Should I sell and rent or get a reverse mortgage?
I have two options: sell and rent a one-bedroom apartment, probably starting at $2,000 a month, or stay in my house and get a reverse mortgage. Do you recommend reverse mortgages despite high interest rates? I would not qualify for a HELOC because I have no income other than my pension and what I take out of my RRIF.
Most people recoil at the thought of a reverse mortgage. I have sought independent advice on this, but most advisers have an interest in selling me something, i.e. the bank, mortgage brokers, etc.
Why Retirees Might Consider a Reverse Mortgage
I’m sorry to hear you’re struggling with this decision, Laurie. I imagine it’s stressful. I will try to go over the considerations of selling versus a reverse mortgage.
As an 82-year-old woman, you have a 50% chance of living another 10 years. So I think you have to consider the lifestyle and financial implications of living well into 90.
Selling a house and renting as a senior
If you sell your home, you’ll pay real estate agents a commission that could total 5% or more of your home’s value. You will also have legal fees, moving costs, and the inconvenience of having to find a new home, pack your bags and move. Let’s say your condo is worth $500,000. A 5% real estate commission plus sales tax could be around $28,000. Legal fees and moving costs could push your all-inclusive selling costs over $30,000. But then you’ll have plenty of money in the bank and can invest the proceeds and stop worrying about cash flow.
You could increase your expenses by about $2,500 a month, indexed to inflation, and you probably won’t run out of money even if you’ve lived to be 100. This could cover the rent you estimate at $2,000 per month.
If you move into a rental condo, you run the risk of your landlord selling your condo, in which case you may have to move out at relatively short notice. An apartment or retirement home may be a safer option to avoid another move. I can imagine moving once in the 80s could be stressful enough, let alone twice.