As the only Bank exclusively focused on Reverse Mortgages in Canada, we often receive comments about how applying for a reverse mortgage will take away the inheritance from your kids and your family. This is a common misconception. Many of our customers choose to take out a reverse mortgage to provide an inheritance to their family members – in advance.
How to provide an early inheritance
An early inheritance is something that many Canadians wish to provide their children. The main advantage of providing an early inheritance to your loved ones is that you are able to see them enjoy the money. Providing an inheritance after death does not give you that same joy.
In many big cities in Canada, people are gifting an early inheritance to help their grown children with a down payment for their homes. Houses in big cities such as Toronto and Vancouver have become difficult for Canadians to afford without some financial assistance from family. In fact, a recent survey commissioned by HSBC found that a whopping 37% of young homeowners tapped into the “Bank of Mom and Dad” for their home purchase.
Advantages of an early inheritance
Giving your children or grandchildren a financial gift now instead of later in your will can be very fulfilling and beneficial:
- A financial gift to your children now can provide assistance to your family when they need it most.
- A financial inheritance while you’re still alive gives you the opportunity to be a part of their lives while seeing how your financial gift can benefit your children and their family, making it a positive and memorable experience for all.
- Cash given to children, grandchildren or any other individual while you’re alive may not be taxable. This could save estate tax down the road. Be sure to speak with a tax or financial advisor if you have questions.
How can a reverse mortgage help with living gifting?
A reverse mortgage is a great option for Canadians 55+ to tap into the equity of their home to provide an early inheritance for their family today. Unlike other home equity loans such as HELOCs, a reverse mortgage does not require any monthly mortgage payments, not even interest payments, until the homeowner(s) move, sell or pass away; and best of all, the homeowner can stay living in their home. If you intend to give your home in a will to your family members after you pass, why not consider getting a reverse mortgage now to give them an early inheritance today? This way you can help your children with their down payment, help your grandkids with their university tuition etc. You can make a difference in their lives today, rather than seeing them struggle financially.
Negative Equity Guarantee
If you are worried that a reverse mortgage can see your family owe more than the property is worth, don’t fret: the CHIP Reverse Mortgage from HomeEquity Bank has a negative equity guarantee. This means that if the home equity depreciates in value at the time it is being sold, and the loan amount due happens to be more than the sale amount of the property, HomeEquity Bank will cover the difference between the sale price and the loan amount. However, keep in mind that the condition of the home must be well maintained and property taxes and home insurance premiums need to be up to date. If these conditions are met, then the homeowner(s) or the heirs will never owe more than the fair market value of the home at the time of sale.
An early inheritance can be a great option for many Canadian homeowners to give to their children/family members. People often assume that by getting a reverse mortgage, you are taking away the inheritance from your children, but the reality is that you can get a reverse mortgage to provide your children with an early inheritance before you pass away. This way you can make a difference in their lives today and you will get to see your family spend the money and enjoy the inheritance.
