How do you picture your retirement? If you are like most people, your focus is on having time to spend on activities you enjoy and the people you care for the most. The last thing on your mind is how to pay for health care services if you, your spouse, or partner becomes disabled. While the ideal scenario is to live a long, healthy life, most people have some level of disability during their retirement years. Does it make sense to use a reverse mortgage to pay for home care in retirement to keep other savings intact as long as possible?
What is a Reverse Mortgage?
A reverse mortgage is a type of loan which is available to seniors. You would borrow money against the equity in your home. Assuming your home is fully paid off, the equity is the market value of your home. If you have an existing mortgage on your home, your equity is the difference between what you owe on your house and its value.
One of the advantages to taking out a reverse mortgage is that you do not need to make any monthly payments on the loan during your lifetime in many cases. You do need to be at least 60 years of age to qualify for a reverse mortgage.
How Much Can I Borrow with a Reverse Mortgage?
The amount you will be able to borrow against your home will depend on several factors. The value of your property will need to be appraised, and your age is also a consideration. As you age, you will qualify for a higher percentage of the value of your property.
The amount you can borrow with a reverse mortgage is capped at 40 percent of the value of your property. There is a minimum and maximum amount that you can borrow under this type of loan, as well.
How Do I Receive Payments Under a Reverse Mortgage?
You have the option of receiving the funds under a reverse mortgage in a lump sum, as a series of monthly payments, or as a combination of the two. The right choice for you will depend on your financial needs and goals, both immediate and long-term. It’s a good idea to consult with a financial advisor before making a decision about how to access the funds.
How Do I Repay a Reverse Mortgage?
If you end up staying in your home until your death, the reverse mortgage (including the principal amount and the interest accrued on the amount borrowed) would be treated like a regular mortgage on the property. The house would be sold and the reverse mortgage would be paid out of the proceeds. Any money left over would be paid out to your heirs.
Can a Reverse Mortgage Pay for Home Care in Retirement?
The funds from a reverse mortgage can be used for any purpose which makes sense to you, including being used to pay for home care in retirement. Some seniors choose to use to take a lump sum payment to pay out an existing mortgage, make necessary repairs to their home, and/or fund living expenses. Converting some of the equity in your home in this manner can make sense if it means you can increase your cash flow without having to rely on your Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA) or other sources of retirement income.
Determining whether a reverse mortgage is right for your can be a complicated matter.