Reverse mortgages allow home owners to borrow against the value of their home. In most cases, you can borrow between 10% and 40% of your home’s value. It depends on what your home is worth, your age and interest rates. You can see some of the basic pros and cons of reverse mortgages on GetSmarterAboutMoney.ca. The money you borrow can be used for any purpose, and does not need to be paid back until you sell your home, or at your death. However, while you do not pay regular interest payments, your loan does build up debt over time, added to your mortgage, meaning your home equity may be reduced over time. In addition, reverse mortgages generally have higher interest rates than regular mortgages.
Based on current rules, you may be able to deduct the interest on the loan from your taxes if you are using a reverse mortgage to invest and create investment income (interest or dividends). This deduction may offset any tax you may pay on unsheltered investments. However, these rules can change at any time, and there is no guarantee you will make money on your investments. And you must eventually repay your loan. A reverse mortgage may also have additional costs. To get the loan, you may have to pay appraisal fees, application fees, legal fees and closing fees. We are not able to provide advice. Speak to a financial advisor or tax professional to learn more about reverse mortgages and how they may fit into your own financial needs and personal financial situation.