In a previous blog post, we’ve discussed the details of reverse mortgages for Toronto homes[Read Here]. With an average selling price of $800k, a reverse mortgage can unlock an average of $440k in tax-free money. The best part is that you keep your home and you don’t have to make any monthly payments. It’s a great way to fund your retirement dreams, home renovations, or have extra cash lying around. For those who are 55 years or older, here are five situations in which a reverse mortgage would make perfect sense for your Toronto home.
You Want Extra Money In Your Bank Account
This point may be intuitive, but it cannot be stressed enough. A reverse mortgage lets you keep living in the home you love, but it adds quite a bit of money into your bank account. And with no monthly payments, you’ll be able to keep all of that money. If you invest wisely, 55% of your home’s equity can also bring in passive income for retirement. At an average selling price of $800k and average stock returns of 5%, you could be looking at $22k in money coming in annually. This bonus income can supplement your old-age pension and your CPP payments. Also, you have the cash reserves to fall back on if you need them.
You Want To Wipe Out Your Mortgage Payments
You cannot obtain a reverse mortgage if you have a first deed mortgage on your property. However, you can use a reverse mortgage to pay off your existing mortgage. Recall that a reverse mortgage has no monthly payment obligations. Therefore, you can use a reverse mortgage to wipe out your current mortgage and remove those expenses. In doing so, you’ll free up your retirement income from pensions and CPP for other things. This type of credit product is a fantastic way to improve your cash flow in retirement!
You Love Your Home
Remember that a reverse mortgage lets you live in the home you love. The balance on the credit account only comes due when you leave your home. If you are confident that you are not going to be moving any time soon, a reverse mortgage is likely your best option. The lower interest rate and lack of monthly payments are two significant positives that are hard to ignore. These factors combined mean that you never have to worry about losing the home you love because of a missed payment or because the housing market goes down and refinancing is impossible. Of course, if you wanted, you could pay all or part of the balance back at any time, so it still retains that flexibility.
You Want To Invest
Consider the following scenario. Suppose you own a $1 million property in Toronto. You get a reverse mortgage for $550k. There are no monthly payments. In smaller cities like Barrie, London, or Windsor, you could probably buy 2-3 condos in cash with that money and have passive rental income. Suppose those condos generated $3,000 a month in passive income ($36k per year). You’d likely be able to pay down the credit balance and have equity appreciation in your rental properties. A reverse mortgage can be a great way to get access to a lot of cash for wise investments or to start your own business!
You Want To Create Your Own “Pension”
One of the fantastic things about a reverse mortgage is that how you receive your funds is entirely up to you. Some companies will let you collect some money upfront and the rest as a monthly distribution. Suppose your home is worth $800k. You could get a reverse mortgage for $440k and take $80k as a lump sum payment. That would leave $360k or an extra $12k annually (tax-free!) for 36 years. Also, receiving that tax-free money doesn’t affect your eligibility for other benefits because it’s not income. You’re merely withdrawing equity from your home. Your old-age security pension and CPP benefits will remain the same. A reverse mortgage can provide you with a guaranteed monthly income in retirement without you needing to sell your home! One other point to keep in mind is that interest only accrues on the amount you have withdrawn. So in the hypothetical example above, interest would be charged on the initial $80k to start. Then it would be charged on each $1k per month, but only once it is taken. By electing for this “pension”-like income, you can lessen your interest charges.
In summary, a reverse mortgage is a powerful financial tool that can unlock your home’s equity with very few restrictions. It lets you have some extra money in your bank account, wipe out your first mortgage, stay in your home, invest, or create a pension for yourself. No other financial product has quite the same flexibility and also guarantees that you will be able to keep the home you love!
It is best to apply for a reverse mortgage through a mortgage broker. While one of the reverse mortgage offerings lets you apply directly online, one of the companies only goes through brokers. Therefore, a mortgage broker will be able to put your application into both companies and get you the best rate and terms.
It’s also worth noting that a mortgage broker can help advise you if a reverse mortgage is right for you. Some times other credit products may make more sense in your particular financial situation. Of course, if you are under 55, then a reverse mortgage is unfortunately not available so you would need to look at a HELOC to access your home’s equity.
For those who are 55 and above, a reverse mortgage is frequently the best option for your Toronto-area home. It’s fast, easy, and has significantly fewer restrictions than a HELOC. With appraisals for properties coming in at very high values, now is the best time to get the equity out of your home and use it to fund the retirement of your dreams.
By using a mortgage agent or mortgage broker from Citadel Mortgages, you will be able to ask all the questions you have and be ensured you get the best advice and mortgage product for your mortgage needs. Contact us here at Citadel Mortgages to become mortgage-free sooner!
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