UNLOCKING HOME VALUE
UN_LOCKING RESIDENTIAL REAL ESTATE
Outside of selling your home, how might you un-lock the value in your home? In simple terms there are 2 main ways to do so; a Reverse Mortgage or a Line of Credit. Both have benefits and just as notable pitfalls. Entering into either these should be done with thoughtful consideration and objective advice.
Reverse Mortgage
For those who lack liquid assets, have substantial residential real estate assets, and want to continue to reside in the family home a Reverse Mortgage may offer a viable income solution. Simply, you arrange to withdraw capital from your home either in a lump sum or over a period of time. Interest is charged on the loaned money. The Bank charges not only an interest rate on the loan, but also adds fees to set up the loan and legally establish the contract. Reverse Mortgage Interest Rates are higher than normal mortgage interest rates. There are contractual guarantees around your continued occupation, terms upon sale and net estate value. If you elect to take out a lump sum amount of money and invest it for income, the interest expense is a tax deduction against this income. Further the combination of the proportionate distribution of capital, capital gains on the investments, dividend payments and tax deductibility of the interest charges, will effectively relegate this income to tax free status. However, over time the erosion of capital that remains in the family home will be quite substantial. If you live in your home for decades and interest rates rise above the projected values and real estate appreciation below your expectations, there may be little value left for your heirs.
No Reverse Mortgage arrangement should be entered into without thoughtful consideration of the cumulative impact upon your long-term estate values.
Revolving Line of Credit
An alternative to a Reverse Mortgage might be a Line of Credit (LOC). Similar to a reverse mortgage, a homeowner establishes a line of credit with a financial institution based upon the net value of your home. Some institutions allow for the LOC to be tied into your monthly deposits from your other income sources such as Pensions, CPP and OAS, RIF’s, LIF’s etc. These income credits can be deposited into a bank account tied to the Line of Credit and these deposits would serve the interest charges associated with your LOC. Ideally this might appeal to those who periodically need cash that exceeds their monthly cash flow. Seasonal vacations, wedding gifts, or essential repairs to a home, car, or other valued possession. Think of this as an income smoothing facility. Money withdrawn from a home are tax free.
The Financial Industry has rules that affect you and the advice to receive.
Financial Institutions:
- Want your money!
- Want it systematically!
- Want to hold on to it for as long as possible!
- Want to return it little by little when you want it back.
This is not necessarily a bad thing. However, it may put into context some asset preservation strategies in a slightly different light. Unlocking your money from these constraining rules of the Financial Game is the difference between playing and learning how to win.
What are these Rules?
If either of these are conceptually appealing, perhaps now is the time to speak with a qualified professional.
May we invite you to give us your contact information so that we may continue the conversation?
LET'S CONTINUE THE CONVERSATION...
Now is the time to speak with a professional.
May we invite you to give us your contact information so that we may continue the conversation?
“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.””
Franklin D. Roosevelt, U.S. president
“A funny thing happens in real estate. When it comes back, it comes back up like gangbusters.”