Unlock your home’s equity with a reverse mortgage and enjoy your retirement!
- For Canadian homeowners aged 55+
- Access up to 59% of the home value
- No monthly payments
What is a Reverse Mortgage?
A reverse mortgage is a unique loan that converts a percentage of your home equity into cash while you continue to live in your home, specified for homeowners over 55. With a traditional mortgage, you pay the lender to pay down your principal over time. A reverse mortgage works the opposite way – the lender advances you money, and your debt grows as interest accumulates.
Unlike regular mortgages or home equity loans, reverse mortgages do not require monthly repayments. The loan only becomes due when you sell your home, move out permanently, or pass away.
Reverse mortgages are sometimes called “equity release” because they allow you to release a portion of your home equity as spendable funds.
How Does a Reverse Mortgage Work?
A reverse mortgage works differently than a traditional forward mortgage in several key ways:
You receive money rather than make payments: You make monthly payments to the lender. Reverse mortgage lenders advance money as a lump sum, through scheduled advances, or a line of credit.
Your equity is reduced rather than increased: Regular mortgages build equity with each payment. This mortgage reduces your equity over time as interest accumulates on the loan.
Repayment isn’t required until a triggering event: You must not repay monthly. The loan only becomes due when you sell the home, move out permanently, or pass away.
Interest accrues over time: Because you aren’t making payments, interest gets added to your monthly loan balance. This means your total debt grows larger the longer you have the mortgage.
You retain ownership: With a reverse mortgage, you still legally own your home. The lender places a lien on the property, but ownership remains in your name.
Lender protections: Reverse mortgages have built-in protections for lenders, such as no negative equity guarantees. This ensures the loan won’t exceed the value of your home.
Are You Qualified For a Reverse Mortgage in Canada?
To qualify for a reverse mortgage in Canada, homeowners must meet specific eligibility criteria:
- Minimum age: The minimum age is 55. All borrowers on the title must be at least 55.
- Home value: The property must have a minimum value, often $250,000 or higher.
- Location: The home must be located in an eligible area. Some lenders have geographic restrictions.
- Private residence: The home must be your primary residence, where you live for at least 6 months per year.
- Ownership: You must have full legal ownership of the home. Shared ownership may disqualify you.
- Title: All parties on the title must apply together and meet eligibility criteria.
- Existing mortgages: Any existing or secured debts must be paid off first.
- Property taxes & insurance: These must be up-to-date and maintained.
Reverse mortgage eligibility is primarily based on age and equity rather than income or credit score. Pre-qualifying online can help you determine if you may be eligible.
Where Can You Get a Reverse Mortgages in Canada?
While regular mortgages are widely available from banks, credit unions, and mortgage brokers, only a handful of lenders currently offer them in Canada
Home Equity Bank
Home Equity Bank is the leading reverse mortgage lender in Canada. With over 30 years of experience, they offer the CHIP Reverse Mortgage across the country and hold the majority of market share. Their product provides flexible payout options and competitive rates. The main downside is that rates are slightly higher than Equitable Bank.
Today’s Chip Rates
| Term | Rate | APR |
|---|---|---|
| 1 Year Fixed | 8.19% | 8.87% |
| 3 Years Fixed | 7.29% | 7.81% |
| 5 Years Fixed | 6.69% | 6.99% |
| 5 Year Variable | 9.11% | 9.49% |
Read the full review: Home Equity Bank Chip Reverse Mortgage
Equitable Bank
Entering the market in 2018, Equitable Bank offers Reverse mortgages in major urban centers through independent mortgage brokers. Their rates tend to be lower than CHIP. However, Equitable Bank has limited availability and only serves major urban centers now. They are a good option for lower-value homes.
