When you retire, you want to have the financial security to enjoy your retirement years. A reverse mortgage can give you peace of mind. You may be able to take a lump sum from the equity in your home to supplement your retirement income.
A reverse mortgage is a loan that allows you to access up to 55% of the appraised value of your home. The loan does not have to be repaid until you move or sell the property. Here are five reasons why taking a reverse mortgage as a lump sum may be the right solution for you:
- A Lump Sum Can Give You the Financial Security You Need in Retirement & Avoid Moving
Like most people, you want to retire with peace of mind. A reverse mortgage can give you the financial security you need by providing a lump sum of tax-free cash that you can use for whatever you want, including supplementing your retirement income.
Furthermore, taking out equity from your home with a reverse mortgage allows you to keep this appreciating asset and avoid moving. Since there are no repayment terms during the mortgage, you can live in your home for as long as you like.
- Taking a Lump Sum Now Will Allow You to Lock in the Interest Rate
The interest rates on a reverse mortgage typically change with the Bank of Canada prime rate, which means they can go up or down over time. Taking a lump sum will allow you to lock in the current interest rate, should you choose a fixed rate. This way you will know how much the interest will be and it will protect you from rising rates during the length of your interest rate term.
- A Lump Sum Can Be Used for Any Purpose
You can use the money from a reverse mortgage for any purpose.
If you have outstanding debts, a lump sum of tax-free cash from a reverse mortgage can help you pay them off. This can reduce your monthly expenses and give you one less thing to worry about in retirement.
Or, if you have wanted to make some home improvements but don’t have the funds, a reverse mortgage lump sum can be used for this purpose. Home renovations can increase the value of your home and make it more comfortable and accessible to live in as you age.
Some people use a reverse mortgage lump sum to travel, while others use it to help their kids or grandkids with a living legacy. Ultimately, the choice is up to you.
- A Reverse Mortgage is Easier to Obtain
With a reverse mortgage, the homeowner does not have to make any monthly mortgage payments. The loan is repaid when the house is sold, or when the borrower dies. It also does not require the same credit and income qualifications that are necessary for other types of loans. Therefore, a reverse mortgage is easier for a Canadian homeowner 55+ to receive than a line of credit or a refinance loan.
- A Reverse Mortgage is a Flexible Loan Option
A reverse mortgage is a flexible loan option that can be tailored to fit your individual needs. You can choose how much you want to borrow and for how long. You also can make interest-only payments or no monthly mortgage payments at all. This flexibility makes a reverse mortgage an attractive option for many people.
The Bottom Line
If you are considering taking out a reverse mortgage as a lump sum, talk to a financial advisor to see if it’s the right option for you. They can help you understand the details of the loan and how it can benefit you in retirement. A reverse mortgage is a big decision, and it can be a helpful tool for many people as they plan for their retirement years.