about. The key here is really your home’s equity – we recommend ensuring you have a clear and accurate idea about how much it’s worth and then setting your expectations accordingly.

How Can You Refinance Your Mortgage to Consolidate Debt?

Essentially, a reverse mortgage in Canada can be utilized to obtain essential funds that can then be deposited into investment accounts. It ensures your interest is tax-deductible, meaning there’s one less expense to worry about. To refinance your mortgage to consolidate debt in this manner, you borrow against the established equity of your home. This can mean a higher approved amount if you have invested considerably into modernizing and/or renovating your property over the years. In addition, the older or closer you are to retirement age, the further the sum you qualify for may increase.

Are There Downsides to Using Debt Consolidation Mortgage Lenders to Refinance?

• If you go in with a clear understanding of the potential risks – as with any significant borrowing of funds – then you can make an informed and dependable decision. And, of course, working with an expert brokerage like ours can assure peace of mind, as we want to be certain that you can comfortably manage repayments and not create financial trouble for yourself. We’ll help you find an ideal lending option that best aligns with your needs. That being said, while there aren’t necessarily downsides, there are a few risks you should consider before consolidating your debt via a reverse mortgage. These include the following:
• You’ll technically be in debt for longer than anticipated before consolidation, as the payments will be spread out over a longer period of time.
• There’s a risk of borrowing against too much of your equity, which can create serious financial issues if you aren’t careful about how you intend to use the funds. Should an emergency need for extra funds pop up, you don’t want to have nothing left to serve as a safety net. Try not to blow your reverse mortgage funds on anything but the essentials to avoid this.
• This ties into the previous risk, but some seniors assume it’s safe to increase the amount of shopping they do with a credit card once their existing debt is consolidated. This makes the very act of refinancing meaningless as you’re only creating more debt and you now have to cover the consolidated mortgage payments on top of it. Even though these don’t have to be regular payments, it still adds up, so don’t dig yourself into an even deeper hole than what you started out with!
• The interest rates associated with a reverse mortgage in Canada are slightly higher than those of a standard mortgage, but again, regular payments are not required. While you don’t need to worry about missing payment due dates, you should factor in this added interest.

Need help figuring out whether you qualify for a reverse mortgage for the purposes of debt consolidation? We’re happy to help you here at the Seniors’ Lending Centre. Reach out to us today to speak with a representative, and we’ll gladly address all your questions and concerns to ensure you’re set up for financial stability and peace of mind. Alternatively, check out our Seniors’ Resource Centre, full of helpful links, tips, and much more!