Reverse mortgages

What is a reverse mortgage

A reverse mortgage is a loan that allows you to get money from your home equity without having to sell your home. This is sometimes called “equity release”. You can borrow up to 55% of the current value of your home.

The maximum amount you’re able to borrow will depends on:

You pay back your loan when you move out of your home, sell it or the last borrower dies. This means you don’t need to make any payments on a reverse mortgage until the loan is due. You will owe more interest on a reverse mortgage the longer you go without making payments. At the end of your loan term, you may have less equity in your home.

Who is eligible for a reverse mortgage

To be eligible for a reverse mortgage, you must be:

On your reverse mortgage application, you must include all the individuals listed on your home’s title. All these individuals must be at least 55 years old to be eligible.

Your lender may also ask you and the other individuals to get independent legal advice. They may ask for proof that you received this advice.

When you apply for a reverse mortgage, your lender will consider:

The home you’re using to secure a reverse mortgage must also be your primary residence. This usually means you live in the home for at least six months a year.

How a reverse mortgage works

Before getting a reverse mortgage, you must first pay off and close any outstanding loans or lines of credit that are secured by your home. These can include a mortgage and a home equity line of credit (HELOC). You can use the money you get from a reverse mortgage to do this.

You can use the remainder of the loan for anything you wish, such as to:

A reverse mortgage may limit other financing options secured by your home. You may not be able to take out a HELOC or similar products.

You may be able to get the money from your loan by:

Ask your lender what payment options they offer for a reverse mortgage. Also ask whether there are any restrictions or fees.

How to repay the money you borrow

You don't need to make any regular payments on a reverse mortgage. You have the option to repay the principal and interest in full at any time. However, you may have to pay a fee to pay off your reverse mortgage early.

You have to repay the amount left owing when:

You could default on a reverse mortgage by:

Each reverse mortgage lender may have their own definition of defaulting on a reverse mortgage. Ask your lender what could cause you to default.

When you die, your estate has to repay the entire amount owing. If multiple individuals own the home, the loan has to be repaid when the last one dies or sells your home.

The amount of time that you or your estate has to repay a reverse mortgage may vary. For example, if you die then your estate may have 180 days to pay back the mortgage. However,  if you move into long-term care, then you might have one year to pay it back. Make sure you ask your lender for information about the timing for paying back a reverse mortgage.

How much a reverse mortgage can cost

Costs associated with a reverse mortgage may include:

The costs will vary depending on your lender. Some fees may be added to the balance of your loan. You may have to pay for others up front.

Find out more about what you should know before you sign a contract.

Where to get a reverse mortgage

Two financial institutions offer reverse mortgages in Canada. HomeEquity Bank offers the Canadian Home Income Plan (CHIP), which is available across Canada. You can get a reverse mortgage directly from HomeEquity Bank or through mortgage brokers. Equitable Bank offers a reverse mortgage in some major urban centres.

Shop around and explore your options before you get a reverse mortgage. Your financial institution may offer other products that might meet your needs.

Compare the costs of the following potential alternatives to a reverse mortgage:

You may want to speak with a financial advisor and your family before getting a reverse mortgage. Make sure you understand how a reverse mortgage works and how it can affect your home equity over time.

Pros and cons of a reverse mortgage

Before you decide to get a reverse mortgage, make sure you consider the pros and cons carefully.

Pros

Cons

What to ask a lender about reverse mortgages

Before getting a reverse mortgage, ask your lender about:

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