For many younger Canadians, the hope of owning a home is becoming increasingly difficult to achieve given today’s high cost of living and the price of real estate.
Given these challenges, parents are now more likely to step in and help their kids. A recent Abacus Data poll showed that around 40% of the parents of younger homeowners have supported their children financially, with the average gift exceeding $70,000, while 38% of parents who assisted with a down payment also now helping their children with mortgage payments.
In some cases, however, parents may not have the financial resources to provide such assistance out of their savings and if they do, there could be tax implications for cashing out any registered investments. That can leave young Canadians in a difficult position, but there might be solutions for some.
One of them is a reverse mortgage. This type of mortgage is becoming increasingly popular in Canada. Reverse mortgages allow homeowners who are 55 years and older to access their home’s equity without having to make any payments.
The amount that can be borrowed depends on the homeowner’s age and the value of the home, among other factors. Reverse mortgages have a number of benefits for those who are eligible to take them out.
Here are some of the most important ones:
1. Increased financial security: Reverse mortgages can provide a source of income which may allow you to stay in your home and maintain your independence. With the ability to access to the equity you can pay off other debts, eliminate your current mortgage, cover medical expenses and even take a vacation.
2. Tax benefits: Reverse mortgages are not considered income, so they are not subject to taxes like some investments. You may also be able to deduct the interest on the mortgage from your taxes if you are using a reverse mortgage to invest and create investment income (interest or dividends).
3. Financial assistance for family members: Reverse mortgages can also be used to assist family members with their financial needs. For example, the funds can be used to fund a child’s education or to assist with the purchase of a home.
4. Peace of mind: Reverse mortgages provide peace of mind by eliminating the worry of losing the home due to an inability to pay the mortgage. The loan does not need to be repaid until the home is sold or the homeowner passes away, so homeowners can rest assured that their home is secure.
Reverse mortgages are becoming increasingly popular in Canada as more and more homeowners look for ways to access the equity in their homes. However, it’s important to understand the terms of a reverse mortgage.
If you are considering a reverse mortgage, the best idea is to speak to an experienced mortgage broker who will review all of the pros and cons to ensure that it’s the right decision for you as there may be another solution.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.