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By Darlene Vilas
Special to the Financial Independence Hub
I’ve spent many years helping a lot of retirees to stay in their home. So, I wasn’t surprised when a survey by HomeEquity Bank and IPSOS revealed that 93% of Canadians aged 65+ are determined to retire at home.
For people with a healthy pension and retirement savings, staying in their home is rarely a problem. However, many Canadians have inadequate retirement savings. According to a report by CIBC, 30% of people have no retirement savings at all, while another 19% have saved less than $50,000. I help people with lower retirement income to understand the financial options available to them, so they can retire comfortably in their home.
Why staying put is so important
According to HomeEquity’s research, maintaining independence is a key reason for retirees wanting to stay in their home, followed by staying close to family, friends and their community.
Many of my older clients find just the idea of moving to be very stressful. They don’t like the thought of downsizing, which means leaving behind loved ones and places they’re familiar with.
I can understand that, so I try to help people stay in their home, whatever their financial situation. Thankfully, for homeowners, there are several options available.
The financial tools that can help you stay at home
Taking out a mortgage or a line of credit can allow you to cash in on some of your home’s equity. However, the mortgage option is becoming increasingly difficult for retirees. With the new mortgage stress test, you have to qualify at a much higher rate than before, which means you can now borrow much less. Plus, taking on mortgage payments for up to 20 years can put a strain on your retirement income. If you miss some payments, you could lose your home.
A home equity line of credit can be a good option if your income qualifies. They are fully open and can be repaid at any time without penalty. This is a very helpful option for homeowners who would like to access cash easily if they experience unforeseen home expenses such as emergency repairs to the home. Payments are typically interest only, which keeps your monthly obligation at a minimum. The downside of a home equity line of credit is they are callable at the discretion of the bank. This means you could be forced to sell your home to repay the line of credit.
With a reverse mortgage, you can borrow up to 55% of your home’s value. You never have to make a mortgage payment and you’ll never be forced to move out. Many of my clients use a reverse mortgage as an efficient way of cashing in some of their home’s equity. Because there are no regular mortgage payments, it can help them to greatly improve their financial situation, boost their disposable income and live the kind of retirement they’d hoped for.
Those people concerned about maintaining their home’s equity can make monthly interest payments, but the nice thing is, they don’t have to.
The reverse mortgage in action
One of my clients is looking to retire soon and we’ve already discussed a reverse mortgage. He’s thrilled that he’ll be able to pay off his current mortgage, have no more payments to make and stay in his home after he retires.
A client of mine in Burlington, Ontario bought her home for $35,000 many years ago and it’s now worth over $1 million. A reverse mortgage helped her to take out a chunk of that equity so that she can enjoy her retirement while she’s still healthy.
Removing the uncertainty
I help a lot of my clients by removing the financial uncertainty of retirement. I recently helped a widow who’d suddenly lost her husband and was convinced she could no longer afford to keep living in her home.
The bank wouldn’t give her the money she needed, but we were able to arrange a reverse mortgage to help her stay. Although she was uncomfortable with taking out a loan when in her 80s, I told her that it would mean she could stay in her home, while improving her retirement income. She was so relieved that she didn’t have to move.
While there are several financial options to help retirees stay in their home, the reverse mortgage is the best option for many of my clients. It allows them to maintain their lifestyle after retirement while staying in the home they love.
Darlene Vilas is an independent mortgage broker who specializes in providing lifestyle solutions for savvy seniors who want to make informed financial decisions. Darlene leverages her expertise and established network on behalf of her clients by helping them transition the equity they have built up in their homes into financial products that provide a monthly, or lump sum non-taxable income. For more information, check out Darlene’s website. Her email is darlene@darlenevilas.com or phone 905-338-9925.
