A reverse mortgage, is it worth it? It is an interesting question. Reverse mortgages are definitely on the rise. There are now many commercials airing on TV stating the merits of getting one. But what is a reverse mortgage? Who is eligible? What are the pros and cons? Is it worth it?
What is a Reverse Mortgage?
Here’s a definition from the government of Canada website, “A reverse mortgage is a loan that allows you to get money from your home equity without having to sell your home. You may be able to borrow up to a certain percentage of the current value of your home. The maximum amount you will be able to borrow will depend on your age, your home’s appraised value and your lender.
You don’t need to make any payments on a reverse mortgage until the loan is due. This is usually when you move out of your home, sell it or the last borrower dies. You will owe more interest on a reverse mortgage the longer you go without making payments. This may result in you having less equity in your home.”
Who is Eligible?
The government of Canada website says that you have to be at least 55 years old, a homeowner, it has to be your primary residence. Also, if you have a mortgage or lien on your home, you have to pay it off when you get a reverse mortgage.
A person may turn some of the value of your home into cash, without having to sell it
You don’t have to pay tax on the money you borrow
This money does not affect the Old-Age Security (OAS) or Guaranteed Income Supplement (GIS) benefits you may be getting
You still own your home
You may have options as to when and how you receive the money
Interest rates are higher than most other types of mortgages
The equity you hold in your home may go down as the interest on your loan adds up throughout the years
Your estate will have to repay the loan and interest in full within a set period of time when you die
The time needed to settle an estate may be longer than the time allowed to repay a reverse mortgage
There may be less money in your estate to leave to your children or other beneficiaries
Costs associated with a reverse mortgage may be higher than a regular mortgage or other lending products
Some Caution about Reverse Mortgages
As mentioned above, a reverse mortgage is a loan and with a loan there are conditions that have to be meant and this is where caution is needed. For example you required to keep up the value of the home by maintaining it. However, as you get older this could be harder to do and if your place fall into disrepair you could default on your loan and potentially lose your home. A similar scenario can happen if you do not pay your property taxes and home insurance.
Is it Worth it?
It depends. If you plan to stay in your home right up until you die and you have no beneficiaries to your estate then the reverse mortgage might be to your liking. But if you have beneficiaries you want to give money to after you die, or you plan to downsize or go into assisted living, then it might not be for you. So do your do diligence and do your research. Because a reverse mortgage is not free money but a loan that has conditions like other loans. So you need to be mindful.
Should I open a TFSA? It’s an interesting question as it seems to be all the rage right now. It seems like an easy way to save money. However, before getting a TFSA, you should know a few things about it first.
What is a TFSA?
It is a tax free savings account. This means that whatever money you put in it, the interest, dividends and capital gains earned in this account is tax free for life. You can withdraw money from it at anytime and the money withdrawn is tax free!
What can I have in a TFSA?
You can have a wide range of investments inside of a TFSA such as:
securities listed on a designated stock exchange
guaranteed investment certificates
certain shares of small business corporations
Advantages of Opening a TFSA
The biggest advantage is that any interest, capital gains or dividend income earned is tax free! As a result you can grow your money faster than in a typical investment or savings account as income earned in these accounts are subject to taxation when either earned or when money is withdrawn. Another advantage is that you can withdraw from it anytime which gives flexibility. Finally, anyone can set up a TFSA as you do not need to be earning income to have one.
Disadvantages of Opening a TFSA
One of the biggest disadvantages is that if you use it as a savings account, the interest rates are not very high. For example, if I want to put money in a savings account within a tax free savings account, the interest I would receive would be about 1% per year. If a put it into a high interest savings account, I can earn some where in between 1.5 to 3% which is a bit higher and can earn a higher rate of return even after the interest is taxed. Another disadvantage is that you can only invest a certain amount every year. For example the TFSA limit for 2019 was $6000.00. However, if you have never invested in it since its beginning then you could possibly invest up to $63500.
Should I Open a TFSA?
Yes you should! The only reason you might not open one is that you would be only using it as a savings account where the interest rates would be low. However, if you do not need to use the money in the foreseeable future, you might look at putting the money into a GIC where you might get a little better interest rate and there is no risk. But if you are an investor and you do not mind the risks involved investing in securities or mutual funds, then opening a TFSA is an absolute must as you will grow you money faster. So open a TFSA and use it correctly and you will not be disappointed!
Do you love food? I know I do! We need food to live but the variety we have makes it a delight. As a result, food costs end up being one of the largest household expenses for families. So, how do you save money on food? The key lies with the type of expense food is.
Saving Money on Food, a Variable Cost
Most of our expenses are fixed and there is little we can do to change them. Expenses like mortgages, rent, car payment, insurance are examples of such. The only variable expense is food. So, to save money, we must focus on cutting food costs. How? Here are 3 easy steps.
Track Your Food Costs
This means you track the amount you spend on food including groceries and eating out. You can track either weekly or monthly but have enough of a sample size to give you a good idea of your spending habits. Once you have done that, find your average food spending costs.
Reduce and Save
Once you have your average food costs, take 10 percent of that amount and immediately put into savings. You will do this every time you need to spend on food(either weekly or monthly). The other 90 is what you will spend on food. So, is that it? Not quite!
Use Cash, Save More Money
The next thing you need to do is take that food budget as cash. Why? Because once your cash is gone, there is nothing else to spend. If you use a debit or credit card, there is always the temptation to spend beyond your budget. Cash takes this away. Also, you will be more mindful of what you spend on and might have cash leftover. If you do, put that into savings too!
It seems pretty easy and it is! Most times the simple solution is the best solution. So try it out, you might be surprised on how much you save! Saving money is important; eating food is very important. But you can have the best of both worlds. So eat, drink and save!