A ‘reverse mortgage’ is a new way of borrowing money for people over 62 years of age. Some people love them, while others say they’re a dangerous last resort. A Canadian reverse mortgage allows people who are house-rich and cash-poor – many of whom could be seniors on pensions, who have their home paid off and are over 62 – to receive a lump sum from a lender. For most of these seniors, their home is their largest asset, yet they can’t borrow against it because they cannot afford a monthly payment against the balance. A reverse mortgage works differently. Once you have the cash in your hand, you’re free to do what you please. Your principal remains and the interest tap is turned on at a rate of about 10%. As long as you’re alive and haven’t sold your house, you don’t make any payments on the money you borrow. But once you sell the house or die, the principal and accumulated interest must be paid back from the profits on the sale of the house.
Seniors have every right to enjoy their twilight years in their family home. Often, they’re still living in the house in which they raised their family, in a town or city neighbourhood they helped build through community-mindedness and volunteerism. Yet, if they can’t afford to pay their bills, despite being mortgage-free, then a reverse mortgage might be perfect for them. Perhaps their pension covers their expenses, but doesn’t leave room for the extras. The cash in hand from a reverse mortgage can give them the financial flexibility they require to fulfill their retirement dreams.
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