Reverse Mortgage

How it works

You borrow against your home and make no regular payments. Interest accrues and is added to the balance, which is repaid when the last borrower sells, moves out permanently or passes away. Until then, nothing is due.

How much you can access depends mostly on age, property value and location. Older borrowers qualify for a higher percentage, because the expected term is shorter. Both spouses on title must meet the minimum age.

You remain the owner. You keep title, you make the decisions about the property, and you are responsible for property taxes, insurance and keeping the home in reasonable repair.

The honest trade-offs

Rates on reverse mortgages are higher than on conventional mortgages, and because nothing is paid monthly, the balance compounds. Over fifteen years that compounding can consume a large share of the home's equity, which directly reduces what an estate passes on.

Canadian reverse mortgages carry a no-negative-equity guarantee: provided obligations are met, the amount owed on the due date will not exceed the fair market value of the home. Your estate is not pursued for a shortfall.

When it is the right tool

It fits a homeowner who is equity rich and income poor, who wants to stay in the home, and who cannot qualify for a conventional mortgage or HELOC on pension income alone. It also fits someone who needs to eliminate a mortgage payment that is straining a fixed income.

It is the wrong tool if you plan to move within a few years, if a conventional mortgage or HELOC would qualify at a far lower cost, or if preserving the full estate is the priority. A family conversation before signing tends to prevent a difficult one later.

• Compare against a HELOC or a conventional mortgage first
• Consider downsizing as the alternative
• Involve adult children early if the estate matters to them
• Get independent legal advice — most lenders require it

Taking the money and paying it back

Funds can be taken as a lump sum, as scheduled advances that act like an income top-up, or as a combination. Scheduled advances usually cost less overall, because interest only starts on each amount when it is drawn.

Most reverse mortgages allow annual prepayments, so you can pay down interest if your circumstances improve. Repaying the whole balance early may attract a penalty, and the schedule varies by lender and term.