One of the main challenges Canadian retirees face today is not having enough money to fund their living expenses and lifestyle activities.
A common way for homeowners to ensure adequate cash flow in retirement is to downsize; however, the number of Canadians choosing to stay in their homes is growing, which means they must seek alternative cash sources—with many opting for a reverse mortgage.
Aging in place by the numbers
According to a study done by Royal LePage, 75% of Boomers in Canada own their own home and 52% of them would prefer to renovate their current property, rather than move. A Deloitte report from 2022 found a whopping 91% of older Ontarians want to stay in their own home for as long as possible.
One reason for this is older Canadians are living healthier for longer; however, in an economic landscape where the cost of living and home prices are surging (and supply is low), the expenses inherent to downsizing—such as staging, packing and moving, real estate and lawyer fees, property transfer taxes, and potential condo or retirement home fees—are a substantial deterrent.
According to Julia Chung, Certified Financial Planner, “Moving costs will be higher than most people expect. Either they find that they would not have the net financial gain from downsizing that they’d expected, or they find it costs more for this smaller home because of the location, amenities, age, and of course, the market that wants the same thing.”
For many older Canadians, their home is their largest asset. That’s why when planning for retirement, many look to the equity they’ve built in their homes and turn to reverse mortgages to stay in place and supplement their cash flow. As of 2023, Canadians have accessed over $6.7 billion in reverse mortgages, and the numbers are growing.
After a lifetime of hard work, retirement should be a reward, not a stressor. If you’re over the age of 55 and own your own home, a reverse mortgage can be an effective tool for unlocking financial peace of mind—so you can enjoy this phase the way you’re meant to.
How can I use reverse mortgage funds?
While a reverse mortgage in Canada can offer many benefits to retirees, one of the main perks is that the funds released can be used for whatever you wish.
Although needs in retirement vary by individual, many Canadians choose to use their funds to:
Pay off their current mortgage & credit card debt
To increase cash flow, retirees are using their reverse mortgage funds to pay off their current mortgage, which can free up a substantial amount of monthly income.
Getting rid of credit card debt, or consolidating debt in general, is another popular use for reverse mortgage funds. When free from monthly payments and high interest rates, you’ll find you may have a substantial amount of monthly cash flow to put toward other uses.
Renovate or retrofit their home
Understandably, older adults want to maintain their independence for as long as possible. As they age, however, health and mobility issues can emerge, requiring changes to the accessibility of their homes.
With a reverse mortgage, the proceeds can accommodate any renovations or retrofits required to continue to live a comfortable life.
Popular renovations include:
- Retrofitted bathrooms
- Expanded doorways
- Stair lifts or elevators
- Entranceway ramps
Reverse mortgage funds can also be put toward paying for in-home personal health care support.
Maintain or improve their current lifestyle
No one wants to spend retirement scraping by to make ends meet. However, for many, a fixed retirement income is simply not enough to keep up with the rising cost of living.
In order to maintain their desired lifestyle, retirees are using the funds released by a reverse mortgage to pay for their day-to-day expenses, allowing for a little more cash reserve and breathing room where needed.
Explore hobbies, physical activities, & travel
One of the many benefits of retirement is time, and today’s retirees enjoy making use of it by staying physically and mentally active. Too often, though, these activities don’t come free.
By tapping into their home equity, many retirees are joining fitness and community centres, taking art classes, cycling, gardening, and ticking off bucket-list travel destinations.
Help loved ones with an early inheritance
Many Canadians are well aware of the difficulties younger generations are experiencing trying to cover the costs of education or childcare, start a business, or enter the housing market.
Giving heirs an early or living inheritance can help ease the worries of your loved ones and provide them with an opportunity for a strong start in life—that you’ll get to witness.
It can be much more rewarding to gift an inheritance while you’re alive, not to mention it can relieve the stress from loved ones dealing with your estate once you pass, with the added potential to save on taxes and fees.
Engaging in financial planning for retirement should be a time for optimism. There are options, even if you find yourself “cash poor and house rich.”
Boosting your retirement income using a reverse mortgage may be the cash flow solution you need in order to pursue the adventures you dreamed of and live in retirement comfortably—in the home you love.