Today’s Equitable Bank Flex Rates
| Term | Flex Rates | APR |
|---|---|---|
| 6 Month Fixed | 7.94% | 9.54% |
| 1 Year Fixed | 8.09% | 8.76% |
| 2 Year Fixed | 7.74% | 7.99% |
| 3 Year Fixed | 7.19% | 7.32% |
| 5 Year Fixed | 6.59% | 6.63% |
| 5 Year Adjustable | 9.1% | 9.21% |
Read the full review: Equitable Bank Reverse Mortgage
Bloom Finance
Bloom Finance offers the unique Bloom Home Equity Prepaid Mastercard. This functions like a credit card, allowing borrowers to access small amounts of equity each month. It provides flexibility but requires discipline to avoid overspending. There are also higher fees than a traditional one.
Today’s Bloom Rates
| Term | Rate | APR |
|---|---|---|
| 1 Year Fixed | 8.14% | 8.37% |
| 3 Year Fixed | 7.29% | 7.52% |
| 5 Year Fixed | 6.69% | 6.92% |
Read the full review: Bloom Reverse Mortgage
Fraction
Fraction lets homeowners sell up to 50% of their equity share in exchange for a lump sum payment. This allows borrowers to retain half their home ownership and appreciation. The main risk is missing out on a larger share of future home equity gains.
How to Apply for a Reverse Mortgage?
Qualifying for a reverse mortgage is more straightforward than qualifying for regular mortgages or home equity loans. Here are the key steps:
- Pre-qualification: Complete an online pre-qualification form to receive an estimate of your potential loan amount.
- Documentation: Provide required documents proving your age, ownership, primary residence, and property value.
- Home appraisal: The lender will evaluate your home and determine an appraised value. Higher values allow you to qualify for more funds.
- Mortgage discharge: Any existing mortgages must be paid out and closed using your mortgage funds.
- Underwriting: The lender will review your application and determine approval and the maximum loan amount.
- Legal advice: Seeking independent legal advice before signing your mortgage documents.
- Closing and funding: Approved funds will be released to you according to the payout option you selected.
The application process is free and takes approximately 4-6 weeks from start to funded completion.
What are the Pros and Cons of Reverse Mortgages?
| Pros | Cons |
| – Provide tax-free access to home equity without having to move – No required monthly repayments Funds don’t impact government benefits – Use equity for living expenses, healthcare costs, or home improvements – Age in place by unlocking your home equity | – Interest rates are higher than traditional mortgages or HELOCs – Upfront closing costs and fees – Ongoing mortgage insurance premiums – Prepayment penalties may apply – Risk of overspending your equity too quickly |
Reverse mortgages offer unique benefits but come with risks to consider. Speaking with an independent mortgage broker can help you weigh the pros and cons.
Read More: Reverse Mortgage Horror Stories in Canada
Calculating Your Reverse Mortgage Loan Amount
Your eligible loan amount depends primarily on your age, home value, and the lending limits your lender sets. The maximum loan amount is based on a percentage of your home equity. Typically, lenders will lend:
- Up to 55% of your home’s value if you are younger than 65
- Up to 60% for those aged 65-79
- Up to 55% for those aged 80+
The formula to determine your available equity:
Home Value – Mortgage Debt = Available Equity
For example:
$500,000 home value – $100,000 mortgage balance
= $400,000 in available equity
If you were 68, up to 60% of $400,000 could be advanced, equaling $240,000 in available funds.
Higher home values let homeowners qualify for larger loan amounts. The older you are, the higher the percentage you can access, up to a limit.
Costs of a Reverse Mortgage
When taking out a reverse mortgage, homeowners incur interest charges like other mortgages:
- Interest rates: Range from 6-8% fixed to variable rates over 10%. Rates are generally higher than traditional mortgages.
- Closing costs: Application fees, appraisal fees, and other closing costs typically range from $1,500 to $5,000. Some fees may be financed into your mortgage.
- Prepayment penalties: Paying off your mortgage early comes with penalties, often equivalent to several months’ interest. This
- covers the lender’s lost revenue.
- Servicing fees: Ongoing administrative fees include mortgage insurance premiums and servicing fees, around 1.5% – 2% of your outstanding loan balance per year.
While reverse mortgage rates may seem high compared to regular mortgages, the cost may be worthwhile if the funds provide financial security and improved retirement living.
