A Reverse Mortgage - Is This the Right Financial Solution For You?

If I were to ask what you thought about reverse mortgages, what would you say?

In the past, I would have said stay away from them. Twenty-eight years ago, my grandmother sold her home and my father dealt with the paperwork of discharging her reverse mortgage. All I remember is his negative perception about the process and that memory contributed in turn to my negative opinion of reverse mortgages for many years.

For some, reverse mortgages were seen as a product of last resort and as a result often carried a stigma for those who leveraged this solution to finance their retirement.

This poor perception was compounded by stories shared of people losing their homes. I recently learned that this situation was actually isolated to the United States and was often a result of a less conservative and underregulated reverse mortgage industry.

As I dug into some of the myths and misconceptions of reverse mortgages and became better educated about reverse mortgages, I discovered that my perspective has shifted.

Here are some of the reasons why.

The cost of retirement in Canada

Even with the best laid plans, savings can prove not to be enough to help maintain the cost of living in retirement for Canadians. Of the 78% of Canadian homeowners who have savings, 40% have less than $100,000 saved. Considering the average annual expense in retirement is $43,000 for singles and $65,000 for couples, it’s no wonder Canadians are looking at options to fund their retirement. Despite government pension plans, OAS and CPP, many Canadians are finding themselves in a monthly shortfall.

For those who do have investments, managing market fluctuations and understanding associated tax implications can make drawing down on investments challenging.

So, here’s the situation that we find ourselves in.

There is a significant financial gap between what people have for retirement, what they believe they will need and unfortunately for many they have no specific plans on how they will bridge it. There is a silver lining for homeowners however. Over time, real estate has proven to be a very lucrative investment and may in turn offer an option to help them fund their retirement.

Canadians are living longer and more active lives

Now for some good news – we are living longer. The average life expectancy is now 82 years in Canada with an average retirement age of 62.1 years. This means that we have the potential opportunity to enjoy twenty to thirty years of retirement.

These later years that we now gained can be filled with so many interesting things. Volunteering, travel, pursuing hobbies and interests, staying physically active, spending time with family and friends are just examples of things we can do to fill our days.

But how are we going to fund these extra years and everything we want to do? Given our lack of retirement savings, these bonus years that we have now been given could be spent living with significant financial constraints.

Majority of people want to age in their own home – especially in light of the pandemic

It’s not surprising that most people would like to age in their own homes and the pandemic highlighted just how important our homes are to us.

This isn’t too surprising.

Our homes are the one place in this world that we know best. It’s where our life’s memories were created. It’s where we celebrated major events with our family and friends. It’s where we know our neighbours and community well. It is the one place in this world we feel most comfortable.

And this attachment to our homes seems to grow stronger as we age. In fact, some findings from a National Institute on Ageing/TELUS Health National Survey discovered:

“91% of Canadians of all ages - and almost 100% of Canadians 65 years of age and older report that they plan on supporting themselves to live safely and independently in their own home as long as possible.”

And we’re willing to make changes in our homes to help us do this.

Fifty-two per cent of baby boomer homeowners said they would prefer to renovate their existing home rather than purchase another. As well, people have benefitted from their real estate investments.

In fact, a Royal Lepage survey found that 40 percent of baby boomer homeowners have at least half of their net wealth in real estate with 64 percent of boomer homeowners being mortgage free.

Unlocking Your Home’s Value for Retirement

Over the last few years, I have spoken with colleagues in the financial services sector plus done research myself to help me better understand reverse mortgages. I have discovered that a reverse mortgage is a feasible option that could help fund our retirement and improve our cash flow.

Given the current situation of Canadians being underfunded for retirement and our desire to age in our homes, it only makes sense to unlock the value of our home. By doing this, we can shift our financial situation from being house rich and cash poor to being able to support a more enjoyable and comfortable retirement in the home we love and within the community where we want to stay.

With products like the CHIP Reverse Mortgage, we can expand our view of how we fund our retirement. We can now include our home equity as part of our overall financial investment portfolio without the necessity to sell and downsize or move unless we really want to.

The CHIP Reverse Mortgage Explained

Not unlike a conventional mortgage, the CHIP Reverse Mortgage is a loan secured against the value of the home, but without any monthly mortgage payments required, specifically designed for Canadians 55 and better.

HomeEquity Bank, the provider of the CHIP Reverse Mortgage is a Federally regulated schedule 1 bank and has a number of policies and conservative underwriting guidelines in place.

These include the conservative lending practices that only allow a maximum of 55% of the value of the home, and is calculated based on age, type of home and location of the property.

Clients are also required to meet with an independent legal advisor of their choice to review all documents as part of their reverse mortgage application.

There are also a wide variety of solutions designed to suit specific needs, like taking funds as a single lump sum, drawing down as monthly deposits, or shorter-term solutions to fit unique needs and financial goals of Canadians, resulting in increased choice and flexibility.

If you are interested, there are a number of tools available on the CHIP Reverse Mortgage website: www.chip.ca that provides interest rates, financial illustrations around equity preservation and a tool to determine which product feature is best suited for your needs.

The CHIP Reverse Mortgage may be a viable option and should be considered as part of a comprehensive retirement solution. But like any major financial decision, you need to do your research. So before you jump in, take the time to get educated, invite family to your meetings, ask questions and ensure that this is the right financial solution for you.

Strategic Partnership with CHIP Reverse Mortgage

One of our objectives at Booming Encore is to share products and services with our audience that we believe may help them to create and live a better retirement.

To help us achieve this, I am delighted to let you know that we have established a strategic partnership with HomeEquity Bank to help you learn and understand more about the CHIP Reverse Mortgage.

Over the next few months, we will provide both information and education to help you assess whether a CHIP reverse mortgage may be a financial solution to help you live your best retirement.

If you would like to learn more about the CHIP Reverse Mortgage today, please visit their website: www.chip.ca or call toll-free 1-866-458-2447 (CHIP).