Reverse Mortgage

You may have seen commercials promoting reverse mortgages as an easy way to access the equity in your home without selling or moving. While they can provide financial relief for some retirees, they come with significant risks that should be carefully considered.

A reverse mortgage allows Canadian homeowners aged 55 or older to borrow against their home’s equity, receiving tax-free cash as a lump sum, regular payments, or a combination of both. The loan, along with accumulated interest, must be repaid when you sell your home, move out, or pass away.

How Does a Reverse Mortgage Work?

• You must be 55 years or older and own your home.
• The amount you can borrow depends on your age, the appraised value of your home, and the lender’s criteria.
• The funds you receive are tax-free and do not affect Old Age Security (OAS) or the Guaranteed Income Supplement (GIS).
• You are not required to make monthly payments; however, interest accumulates over time and is added to the loan balance.
• The loan must be repaid when the home is sold or the last borrower moves out or passes away.

What Happens if One or Both Borrowers Must Move to Senior Living or Long-Term Care?

• If only one spouse moves into care, the other can remain in the home, and the reverse mortgage stays in place.
• If both spouses move out, the loan becomes due, and the home will need to be sold to repay it.
• If the home cannot be sold immediately, interest continues to accrue, reducing any remaining equity.
• Some lenders may offer a grace period, but there is no guarantee, and families may face financial strain if the house does not sell quickly.
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What If the House Sells for Less Than the Loan Amount?

• Reverse mortgages in Canada are non-recourse loans, meaning you (or your estate) will never owe more than the fair market value of the home at the time of sale.
• However, if the home’s value drops significantly, it could leave little or no remaining equity for heirs.