Reverse Mortgages: How to Access Your Home Equity in Retirement
For many homeowners, their home is their largest asset. After decades of mortgage payments, you may have built significant equity in your home, but that doesn’t necessarily mean you have extra cash available to enjoy life.
A reverse mortgage can be one way for homeowners aged 55 and older to access some of that equity while continuing to live in their home.
Whether you’re looking to supplement your retirement income, pay off an existing mortgage, make renovations or simply have more financial flexibility, it’s worth understanding how a reverse mortgage works and whether it could make sense for you.
What Is a Reverse Mortgage?
A reverse mortgage allows eligible homeowners aged 55+ to borrow against a portion of the equity in their home without having to sell or move.
You remain the owner of your home and can continue living there. Instead of making regular mortgage payments, the amount you borrow, along with accumulated interest, is generally repaid when you sell the home, move out or the last borrower passes away.
Depending on your circumstances, you may be able to access up to 55% of your home’s value. However, not everyone will qualify for the same amount.
How Much Can You Qualify For?
This is one of the most common questions we hear, and there’s no simple percentage that applies to everyone.
The amount you may qualify for depends on several factors, including:
- Your age – Generally, the older you are, the more equity you may be able to access.
- The value of your home – A higher-value property may allow you to access more equity.
- The location of your home – The property location can affect lender eligibility and lending amounts.
- The type of property – The property itself needs to meet the lender’s requirements.
- Your existing mortgage or other debts registered against the property – These will need to be considered when determining how much equity is available.
This is why it’s worth having a conversation rather than trying to calculate your eligibility based on a percentage you see online.
What Can You Use a Reverse Mortgage For?
One of the benefits of a reverse mortgage is that the funds can be used for a variety of purposes. There isn’t one specific reason you need to have in order to consider one.
Some homeowners use the funds to:
Increase monthly cash flow:
If your retirement income isn’t stretching as far as you’d like, accessing some of your home equity could give you additional funds to work with.
Pay off an existing mortgage:
For someone approaching retirement with a mortgage still outstanding, a reverse mortgage may be an option to eliminate those regular mortgage payments.
Fund renovations:
Whether you’re updating your home, making accessibility improvements or simply tackling a long-overdue renovation, your home equity could help fund the project.
Cover care or other expenses:
Home care, medical care and other expenses can add up quickly. Accessing equity may provide another source of funds when needed.
Stay in your current home:
For many people, this is the biggest reason to consider a reverse mortgage. If you love your home and don’t want to downsize, accessing some of your equity could allow you to stay where you are.
Purchase another property:
In some situations, a reverse mortgage can also be used as part of purchasing a new property. This can be worth exploring if you’re considering a move but want to use your existing equity differently.
Do You Have to Sell Your Home?
No.
That’s one of the biggest differences between a reverse mortgage and simply selling your property to access your equity.
You continue to own and live in your home, provided you continue meeting the requirements of the mortgage and maintaining the property.
For someone who has lived in their home for decades, that can be a big deal.
Your home may be where your children grew up, where your neighbours have become friends and where you planned to spend your retirement. Downsizing isn’t necessarily the right answer just because you have equity in your home.
A reverse mortgage can provide another option to consider.
What About Downsizing Instead?
Downsizing may still be the better option for some homeowners.
Selling your current home and purchasing something smaller could free up equity without taking on additional borrowing. You may also reduce your maintenance costs and other expenses.
But it’s not the only option.
The right choice depends on what you want your retirement to look like, how much equity you have, your income, your expenses and whether staying in your current home is important to you.
That’s why the conversation should be about your options, rather than assuming there’s one right answer.
Is a Reverse Mortgage Right for You?
A reverse mortgage isn’t the right fit for every homeowner, and that’s okay.
For some, selling and downsizing makes the most sense. For others, refinancing or another home-equity option may be better. And for someone else, accessing their home equity may be exactly what allows them to stay in their home and enjoy retirement with less financial pressure.
The first step doesn’t have to be deciding.
It can simply be finding out what you qualify for and understanding what your options look like.
If you’re 55+ and wondering what your home equity could do for you, talk to Mid Island Mortgage & Savings. We can look at your situation, explain how a reverse mortgage works and help you determine whether it’s something worth considering.
