Grey Divorce and Reverse Mortgages: A Smart Solution for Starting Over
Grey Divorce and Reverse Mortgages: A Smart Solution for Starting Over
The rise of divorce rates among individuals over the age of 55, often called "grey divorce," are on the rise. Whether you have been together for 5 months, 5 years or 50 years, life after divorce is never easy. And starting over in our golden years presents unique challenges that are emotionally draining and can impact our retirement finances.
In the years gone by, spouses stayed together forever “until death do us part”, but it isn’t like that anymore. And why is that? Maybe because divorce is more socially acceptable. Maybe because your kids are grown, and you have nothing in common anymore. Maybe because we are living longer and healthier lives and believe we can be happier apart.
When you do decide to part ways, one of the most challenging aspects is the division of assets, particularly when significant equity is tied up in the family home.
You are now dividing everything that you built over the past years, to start all over again. Only now, because you are retired, you have to exist on a lower fixed income, divide all your retirement benefits and pensions, and create your new future.
At 55+ many don’t have the means to generate new wealth and believe that the only solution is to dip into their retirement savings or investments to cover the cost of a home buyout.
One party may not have the liquidity to payout their spouse or show enough income to qualify for a traditional mortgage.
For those who do qualify, many don’t want the impact to their cashflow that comes with a large mortgage payment.
A reverse mortgage can offer an ideal solution whether you are paying out your spouse or buying a new property. It allows you to maintain your lifestyle without straining your cash flow or requiring monthly payments.
It can also help you tap into the equity you’ve built in your home. You can access up to 55% of the value of your home and it is tax free. It has no effect on your OAS. And there are no monthly mortgage payments, which can help free up additional cash to use whether you purchase a new property or use it however you choose to.
What is a reverse mortgage in simple terms?
A reverse mortgage is designed exclusively to help Canadian homeowners who are 55 years or older tap into their home equity.
To be eligible:
-You and your spouse (or anyone on title) are 55 years or older.
-Your home is your principal residence.
-Any loans secured by your home must be paid for with the new reverse mortgage (e.g. mortgage or home equity line of credit). Whatever is leftover can then be used as you wish.
Amount you can receive:
You can receive up to 55% of your home value, but the specific amount is based on the following:
Your age and that of your spouse
The location of your home
The type of home you have
Your home’s current appraised value
Benefits:
-Money is tax-free. It doesn’t affect your Old Age Security (OAS) or Guaranteed Income Supplement (GIS) government benefits you may receive.
-No regular monthly payments for as long as you live in the home. The full amount owing (mortgage plus interest) is paid in full when you choose to sell and move.
-Spend the money as you wish. You can use the proceeds to payout your spouse and your existing joint mortgage.
-You retain 100% ownership of the home. You will always maintain ownership and control of your home, and you decide when and if you’d like to move or sell.
How to apply?
While a legal separation agreement is required to proceed with an approval for a reverse mortgage, it is important to be prepared. You can contact me when you are in the initial stages of determining the division of your assets so that I can provide answers to any questions and we can begin the application.
Once you receive the Separation Agreement, your paperwork is submitted and an appraisal is ordered by the lender. Your lawyer will review the approved agreement with you when you sign the closing documents and receive Independent Legal Advice. You then receive the funds.
Divorce can be an emotional roller coaster. We know this, there’s no doubt about it. People who go through separation and divorce all seem to agree on one thing: how draining the process truly is and how there’s so much to understand, prepare, read, gather, act on. But this entire process can be made easier when you work with professionals who will guide you through this journey.
