A home equity loan or home equity line of credit secured against the existing equity in one’s primary residence may – in some circumstances – be a preferable option to a reverse mortgage, which is “often described as a way seniors – those who are house-rich but cash-poor – can continue to live in their home and generate extra tax-free cash.”
Johnathon Chevreau, of the Financial Post, writes that a reverse mortgage is not necessarily a panacea for all circumstances. Mr. Chevreau quotes financial author, P.J. Wade, whose previous advice was that a reverse mortgage can be a “financial, lifestyle and wealth management tool.” However, Ms. Wade cautions that “reverse mortgages are now being better marketed and interest rates charged . . . are more in line with other financial options.”
Warren Baldwin, regional vice-president of Toronto-based T.W. Wealth, suggests that, Since interest rates and terms and conditions [on a reverse mortgage] can be expensive, seniors may be better off with a simple line of credit from the bank.” Whether a home equity loan or secured home equity line of credit is better for a homeowner’s particular circumstances than a mortgage, is a matter that can be reviewed with a knowledgeable and experienced mortgage broker who handles all three options.
Interestingly, one financial advisor who asked to remain anonymous, suggest that a reverse mortgage with funds invested in a conservative stock portfolio may be a good strategy for some seniors. He or she notes that the tax-deductible interest on an invested reverse mortgage could enhance cash flow and a senior’s retirement life style. “By minimizing capital withdrawals,” it is pointed out, “[this] strategy can have a more neutral effect on wealth, particularly if the house continues to grow in value.”
Whether to take out a reverse mortgage rather than a home equity loan or a secured home equity line of credit is a matter that homeowners weighing these options should discuss with their financial planner and/or mortgage broker.
