Retired Canadians are in a particularly difficult position
This article was provided by HomeEquity Bank
Did you know that more and more Canadians are heading into retirement carrying debt? According to StatCan, 42% of households headed by someone 65+ are in this position, with 13.9% paying off a mortgage and 37.4% carrying consumer debt.
This can put retired Canadians in a particularly difficult situation. According to the 2017 Canadian Income Survey, the average retirement income for an individual is just $27,500 and $61,200 for a couple, which can make it hard to pay off debt on top of daily living expenses.
This was the position that one of our clients, Mrs. Jennifer Holland from Brampton, Ontario, found herself in.
The situation
Mrs. Holland receives just under $20,000 per year through her OAS and CPP. She also works part time at a local café where she earns $15 an hour, taking home about $240 per week.
Despite this, she was struggling to make ends meet each month and had gotten into the habit of putting one-off expenses, such as appliance repairs and vacations, on her credit card, which had an interest rate of 22%.
Hoping to maximize her finances, Mrs. Holland went to her bank to discuss her options, where she was recommended Income Advantage from HomeEquity Bank as a way of increasing her cashflow.
The solution
Income Advantage is a reverse mortgage that allows your clients aged 55+ to access up to 55% of their home’s value in tax-free cash.
Mrs. Holland was eligible for $127,000. She accessed an initial lump sum of $20,000, which she used to pay off her credit card debt, and opted to receive the remaining money as monthly deposits of $1,000. This allowed her to increase her monthly cashflow, so she was able to easily cover her monthly expenses and even enjoy the occasional treat without having to resort to credit cards. What’s more, since funds received through Income Advantage are 100% tax free, they didn’t negatively impact her income by triggering additional taxes or OAS/CPP claw-back.
Income Advantage has a lower interest rate than credit cards (between around 4% and 6%) and requires no monthly repayments. This frees up even more of Mrs. Holland’s income. She will only have to pay back what she owes when she moves out of her home or passes away and will also maintain full title ownership.
Income Advantage has allowed Mrs. Holland to take advantage of the money in her home while she continues living in it. This means she is able to enjoy many more years in the home she loves, and if she decides to sell, the remaining equity will be worth more than if she had decided to downsize today.
If you have a client like Mrs. Holland who could benefit from the security that HomeEquity Bank’s Income Advantage can bring, click here to find a BDM or head to chipadvisor.ca for more information.
