Reverse mortgages can be a valuable financial tool for Canadian seniors looking to enhance their retirement income and lifestyle.
"Four out of five Canadian seniors are living with some level of financial anxiety," says Ben McCabe, founder and CEO of Bloom Finance Company, a Canadian financial services company operating in B.C. and Ontario.
"Unfortunately, many seniors don't have sufficient pension income or retirement savings to sustain the standard of living they became accustomed to during their working years through their full retirement."
The Bloom Reverse Mortgage has helped thousands of Canadians over the age of 55 realize just how wealthy they are when they consider the equity they’ve built in their homes.
However, over time, several myths and misconceptions have developed around this product, which can make it challenging for some people to understand how reverse mortgages work and whether they are suitable for them.
One common myth about reverse mortgages is that borrowers lose ownership of their homes. In reality, borrowers retain 100% property ownership, even if they take out a reverse mortgage. They can continue living in their homes for as long as they wish, and their families retain the opportunity to refinance the mortgage or pay it off in another way.
Another prevalent misconception is that borrowers may owe more than the fair market value of their homes, causing their families to lose the family home.
This myth is also untrue. Reverse mortgages come with a "home equity guarantee," which means that borrowers and their families will never owe more than the fair market value of their homes at the time of the mortgage's repayment.
However, even with modest home price growth, home equity often grows with the reverse mortgage.
“Ninety-nine percent of reverse borrowers have equity in their homes when the mortgage comes to an end, and, for most, it's more than 50% of their home value,” McCabe says.
A third myth about reverse mortgages is that they erode the equity in the home, leaving little or nothing for heirs to inherit. However, this is also usually false. When a reverse mortgage is paid off, borrowers or their children retain the equity in the home. Even though the loan balance grows over time, the home's value can also continue to appreciate, which means that there is often considerable equity left to form part of the inheritance that reverse mortgage customers leave to their heirs.
Finally, some people think that taking out a reverse mortgage will have a negative impact on their government retirement benefits or result in taxes on the mortgage's proceeds. In fact, reverse mortgage proceeds are tax-free and typically do not affect government retirement benefits.
Understanding the realities of reverse mortgages can help Canadian seniors make informed decisions about their financial futures. For seniors who want to continue to age in place on their own terms, a reverse mortgage can provide financial flexibility and enhance their overall quality of life in retirement.
"There's no reason for Canadian homeowners aged 55 plus to feel financial anxiety when they’re sitting on such significant wealth in home equity," says McCabe.
"A reverse mortgage is a great way to tap into that wealth to live well in retirement."
To learn more about how a Bloom Reverse Mortgage can help you live a happier retirement, visit bloomfin.ca.