Skip to main content

Reverse Mortgages

A reverse mortgage is a product available to homeowners 55 years of age and older that allows them to draw liquid cash from their home without having to move or sell. A reverse mortgage is secured by the equity in the home, which is the portion of the home’s value that is paid off.

How it works

You do not have to make any regular or lump sum payments on a reverse mortgage, as you would with an ordinary mortgage. Instead, the interest on your reverse mortgage accumulates, and the equity that you have in your home decreases with time. If you sell your house or your home is no longer your principal residence, you must repay the loan and any interest that accumulated.

How it can benefit you:

  • You don't have to make any regular payments on the loan.
  • You can turn some of the value of your home into cash, without having to sell it.
  • The money you borrow is a tax-free source of income.
  • This income dose not affect the Old-Age Security (OAS) or Guaranteed Income Supplement (GIS) benefits.
  • You maintain ownership of your home.

Some disadvantages:

  • Reverse mortgages are subject to higher interest rates than most mortgage types.
  • The equity held in your home will decrease as the interest on a reverse mortgage accumulates.
  • If a reverse mortgage is outstanding at death, the estate must repay the loan and interest in full within a limited time.
  • The costs associated with a reverse mortgage are usually quite high. They can include:
    • A higher interest rate than for a traditional mortgage or line of credit.
    • A home appraisal fee, application fee or closing fee.
    • A repayment penalty for selling the house or moving out within three years of obtaining a reverse mortgage.
    • Fees for independent legal advice.

Will I qualify for a reverse mortgage?

A lender will look at several factors to determine whether you qualify for a reverse mortgage. The largest contributing factor will be how much equity a person has in their home. Lenders also take into account age, the appraised value of the home, current interest rates and the location.

*Source Financial Consumer Agency of Canada