Reverse Mortgage vs. Selling Your Home
Your retirement years can be full of exciting adventures. However, there may be a time when you need to decide what to do with your house. Whether you need extra money or an alternative living arrangement to accommodate your changing needs, a reverse mortgage and selling your home are common options to consider. Let’s explore their advantages and disadvantages.
What is a Reverse Mortgage?
A reverse mortgage allows homeowners 55 years and older to borrow up to 55% of their home value as lump sums or installments. The loan must be repaid when you sell, move (with the title still in your name), or pass away. Until then, you don’t need to make any payments, unlike a traditional mortgage.
Advantages of a Reverse Mortgage
If you have a sentimental attachment to your home or simply want to stay in it for longer, a reverse mortgage allows you to do so. Remaining in your house can also help you avoid increasing rent prices and independent or assisted living costs.
Additionally, a reverse mortgage increases your cash flow, which can go towards anything you’d like, including renovations, home care, or even purchasing a smaller home.
You don’t have to make regular loan payments or pay tax on the sum you borrow. This loan will also not impact your Old-Age Security (OAS) or Guaranteed Income Supplement (GIS).
Disadvantages of a Reverse Mortgage
One of the main drawbacks of a reverse mortgage is that you still have to repay it. If you choose to forgo this until you move, sell, or pass away, the interest accrued will add up. At the same time, you may have less equity in your home at the end of the term, which means that if you pay off the loan by selling, you’ll walk away with less profit.
Keeping your house also means maintaining it, which could become more challenging as you age. Furthermore, the upfront cost of taking out a reverse mortgage, such as origination and service fees, can be higher than other loans.
Advantages of Selling Your Home
Downsizing means you can take on less responsibility, say goodbye to maintenance, and make more time for checking off items on your retirement bucket list.
Selling can give you more immediate cash with fewer fees involved. It can also allow you to invest this money for your successors without worrying about a loan or leaving payments for them to handle.
Disadvantages of Selling Your Home
On the other hand, selling your home comes with the emotional and financial costs of moving.
Additionally, if you sell during a housing market boom, while you may gain good profits, you’ll also face increasing rent prices. If the market continues to rise, you may have less control over your living situation if priced out, forcing you to relocate when you’re not ready to do so.
Making a Decision That’s Right For You
While a reverse mortgage and selling your home have advantages and disadvantages, ultimately, your decision depends on your unique circumstances and goals. It is important to talk to an experienced mortgage broker so you can discuss all angles and ask questions like the following:
- What are the fees associated with each option?
- What if I still have a mortgage?
- What happens if the loan payment is higher than the home’s value when I sell?
- Should I know about any timelines or penalties?
At Seniors’ Lending Centre, our experts can answer these questions and help you understand which options are best for your situation. Reach out to us to learn more about making the most of your money during retirement.
