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Toronto Star Grapples with Reverse Mortgage Scenario

The rules regarding reverse mortgages may be different north of the border, but a recent Toronto Star piece provides a relatable look into  one woman’s decision to tap into her home equity.

The newspaper examines the case of Laurie, a retired Toronto resident who’s “house rich and cash poor” with no defined benefit pension plan. She rents out part of her $1 million downtown property, and has considered taking on additional tenants to shoulder the burden while moving into a separate apartment. Alternatively, she can take out a reverse mortgage, sell the home and use the cash to purchase a smaller property with funds left over, or simply sell and move into an apartment to avoid the upfront cost of a new house.

Each of these strategies comes with a potential downside, the Star notes: Continuing to rent the house while not living on the property brings with it a wide swath of maintenance issues, while attempting to purchase a new home near where she lives could prove impossible at a substantially lower price point.

In the end, a retirement planner advises her to sell the home, rent an apartment, and funnel the proceeds into some type of investment product — with no exact specification of which.

The piece doesn’t go too far into the reverse mortgage option, but more restrictive lending practices could play a role in deciding against one: HomEquity Bank, Canada’s sole reverse mortgage lender, only allows borrowers to access 55% of their home’s value, and broker Mich Sneddon told RMD earlier this year that even that figure can be difficult to obtain.

That conservative strategy typically allows borrowers to retain home equity when they retire the loan by selling the properties, though it could be less attractive for someone like the Star’s Laurie, who needs a significant amount of cash to maintain her lifestyle in retirement.

Still, the case of Laurie provides an interesting look at the decision-making process that retirees on both sides of the border face when considering how to cover everyday expenses. Read the full breakdown at the Toronto Star.

Written by Alex Spanko