Reverse Mortgage Loans

Cashflow is a big concern for many Canadian seniors as they age and their income sources run out. Quite often, their homes are the only source of equity that they can leverage. Traditionally, the easiest way for seniors to unlock this asset was to either sell their property or apply for a home equity line of credit (HELOC). However, there is another option. A reverse mortgage allows cash-poor seniors to stay in their homes while accessing their property’s equity.

What is a Reverse Mortgage?

A reverse mortgage is a loan that allows a homeowner to convert some of the equity in their house into cash without having to sell their home. It is backwards financing, where the mortgage pays the homeowner cash. With a reverse mortgage, instead of being required to make monthly payments, the homeowner actually receives cash from the lender.

Interested in a Reverse Mortgage?

Speak with a mortgage broker who can help you get your reverse mortgage.

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How Does a Reverse Mortgage Work?

A reverse mortgage is the exact opposite of a regular mortgage. With a reverse mortgage, you are slowly selling your house back to the bank. Hence, instead of paying the bank, the bank pays you.

With a reverse mortgage, the lender advances you (the homeowner) a cash amount in exchange for a portion of your home equity. Therefore, a reverse mortgage’s principal goes up over time, rather than down.

Remember, home equity is:

Value of Home Unpaid Mortgage Balance = Home Equity

With a reverse mortgage, your unpaid mortgage balance increases and the your home equity decreases.

An important thing to note:
Although you are giving up more and more of your home equity, you retain home ownership (and maintain the title to your home). As such, you are responsible for the maintenance of the property, including the payment of taxes.

What are the Pros and Cons of Getting a Reverse Mortgage?

Pros	Cons
Does not require regular payments to be made on the loan Ability to ‘withdraw’ cash from the value of your home without having to sell it Easy to qualify - reverse mortgages don’t require any health or income information Payment from the reverse mortgage is entirely TAX-FREE Money from the reverse mortgage does not reduce your eligibility for Old-Age Security (OAS) or Guaranteed Income Supplement (GIS) benefits You still benefit from future increases in your home’s value (if you decide to sell). This can help offset some or of your borrowing costs and accrued interest.	Interest rates are much higher than typical mortgage rates As you borrow more and more equity, interest starts to accumulate faster and faster There are some initial costs associated with obtaining a reverse mortgage (home appraisal fee, application fee, closing costs, etc.). These can add up and are deducted from the amount you’ll receive. If you pass away, your estate is responsible for repayment of the entire loan (including all of the accrued interest). This could result in your beneficiaries being left with very little.

Pros

Cons

Does not require regular payments to be made on the loan
Ability to ‘withdraw’ cash from the value of your home without having to sell it
Easy to qualify - reverse mortgages don’t require any health or income information
Payment from the reverse mortgage is entirely TAX-FREE
Money from the reverse mortgage does not reduce your eligibility for Old-Age Security (OAS) or Guaranteed Income Supplement (GIS) benefits
You still benefit from future increases in your home’s value (if you decide to sell). This can help offset some or of your borrowing costs and accrued interest.

Interest rates are much higher than typical mortgage rates
As you borrow more and more equity, interest starts to accumulate faster and faster
There are some initial costs associated with obtaining a reverse mortgage (home appraisal fee, application fee, closing costs, etc.). These can add up and are deducted from the amount you’ll receive.
If you pass away, your estate is responsible for repayment of the entire loan (including all of the accrued interest). This could result in your beneficiaries being left with very little.

How Do I Receive My Reverse Mortgage Funds?

Depending on your lender and plan, you may be able to get the money from your reverse mortgage loan either:

Altogether up front (as a one-time lump sum), or
Partially up front and the rest spread out over time

Who Can Get a Reverse Mortgage?

To be considered eligible for a reverse mortgage in Canada, you must be:

A Canadian homeowner
Age 55 or older

If you have a spouse and you are both on the title of the house:

Both of you must be at least 55 years old to be eligible
Both of you must be listed on the reverse mortgage application

Additionally, the home you’re using to secure the reverse mortgage must be your primary residence. (This usually means you have lived in the home for at least six months to a year.)

If you currently have any outstanding loans or lines of credit that are secured by your home, such as a mortgage or home equity line of credit (HELOC), you must pay it off when you get a reverse mortgage. If the loans are less than the funds available from the reverse mortgage, you can use the money from the reverse mortgage to pay them off.

Are you considering a Reverse Mortgage?

Discuss your options with a mortgage broker.

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How Do I Qualify For a Reverse Mortgage?

To qualify for a reverse mortgage, lenders typically look at the following factors:

Your age (and the age of your spouse if they are also registered on the title of your house)
The equity you have in your home
The appraised value of your home
The location of your home
Current interest rates and market conditions

Typically, as long as you’re 55+ and have equity in a home that’s worth something, you’ll be approved for a reverse mortgage. Naturally, the older you are and the more home equity you have when you apply for the reverse mortgage, the more money you could get.

Where Can I Get a Reverse Mortgage in Canada?

There are two financial institutions that offer reverse mortgages in Canada:

HomeEquity Bank offers the CHIP Reverse Mortgage, which is available across Canada directly from HomeEquity Bank or through mortgage brokers
Equitable Bank offers the PATH Home Plan, which is available through mortgage brokers in Alberta, British Columbia and Ontario