House rich and cash poor turn to reverse mortgages

“While reverse mortgages provide and income-enhancing option for those who have saved little, they are not a desired prescription.It is clear that saving 15 per cent of gross income over the course of a thirty-year career makes a lot more sense.”

Susan Eng , Vice-President, Advocacy, CARP, A New Vision of Aging for Canada (www.carp.ca) believes that reverse mortgages are an important financing option but one should proceed with caution.

“You could use up your proceeds and have nothing left to live on if you’re lucky enough to live a good long life. A home is normally the most important, if not only, major asset and people must be very careful about the risks they take with it,” says Ms. Eng.

And as is the case with all major financial decisions, it is essential to ask all the tough questions.

“People should insist on all the details for example, is the interest rate higher than what they could get with a simple mortgage? What portion of the equity should they mortgage?” say Ms. Eng.

Toronto-based Sunlife Financial Retirement Income Specialist Bruce Gilboord is particularly concerned about the large windfall home owners receive and how that money will be managed.

“Fortunately, most people who receive large amounts of money in a single payment like a reverse mortgage, winning a lottery or in a brief but accelerated earning period are on a middle ground.

However, there are two other equally dangerous flanks. One extreme will gamble, party or simply blow their money on lavish material goods like an unnecessarily fancy car.

The other will be overly cautious and secret their money away in ultra “safe” investments such as, so called high-yield savings accounts or guaranteed investment certificates, GICs. This group will not plan a defensive strategy against inflation, taxes, low growth rate, personal longevity and unexpected sickness or accidents,” says Mr. Gilboord.

As for Ms. Lynch, she is confident of her choice to go through with the reverse mortgage.

“I can see it might not be right for [parents who have] children. But there comes a point where you have to draw the line; where you say you’re not just here to generate money for off spring. I’m here to enjoy life where I can.”

And she certainly isn’t worrying about paying it back.

“The one day for me is when I die and I won’t have to worry about it. My executor will have to be worried about it,” says Ms. Lynch.

© Canwest News Service

Keywords: mortgage, finances