With the cost of living increasing these days, you may be considering your financial options. One financial tool you may have become aware of is the reverse mortgage.
If you’re wondering whether it’s safe to get a reverse mortgage during a recession, here’s some important information for you to consider.
What is a reverse mortgage?
A reverse mortgage is a loan secured against the value of your home. You may be eligible for a reverse mortgage if you are:
- 55 years of age or older
- A Canadian homeowner
- Using the home that you own as your primary residence
The money you obtain through a reverse mortgage can be used in whatever way you wish, such as to maintain your lifestyle and monthly expenses, purchase an investment property, or to pay for upgrades and renovations to your home. You can even use that money for your day-to-day purchases.
The loan doesn’t become repayable until you sell the home or no longer use it as your primary residence. At that time, you’ll be required to repay the balance in full, including the interest and fees. But before that time, you won’t have to make any regular monthly mortgage payments.
How a reverse mortgage helps during a recession
Many people have been hit hard by inflation. The cost of goods is rising drastically, and interest rates are also increasing. Meanwhile, investments are taking a hit, and the money from retirement accounts isn’t going as far as it used to.
This might put you in a tough situation. If you can’t afford the cost of living, you may have to consider selling your home when the market is down, and interest rates are up. Or you may consider cashing in your investments, even though they have far less value than they used to. Finally, you might consider putting your purchases on a credit card, even though that comes with a high-interest rate.
A reverse mortgage can help you avoid all those scenarios. You keep the title and ownership of your home. Using a reverse mortgage can leave your investments intact, giving them more time to recover their value.
With access to tax-free cash, you don’t have to rely on credit or other high-interest forms of debt to cover your living expenses.
Reverse mortgages come with a no negative equity guarantee that you won’t ever owe more than the fair market share of your home, as long as you meet your mortgage obligations. This means that if the value of your home drops dramatically, you won’t have to make up the difference. And you don’t have to use any money you don’t need. For example, if you’re approved for $300,000 but only need $100,000, you can use just that amount.
Because you don’t have to make regular monthly mortgage payments on the reverse mortgage, you’ll free up additional money to pay down your high-interest debts, invest more money, or cover your living costs.
The bottom line
If you need access to tax-free cash, a reverse mortgage can be a safe, effective way to manage your finances during a recession. It can save you from cashing in your investments when the market is down, prevent you from using even costlier credit, and provide you with peace of mind regarding your finances.