A reverse mortgage can seem like a simple, appealing solution: unlock the equity in your home, stay where you are, and get tax-free cash with no monthly payments. But before you sign on the dotted line, it’s essential to understand how this financial tool really works.
Whether you’re considering a reverse mortgage for extra income, home renovations, or medical expenses, here are 10 key things you need to know before moving forward.
1. You Must Be at Least 55 Years Old
Reverse mortgages in Canada are only available to homeowners aged 55 and older. If the home is jointly owned, both individuals must meet the age requirement. Your eligibility and borrowing amount also depend on your age—the older you are, the more you can access.
2. You Can Borrow Up to 55% of Your Home’s Value
The maximum loan amount is typically 55% of your home’s appraised value. The exact amount depends on your age, your property’s value, type, and location. Homes in urban Ontario communities tend to qualify for more than rural properties.
3. No Monthly Mortgage Payments Are Required
One of the most attractive features of a reverse mortgage is that you don’t make monthly payments. The interest is added to your loan balance and repaid when you sell your home, move into care, or pass away.
4. Interest Rates Are Higher Than Traditional Mortgages
Reverse mortgage rates are usually 1.5% to 2.5% higher than standard mortgage or HELOC rates. The loan compounds over time, meaning the balance grows faster the longer you hold it. It’s important to understand how this impacts your long-term home equity.
5. You Still Own Your Home
Despite common myths, you retain full ownership of your home. The lender simply registers a mortgage against the property, just like with a traditional loan. You can continue to live in your home as long as you meet your obligations.
6. You Must Pay Property Taxes, Insurance, and Maintenance
Even though you don’t make loan payments, you’re still responsible for:
- Paying property taxes
- Maintaining home insurance
- Keeping the home in good condition
Failure to meet these requirements could lead to default and early repayment.
7. The Loan is Repaid When You Leave the Home
The reverse mortgage must be repaid when:
- The last borrower dies
- You sell the home
- You move out permanently (e.g., into long-term care)
In most cases, repayment is made through the sale of the home. Any remaining equity belongs to you or your estate.
8. Your Estate Will Inherit Less Equity
Because of compounding interest, the reverse mortgage balance increases over time. This reduces the amount of equity left in the home for your heirs. If leaving a large inheritance is a priority, this is a critical consideration.
9. There Are Fees and Upfront Costs
Like any mortgage, reverse mortgages involve costs such as:
- Home appraisal
- Legal fees
- Setup or administrative fees
- Independent legal advice (required by law)
These typically total $1,500–$3,000 and are often deducted from the loan advance.
10. You Have Other Options
Before committing, it’s worth comparing reverse mortgages to other ways to access home equity:
- Home Equity Line of Credit (HELOC): Lower interest, but requires income and monthly payments
- Refinancing: May offer better terms but requires qualification
- Downsizing: Unlocks full equity, but involves moving
- Renting part of your home: Generates income without taking on debt
- Government grants and benefits: May provide help for low- or moderate-income seniors
Final Thought
A reverse mortgage can offer comfort, flexibility, and financial freedom—but only if it fits your goals and lifestyle. Take the time to understand the long-term implications, and speak with a mortgage advisor, lawyer, and your family before making your decision.
When used wisely, a reverse mortgage is a tool—not a trap.
