Three Situations Making Reverse Mortgages Popular Right Now
Reverse mortgages offer a unique financial option to adults 55 and older who need extra money for various reasons, including travel, second property purchases, or helping their families. With the current Canadian economy and higher living costs, money may be tight for many across the country. This nationwide trend has left older individuals in challenging positions that make reverse mortgages the perfect solution. Here are three situations that make reverse mortgages popular right now in Canada:
1. Individuals Struggling with their Current Mortgage or Line of Credit Payments
If you are over the age of 55, there are great options available to Canadian homeowners these days. Many fixed-income pensioners are converting their secured credit lines into reverse mortgage credit lines. Currently, the rates for a reverse mortgage are similar, if not better. They are easier to qualify for, and no monthly payments are required.
Instead of paying a large interest payment of 7% or more on a line of credit, a CHIP Reverse Mortgage lets all that savings in the home make the payment for you, allowing you to keep your pension income for living. Best of all, most clients find that the long-term appreciation in the home offsets the interest on the CHIP, still leaving them plenty of equity in the end.
2. People Wanting to Purchase or Help a Family Member Buy a Home While the Market is Slow
More than ever, Canadian families are working together to benefit from homeownership. For homeowners age 55 or older in Canada, the majority have their largest source of life savings tied up in their real estate. Without selling, it’s difficult to access that money. Regular mortgages and lines of credit are expensive right now and are challenging to qualify for using today’s stress test rates. Standard mortgages and lines of credit also mean making a hefty monthly payment.
Many are turning to a CHIP Reverse Mortgage as a way to access that tax-free money in their homes without needing to sell or make a monthly payment. Approvals are based mainly on age and property, not income, so qualification is much easier. These homeowners typically use that equity to:
- Purchase a vacation home
- Purchase an investment property to benefit from record-high rental rates
- Provide their kids or grandkids early inheritance money to help them enter the market
The fact that there are no monthly payments until you move and sell makes this option very different from traditional financing options. If you or someone in your family is 55 or older, has equity, and would like to explore this option, consult a mortgage broker specializing in reverse mortgages to get all the information you need to make a sound decision.
3. Those Looking to Downsize
In many markets, condos and townhomes are starting to recover, while single-family homes are still continuing a downward trend in price. This is not great news for anyone looking to downsize — they will be selling at the bottom of the market and buying in an asset class that is just starting its recovery. Doing an equity takeout with a reverse mortgage enables you to purchase your downsized property (condo or townhouse) now and hold the single-family home until that market recovers. Waiting to sell at a later date, like 2024 or 2025, can ensure you get more out of your asset. In the interim, you can rent out one of the properties for added cash flow.
Thinking About a Reverse Mortgage?
Whether you find yourself in any of these three situations or are curious to learn more about reverse mortgages in Canada, reach out to us at Seniors’ Lending Centre. We can work with you to understand your situation and provide information, like eligibility, rates, and costs, to help you make informed decisions.
