1. Borrow a lump sum and invest it
Here you invest some or all of the cash you get to produce a stream of income, and perhaps grow your savings. You choose the investments that make the most sense for you, based on your income needs and the risks you are willing to take as an investor.
One of your goals might be to keep up with inflation by growing your money faster than prices rise. This is especially important if these savings are the only source of income you have. But unless you choose guaranteed investments, you don’t know what you’ll make or how much income you’ll have.
2. Set up monthly payments
Here you use the money from your reverse mortgage to buy an annuity. You'll get a fixed monthly income for life or for a set number of years, tax-free. You know exactly what your income will be.
Tip: With some annuities, payments stop after you die. If you want to make sure some money will go to family or your estate after your death, you have to buy a guaranteed annuity. This extra feature will lower your monthly payments. Likewise, if you want to make sure your income will go up when prices rise, you will have to buy an indexed annuity, which also has extra costs.
3. Borrow smaller sums when you need cash
This option is only available with the Home Fund Line of Credit Reverse Mortgage. You borrow money only when you need it to cover expenses. Since you pay interest only on what you borrow, this type of reverse mortgage can cost less than a bigger loan. There’s no tax on the cash you borrow.
Since you’re borrowing small amounts, you’re likely going to spend the cash and not invest it. As a result, you won’t be able to grow your savings.
Remember: There are different ways to create income from a reverse mortgage
There are some drawbacks to each approach, so make sure that your choice fits well with your financial goals and personal situation. Taking on a reverse mortgage involves a lot of big decisions, so it’s always wise to get expert advice.
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Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.
