This Article provided by Lawyer Pat Filice one of our Valued Partners
Top 5 Myths and Misconceptions
from the Lawyer’s Perspective
Reverse mortgages are becoming more and more important for estate planning and to allow retirees to enjoy their retirement and the fruits of all of their hard work over the years. The Reverse mortgage allows qualified homeowners to borrow against the equity in their home to free up cash that they need for other important things, be that living expenses, giving a gift to children or grandchildren, paying off a debt, vacationing and seeing the world or even to invest in other businesses or real estate. Often times, a reverse mortgage is the only practical tool that some folks have to allow them to do all the things they need to do. It is a shame to see so many folks who have this tool available to them shy away from all of those wonderful life experiences because they just “can’t afford it.” Reverse mortgages can be exceptional tools to allow people to do what they would like to do and use some of the equity in their home that they have spent a lifetime building. By qualified owners, we mean individuals who are 55 years of age or older and own their own home free and clear of any mortgages or encumbrances. Despite the fact that these reverse mortgages can be so versatile and valuable to people, many folks shy away from them. They have been told all sorts of things about what they are and why they should stay clear of them. I have been helping good folks enjoy more financial freedom and benefit from the use of their hard earned equity for years with these reverse mortgages and while I agree that a reverse mortgage is not the cure for all financial ailments, I am discouraged to hear all of the misconceptions and flat out lies that people believe about how these reverse mortgages operate. So, let me set the record straight on five of the most troublesome myths and misconceptions out there that prevent people from taking a serious look at this financing tool.
MYTH #1: If I get a Reverse Mortgage, I will have to give up title to my property to the bank.
So many folks think that you have to transfer title of your property to the bank as part of the reverse mortgage transaction. Nothing can be further from the truth. You continue to own your property as before and a mortgage gets registered against the property securing the bank’s interest for the money they loaned you. In terms of the legals behind the transaction, it is registered no differently than a conventional mortgage.
MYTH #2: If I get a Reverse Mortgage, I will have to pay taxes on the proceeds.
You will most certainly NOT have to pay taxes on the proceeds from the reverse mortgage. The government taxes income and capital gains, in general. When you take out equity from your home, you are not in any way receiving a capital gain nor are you receiving income. You are merely transferring the manner in which you hold an asset you already own from one form to another. For instance, if you borrow $100,000 from the bank secured by a reverse mortgage on your home, you have taken $100,000 which you had as equity in your home and converted it into cash that you can use. You have not earned any additional income nor have you received a capital gain. You get that money on a tax free basis.
MYTH #3: If I get a Reverse Mortgage, I will lose my government benefits like CPP, OAS or ODSP.
Getting money from the equity in your home with a reverse mortgage is not an income transaction. That money is not income to you. As such, it will have no effect to your Canada Pension Plan entitlement or Old Age Security. With respect to Ontario Disability Support Program entitlements, a reverse mortgage needs to be pre-cleared with the administrators and comply with certain use provisions for the funds. If you meet those requirements, it will not affect your entitlement for ODSP.
MYTH #4: If I get a Reverse Mortgage, the bank can call the loan on demand and force me to sell my home.
Your only ongoing obligations with a reverse mortgage are to pay property taxes when they become due and to make sure that the property is insured at all times. If you do that, the bank cannot demand payment nor do they have any power whatsoever to force you to sell your home.
MYTH #5: If I get a Reverse Mortgage, my children will no longer be entitled to take the family home that I own when I die.
Having a reverse mortgage does not in any way affect your ability to leave your home to your children any differently than if you had a conventional mortgage. The mortgage must still be paid off on your death or when you sell the property, regardless of whether it is a conventional mortgage or a reverse mortgage. If there is sentimental value in the family home and the children wish to keep it, they can arrange to pay out the reverse mortgage and keep the property. It’s clear that there is a bit of misinformation out there when people first learn about reverse mortgages and many of the more common beliefs are just not true. Reverse mortgages can be a powerful estate planning tool and provide security for qualified homeowners during retirement allowing them to do the things they want to do and enjoy a better quality of life.
Pat Filice is a lawyer in Ancaster, Ontario with over 20 years of experience in real estate. He has extensive experience with reverse mortgages and can provide folks with honest, fact based information on this valuable financial tool.
71 Wilson Street East
Ancaster, Ontario L9B 2G3