Today’s inflation is creating hardships for many seniors on fixed incomes.
Savings on interest-bearing instruments such as GICs paying 2 1/2 – 3% with inflation running over 8% results in the net effect of depositors losing their purchasing power at the rate of 5% per month. Good for the banks who we lend these funds out.
So if these funds depreciating monthly could be invested at a rate higher inflation that might be seen as “a good thing”. Can you arrange to move these funds to higher paying instruments —- while receiving monthly checks sufficient to cover your expenditures?
One solution to consider is a reverse mortgage.
Not for everybody. Get advice from your financial counsellor but the following information might be helpful to improve your basic understanding of the instrument.
The ‘sandwich’ generation with parents and children to take care of might consider recommending parents access their equity in their home. Mortgage generally provides for up to 55% of the appraised value. Given the significant rise in property assessments the last two years (and indeed forecasted to continue for the coming year) in most cases there will be equity.
Obtaining a reverse mortgage will provide seniors a large block of cash and or monthly tax free income that can be used for a variety of expenditures to include to making their homes more livable.
Seniors often have requirements for “assists” within the home to make it more habitable. The equity is available for a wide range of purposes – for example: care costs, investment portfolio, family gifts, or pay off existing debts.
A reverse mortgage can bring peace of mind to seniors as well as to their children who play an increasing role in the lives of their parents.
The Basics-: Nine things you should know about reverse mortgage.
- Canadians must be 55 and older
- No income or credit qualifications
- Title and ownership of the property remains in the homeowner name
- Not required to make regular payments on equity borrowed
- Equity can be provided as a lump sum payment or monthly payouts
- Minimum documentation- generally legal fees incurred are included in the transaction costs
- Minimum paperwork
- Flexible options to include ‘breaking’ early certain terms of the mortgage agreement. These conditions are negotiated at the time of the mortgage. There are penalties if you wish to break the agreement. Make sure your financial advisor explains these to you.
- In the event seniors are admitted to care home or death the penalties are waived.
Note, Every contract is different. Accordingly while this list is provided to be helpful rely only on the mortgage document itself as explained to you by your financial advisor and/or lawyer.
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