How to Receive Your Reverse Mortgage Funds?
When your reverse mortgage closes, you can receive the approved loan amount in two main ways:
Lump Sum Payment
You receive the entire approved loan amount in one initial lump sum payment. The full principal is then used to calculate interest charges.
Installments
You receive a portion upfront; then, the rest is distributed over time through scheduled installments. This spreads out your available funds and moderates ongoing interest growth.
Many lenders initially require a minimum upfront draw – at least $25,000. The remainder can be taken through pre-set installments or requested ad hoc payments.
Some other options for receiving funds include:
- Line of credit: Access funds as needed through a standby line of credit. Interest accumulates as you draw funds.
- Credit card: The Bloom Home Equity Prepaid Mastercard allows borrowers to access small amounts each month.
- Shared appreciation: Fraction Mortgage lets you sell a share of your home’s equity for cash upfront.
How you receive the funds depends on your spending needs and plans for the money. Your independent reverse mortgage specialist can help you select the best payout option.
Repay a Reverse Mortgage Loan
A significant benefit of a reverse mortgage is that there are no required monthly repayments. The loan only becomes due under certain triggering events:
- Sale of the home: The mortgage must be repaid from the sale proceeds when the home is sold. This is the most common repayment event.
- Moving out: If the borrower permanently moves out, the loan becomes due within 6-12 months.
- Last borrower passes away: The loan must be repaid when the last borrower dies, typically within 6-12 months. The borrower’s estate is responsible for repayment.
- Default: Failing to pay property taxes or insurance premiums or not maintaining the home may trigger mandatory repayment.
Most reverse mortgages have a non-recourse clause, meaning your repayment obligations cannot exceed the net sale value of your home, even if equity is completely depleted. This helps prevent situations where the mortgage exceeds the property’s value.
Alternatives to Reverse Mortgages in Canada
Before committing to a reverse mortgage, it helps to understand other options for accessing home equity:
Sell Your Home and Downsize
Selling your current home allows you to access 100% of your equity. If you downsize to a condo or smaller property, you pocket the difference while reducing expenses. However, moving can be challenging, and you lose your current home.
Home Equity Line of Credit (HELOC)
HELOCs let you borrow against your equity via a revolving line of credit. Interest rates are lower than reverse mortgages. However, you must be able to qualify and afford interest-only payments.
Sell Shares of Your Home Equity
New options like Fractional Mortgages let you sell a portion of your home’s equity up to 50% in exchange for a lump sum payment. You retain half ownership and split future appreciation.
Rent Out a Room
Bringing in rental income from extra rooms like a basement apartment can provide cash flow. However, becoming an at-home landlord has risks that not all seniors may be willing to take on.
Avoiding Reverse Mortgage Scams
Unfortunately, reverse mortgages are a target for predatory lending and scams due to their complexity and the advanced age of borrowers. Here are tips for avoiding fraud and unethical sales tactics:
- Be wary of unsolicited offers coming to your door or inbox. Scammers use high-pressure tactics to offer “free money.”
- Interview multiple licensed mortgage brokers and compare quotes. Avoid brokers insisting you only work with them.
- Research any company or person you’re working with. Look online for reviews and complaints.
- Ensure the broker charges normal, reasonable fees published on lender websites. Watch for excessive or made-up fees.
- Read all agreements carefully before signing. Consult an independent lawyer to help explain the terms and obligations.
- Never provide personal information like SINs and bank details unless necessary. Stay away from phishing attempts.
- Work only with reputable reverse mortgage lenders such as HomeEquity Bank and Equitable Bank.
Being an educated borrower is your best defence against predatory reverse mortgage lending.
Questions to Ask Before Getting a Reverse Mortgage
Thinking about applying for a reverse mortgage loan? Here are some questions you should have answered before moving forward:
- How much equity can I safely access while retaining a financial cushion?
- What happens if housing prices drop – Could I owe more than my home’s worth?
- What upfront and ongoing fees will I be required to pay?
