|
 The
Money Management Newsletter: Choosing
Financial Services
Reverse mortgages offer extra income from the
equity in your home
Money Management Newsletter
Reverse
mortgages are a relatively new phenomenon
in Canada but are destined to become more popular. The concept is simple
enough. A lender applies a mortgage against the borrower's principal
residence and purchases an annuity
for an equivalent amount.
The annuity provides the borrower with income and the mortgage is generally
covered by the increase in value of the home. A reverse mortgage offers
home owners who need extra income the opportunity to utilize the equity
in their home tax-free.
Revenue Canada, in a recent technical decision, decided that income received
form a Home Equity Plan (i.e., a reverse mortgage) is tax free.
After all a homeowner pays for equity in after-tax dollars (interest payments
on your principal residence are not tax deductible).
Unlike selling a home, the reverse mortgage allows for the retention of
home ownership. The borrower appreciates all the benefits that are part
and parcel of home ownership (i.e., the appreciation of the real estate
and the utilization of the Principal Residence Deduction which allows
all proceeds on the sale of a home to be realized tax free).
The reverse mortgage is still a mortgage
and comes with the same necessity of a charge being placed against your
home as a regular mortgage does.
As such, mortgage interest costs compound
and will reduce the equity a homeowner enjoys in their principal residence
more quickly in later years. As an option, the home owner should consideration
of a "reverse mortgage line
of credit" against the home. (This product is offered by a limited
number of financial institutions mainly Credit Unions).
This allows for the creation of cash flow when its needed but doesn't
lock the homeowner onto a position that may or may not suit his or her
long term needs (i.e., a reverse mortgage).
Many people have achieved substantial home equity but are in a cash-poor
position. A reverse mortgage is a way to appreciate growth in real estate
values in the future.
Please note: Readers are reminded that legal advice is warranted when dealing with mortgage related transactions and you are urged to consult a competent professional. * * *
|
|
Use this link to load a printer-friendly
version of this document. |
Have a question regarding this article? Use our feedback form to send us a note.
 © , Fiscal Agents Money Management Newsletter
25 Lakeshore Road, Oakville, On L6K 1C6.
(905) 844-7700
| 
