Reverse Mortgages – Funding Retirement

Understanding Reverse Mortgages

As people live longer and retirement funding becomes increasingly challenging, reverse mortgages offer a solution for homeowners to access the equity in their homes. Here's a breakdown of how reverse mortgages work and what to consider before opting for one.

#### What is a Reverse Mortgage?

A reverse mortgage allows you to convert the equity in your home into cash. Instead of making monthly payments to the lender, you receive payments from the lender. The loan is repaid when you sell the home, move out, or pass away. The amount you receive is based on the equity in your home, and you can choose to receive it as a lump sum, monthly payments, or a credit line.

Eligibility Requirements

- Age: All individuals listed on the home's deed must be at least 62 years old.

- Primary Residence: The home must be your primary residence.

- Equity: You need sufficient equity in your home to qualify.

Pros and Cons

Pros:

- Access to Cash: Provides a source of income without the need to sell your home.

- No Monthly Payments: You do not make monthly mortgage payments.

- Flexibility: Options to receive funds as a lump sum, monthly payments, or a line of credit.

Cons:

- Reduced Equity: You are using your home's equity, which will decrease over time.

- Interest and Fees: Interest accrues on the loan, and there may be fees associated with the reverse mortgage.

- Emotional Impact: Some may find it challenging to deplete home equity, as it goes against the traditional goal of building and preserving home value.

Important Considerations

- Counselling: To protect seniors from potential scams and to ensure they fully understand the implications, banks are required to have applicants meet with unbiased third-party counsellors.

- Long-Term Implications: Consider how a reverse mortgage might impact your financial situation in the long term, especially concerning inheritance and estate planning.

- Eligibility Criteria: Ensure you meet all requirements and understand the terms of the reverse mortgage.

Reverse mortgages can be a viable option for those facing cash flow problems in retirement. However, it's essential to evaluate your specific situation, consult with financial advisors, and understand the impact on your home equity and overall financial health.