- How will taking out a reverse mortgage affect my other borrowing options?
- How flexible is the loan in allowing me to access funds as needed?
- Are there any restrictions on how I can use the reverse mortgage funds?
- What are my repayment obligations if I need to move to assisted living?
- What happens to my spouse if I pass away before the loan is repaid?
- How much equity will be left in my home for heirs once the loan is repaid?
- Are there ways to minimize interest growth to preserve more equity?
Don’t be afraid to ask your advisor as many questions as you need. A reputable broker will ensure you fully understand how a reverse mortgage works and what it means for your financial situation.
Are Reverse Mortgages Right for You?
Reverse mortgages let Canadian homeowners convert their home equity into tax-free funds without selling or vacating the property. However, higher interest rates make accessing equity expensive in the long run.
A reverse mortgage may make sense if:
- You have limited income but significant untapped home equity
- You wish to stay living in your current home during retirement
- Covering healthcare and living costs is a concern
- You lack other assets to supplement retirement income
However, a reverse mortgage may be less beneficial if:
- You expect to move within 5-10 years
- Want to preserve equity to leave an inheritance
- Are you open to downsizing or relocating
- Can qualify for lower-cost loans like a HELOC
Get a Customized Reverse Mortgage!
Determining if a reverse mortgage is right requires examining your unique financial situation. An experienced mortgage broker can review your options and help you make the most appropriate decision.
Speak to our mortgage brokers at Best Mortgage Online today to review your situation and see if a reverse mortgage may help provide retirement security and income. With proper research and advice, a reverse mortgage can be a valuable part of your retirement strategy.
FAQs on Reverse Mortgages
What are the different types of reverse mortgages?
The main types of reverse mortgages relate to the interest rate. You can choose either a fixed-rate reverse mortgage or an adjustable variable-rate reverse mortgage. Some also offer options like lines of credit.
Who are the best reverse mortgage lenders in Canada?
Home Equity Bank and Equitable Bank are the top reverse mortgage lenders in Canada. Both offer competitive products and good reputations.
Can I get a lump sum with a reverse mortgage?
Yes, most reverse mortgages allow you to receive some or all of the approved funds as a tax-free lump sum payment. You can also opt for scheduled installments.
How much does a reverse mortgage cost?
Reverse mortgages have upfront costs of $1,500 - $5,000 for appraisals and legal fees. Interest rates range from 6% to 10%, depending on the product and terms. Ongoing insurance premiums also apply.
What is the average payout on a reverse mortgage?
The average payout depends on your equity, but most borrowers qualify for $150,000 - $300,000. Payouts can range from a few thousand to over $1 million.
What is the average payout on a reverse mortgage?
The average payout depends on your equity, but most borrowers qualify for $150,000 - $300,000. Payouts can range from a few thousand to over $1 million.
Can I lose my house with a reverse mortgage?
You retain full ownership of your home. As long as you maintain the home and pay taxes/insurance, you cannot lose your house due to the reverse mortgage.
Can I lose my house with a reverse mortgage?
You retain full ownership of your home. As long as you maintain the home and pay taxes/insurance, you cannot lose your house due to the reverse mortgage.
Do banks offer reverse mortgages?
Major banks do not offer their reverse mortgage products. However, they may offer branded versions of reverse mortgages from HomeEquity Bank.
How does a reverse mortgage affect government pensions?
Reverse mortgage funds do not impact your eligibility for Old Age Security (OAS) or Canada Pension Plan (CPP) retirement benefits. The funds are not considered income.
Can I get a reverse mortgage for a vacation home?
Reverse mortgages require the home to be your primary residence where you live at least 6 months per year. Vacation properties generally do not qualify.
What happens when the borrower of a reverse mortgage dies?
When the last surviving borrower dies, the reverse mortgage becomes due. The estate of the deceased borrower must repay it using the sale proceeds of the home.
How do I know if a reverse mortgage is right for me?
Speaking with a qualified mortgage broker is the best way to determine if a reverse mortgage suits your specific financial needs and retirement situation.