Reverse mortgages: A financial solution made for today
It’s a tough time for retired Canadians. Soaring inflation is making it difficult for those on a fixed income to maintain their standard of living. According to Angus Reid, with increased costs for everything from groceries to energy bills, three-quarters of Canadians say they are stressed about money, and more than half say they can’t keep pace with inflation.
Interest rates have also been rising. Volatile equity markets, punctuated by steep daily declines, are adding to the list of worries faced by seniors about the state of their finances and retirement accounts. And all of this economic uncertainty is occurring after almost three years of living through a pandemic, which saw many retired Canadians isolated from friends, families and familiar routines.
A lack of financial options
At a time when retired Canadians should be enjoying their lives and pursuing new passions and interests, many are facing difficult choices. Almost half of all older Canadians say they couldn’t handle an unexpected expense, and many are having to make deep cuts to their lifestyle spending.
One of the challenges facing retirees is not having many viable financial options to help them maintain their standard of living. Some may be tempted to take on debt, but this can be stressful for retirees – especially in a rising interest-rate environment – as most loans and credit cards require monthly payments at a time when cash flow is tight. Retired Canadians also face difficulties accessing traditional loans due to a lack of employment income. Even lines of credit require monthly payments and are best suited to homeowners with a regular income. Many retirees on a fixed income also have mortgages coming up for renewal, with the added stress of the new rates leading to increased monthly payments.
Cashing out investments to generate cash flow is an option for retirees, but doing so today, when the financial markets have been declining, could mean locking in losses and reducing their financial cushion later in life.
Tapping into home equity
One advantage that retired Canadians do possess is widespread home ownership. Almost 70% of Canadians own their own homes, according to Remax. Although home prices have tumbled this year, many older Canadians purchased their homes during the past few decades of record-low interest rates and have benefited from substantial price appreciation.
A home equity line of credit (HELOC) is one way for homeowners to tap into the equity they’ve built in their homes. HELOC lenders typically allow homeowners to access up to 80% of the equity in their homes and make minimum monthly payments. The challenge for retirees who lack a regular income is two-fold when it comes to lines of credit. One is that, like credit cards, HELOC debt is revolving and can grow significantly without a regular payment plan. The other is that HELOC rates are tied to the Bank of Canada’s Prime rate, which continues to rise at a fast pace.
A strategy suited to today’s climate
The other way for homeowners to access the equity in their homes is through a reverse mortgage. The CHIP Reverse Mortgage from HomeEquity Bank allows Canadian homeowners age 55+ to access up to 55% of their home’s value and turn it into tax-free cash without having to move or sell. Plus, there are no monthly mortgage payments to make while retirees live in their home, which frees up additional cash. The full amount only becomes due when their home is sold or if they move, or through their estate if they pass away.
Homeowners can choose to receive the funds as a lump sum or in regular monthly deposits. They can use the cash for any of their financial needs, including health care costs, home renovations, debt consolidation or lifestyle expenses.
There are other benefits which make the CHIP Reverse Mortgage a flexible tool well suited to today’s climate. Because homeowners are unlocking home equity, the funds are not added to their taxable income and do not affect government-tested benefits such as Old Age Security (OAS). Tapping into their home equity also allows a larger portion of older Canadians’ registered investments to continue growing on a tax-free basis, giving them some time and cushion to wait out market volatility.
A conservative solution
Best of all, with the CHIP Reverse Mortgage older Canadians get to stay in their homes for as long as they wish – a dream shared by more than 90% of retirees, according to Ipsos. This gives them time to wait for the housing market to recover and benefit from eventual home price appreciation. And thanks to HomeEquity Bank’s No Negative Equity Guarantee*, homeowners will never owe more than the fair market value of the property when they move or sell. This is a very important safeguard in today’s uncertain economic climate. It ensures that if your client’s home depreciates below the mortgage amount owing, HomeEquity Bank will cover the difference.
Clients always retain title and ownership of their home, and lending amounts are conservative – at up to 55% of home equity – provide additional safeguards.
In today’s challenging economic environment, the CHIP Reverse Mortgage from HomeEquity Bank can help your clients maintain or improve their standard of living by unlocking some of the value in their homes. If your clients are looking for a solution that gives them flexible cash-flow options to live a better retirement, visit chipadvisor.ca/bdm to connect with a Business Development Manager.
*As long as you keep your property in good maintenance, pay your property taxes and property insurance and your property is not in default. The guarantee excludes administrative expenses and interest that has accumulated after the due date.