A reverse mortgage allows you to take money from your home equity – tax-free-, without having to pay monthly mortgage payments. Unlike a regular mortgage that dwindles away as you pay it off, this type of loan rises over time as interest and loan fees accrue. This can come in handy if you’re reaching a retirement age and are sitting on a pile of home equity but haven’t hit your retirement goals.
In order to tap into your home equity without selling and downsizing, a reverse mortgage can come into play. The older you are and more equity you own on your home, the bigger the loan you can secure.
To be eligible for a reverse mortgage, you must be at least 62 years old – as well as your spouse – and a homeowner. These loans can come in the form of a lump-sum payment, planned advances, or a combination of the two. Keep in mind, there are restrictions in Canada that limit the maximum amount you can receive. When it comes to paying back the loan, reverse mortgage balances are only due when the homeowner dies, sells the home or moves away permanently.
Before getting a reverse mortgage, make sure to weigh your options. These loans can be costly and eat away at your equity with interest and loan fees. There are also risks of not being able to pass your home down to your family after you die. That’s why it’s always a good idea to get outside advice about how a reverse mortgage could affect your financial plan.
