Many of us have seen the commercial: happy elderly people paying for renovations, trips and university education for their grandchildren through a reverse mortgage. I came across this excellent post from the Retire Happy blog, which details the pros and cons of a reverse mortgage. There are many advantages to these plans: income is tax-free, there are no monthly payments, and the repayment will never be higher than the value of your home, to name a few. However, there are some distinct negatives as well. Interest rapidly accumulates, for one, as you are not paying it regularly. There are only two companies doing reverse mortgages in Canada, and interest rates are correspondingly high, at least partly because of a lack of competition.
The bottom line? Always get advice from a third party, whether that is a financial planner, accountant or lawyer, or even all of the above. A reverse mortgage may be right for you, but it could also seriously harm your financial health in the long term.