4 Most Common Reverse Mortgage Myths

Understanding Reverse Mortgages

A reverse mortgage is a financial tool available to Canadian seniors that provides valuable flexibility in retirement. It allows homeowners to access up to 55% of their home's value in cash, tax-free. The funds can be used for various purposes, including enhancing retirement income, making home improvements, financing travel or leisure experiences, paying off debts, leaving a living inheritance to loved ones, covering health and live-in care expenses, or even purchasing a new home.

One of the primary benefits of a reverse mortgage is that there are no regular principal or interest payments required. Instead, the interest is added to the balance, and homeowners only need to repay the balance when they cease to occupy the home. These proceeds usually do not affect the government retirement benefits being received, and they are entirely tax-free.

Debunking Reverse Mortgage Myths

Despite the significant benefits that reverse mortgages offer to Canadian homeowners aged 55 and above, several misconceptions persist. Let's debunk a few of these myths:

Myth 1: You No Longer Own Your Home

• Reality: With a reverse mortgage, you retain 100% ownership of your property. It doesn't matter how long you stay in your home or what happens to home prices. Your home remains yours.

Myth 2: You May Owe More than Your Home Is Worth

• Reality: Thanks to the home equity guarantee, you and your family will never owe more than the fair market value of your home when you leave it. If the mortgage balance ever exceeds the home's value, the lender absorbs the loss. Moreover, any increase in your home's value belongs to you.

Myth 3: Your Children Will Lose the Family Home

• Reality: Your estate retains ownership of the home, even when the mortgage becomes payable upon moving or passing away. This means your children always have the opportunity to refinance the mortgage or find other ways to settle it. Your family remains in control.

Myth 4: There Will Be No Equity Left for Your Heirs

• Reality: When a reverse mortgage is paid off, either by you or your heirs, the equity in the home remains. While the loan balance grows over time, in a rising home price environment, the home's value also increases. In most cases, there is still considerable equity in the home to form part of the inheritance you leave to your heirs.

What are your goals in retirement? Whether it's traveling, renovating your home, helping your children or grandchildren with a down payment, or pursuing other dreams, reverse mortgages can provide the financial flexibility to achieve these goals. By debunking the myths and understanding the realities of reverse mortgages, it's clear that this product is worth exploring further to increase your financial freedom in retirement.