Considering where you will spend your time is every bit as important as considering how you will spend your time. Many retirees hope their current home will meet their retirement needs, or, rather, it’s more accurate to say many retirees prefer to stay in their current home. They like the neighbourhood and want to stay close to friends, children, and grandchildren. They are comfortable in the residence and like the climate. Staying in their current home also often gives them the advantage of being close to professionals and services they know already (e.g., doctors, hairstylists, etc.).

For many reasons, including familiarity, our home is often where we feel the most safe and secure. Unfortunately, hope, preference, and/or familiarity prompt some retirees to skip over a key step: giving serious thought to the financial repercussions of moving versus staying put.

A bit of historical context will explain why retirees fail to take this important step. There has been a change in how we own our homes. Before the cost of homeownership increased so substantially, most homeowners had a goal of paying off their home mortgage within a certain time frame. Many were able to reach this goal before or close to the time they retired, which made their housing expenses in retirement comparatively low. 

Owning a home free and clear is far less realistic these days. Making regular (and substantial) mortgage payments has become the norm, and many of today’s retirees fail to consider the repercussions of carrying such an expense. What’s more, despite the recent housing market meltdown, many homeowners see their home as an asset that can be used to cover expenses if the need arises. They fail to consider that tapping into this equity also means increasing debt.

Don’t make these mistakes. Take the time to do the math, and be sure to get expert advice and guidance on these issues, including the pros and cons of reverse mortgages. With a reverse mortgage, a homeowner takes out a loan based on the equity and market value of the home. Any current mortgage is paid off with the proceeds, and the bank makes either a lump sum or monthly payments to the homeowner with the remaining funds. 

Alternatively, the homeowner can set up a line of credit with the proceeds of the reverse mortgage to draw on when necessary. The homeowners retain the title to their home and remain responsible for paying real estate taxes and homeowner’s insurance. The homeowner is required to have mortgage insurance for the reverse mortgage loan.

Financial Planning 101

Many people don’t know how much they spend each month. Take the time to itemize monthly household expenses and other spending. To qualify for a reverse mortgage, the homeowner must continue to live in the residence as their main home. The interest rate on the loan is variable, and the reverse mortgage doesn’t have to be repaid as long as the homeowner stays in the home.