Managing Retirement Cash Flow With Reverse Mortgage

by P.J. Martin on April 20, 2012

A reverse mortgage is a type of residential mortgage intended for retirement planning. In Canada, households and couples have to be 60 years old or older, and this is the minimum age requirement. Income and credit requirements are not part of the application process for a reverse mortgage.

Reverse mortgages are a good fit for homeowners who either have a small portion of their mortgage loan outstanding or have paid their house in full. Persons who meet the eligibility criteria obtain mortgage financing in the amount of 10 to 40 percent of their home’s fair market value but less that any charges that are outstanding.

To get financing, applicants for a reverse mortgage should occupy and own a house. They have to live in the house after financing is granted. In the event of death of one of the spouses, the mortgage continues until the other spouse passes away or sells the property.

Applicants can receive mortgage advances in the form of payments over time or as a lump sum. Borrowers can rent out their property to get additional funds but only for short periods of time. With this type of mortgage, the proceeds are tax-free Therefore, seniors who receive revenue from the mortgage do not pay tax. It is their money and home, and they already paid tax on the latter. Given that the non-cash equity in their home is converted into cash, this is not regarded as income.

Seniors can use the funds for different purposes – they can pay back debts, help family members, do home improvements, or invest the money. The money can be used for anything, even for going on a holiday. The reverse mortgage is a mortgage loan that gives seniors a sense of security. The reason is that you do not have to sell your home as to get money.

It should be noted that a reverse mortgage is not always recommended as the right solution. You may want to take a line of credit, if you have a good income, excellent credit, and high net worth. In that case, you may not even need to borrow. On the other hand, applying for a reverse mortgage makes sense if you live on a fixed pension and do not have other sources of income. You do not have to make monthly payments which improves your cash flow.

There are additional benefits apart from this. It is not difficult to qualify for a reverse mortgage if you have a considerable equity in your home, and many Canadian seniors have. Thus, there are no credit score and income requirements. You cannot be evicted because you are a homeowner. You have the right to stay by law until you move out, sell, or pass away.

Get the facts about interest calculator by understanding bad credit car loans.

Leave a Comment

Previous post:

Next post: