Should I sell and rent or get a reverse mortgage?

I have two options: to selI and rent a one-bedroom apartment, probably starting at $2,000 a month, or staying in my home and getting a reverse mortgage. Do you recommend reverse mortgages in spite of high interest? I wouldn’t be eligible for a HELOC as I have no income, other than my pension and what I take out of my RRIF. 

Most people recoil at the idea of a reverse mortgage. I have been searching for independent advice on this subject, but most advisers have a vested interest in selling me something, i.e. the bank, mortgage brokers, etc. 

–Laurie

Why retirees might consider a reverse mortgage

I’m sorry to hear you are struggling with this decision, Laurie. I can imagine it is stressful. I will try to walk through the considerations of selling versus a reverse mortgage. 

As an 82-year-old woman, you have a 50% probability of living another 10 years. So, I think you need to consider the lifestyle and financial implications of living well into your 90s. 

Selling a home and renting as a senior

If you sell your home, you will pay a commission to the real estate agents that could total 5% or more of your home value. You will also have legal fees, moving costs, as well as the inconvenience of having to find a new home, pack and move. Say your condo is worth $500,000. A 5% real estate commission plus sales tax could be about $28,000. Legal fees and moving costs could push your all-in selling costs over $30,000. But then you will have plenty of money in the bank and could invest the proceeds and stop worrying about cash flow. 

You could increase your spending by about $2,500 per month, indexed to inflation, and you will probably not run out of money even if you lived to 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 need to move out on relatively short notice. An apartment or a retirement home may be a safer option to avoid another move. I can imagine moving once in your 80s could be stressful enough—let alone twice.