A reverse mortgage lets you borrow against your home without selling it and without making regular payments. It can free up money in retirement, but the amount you owe grows every year. The facts below come from the Financial Consumer Agency of Canada (FCAC).
Who can get one and how much
Reverse mortgages are usually for homeowners aged 55 or older. You can usually borrow up to 55% of your home’s current value. The most you can get depends on the age of the borrowers on title, the home’s condition, type and appraised value, and the lender.
How you receive the money
You may take the money as a lump sum, or part up front with the rest later, or as regular payments. If you take part of it, a lender may require a minimum up front, typically around $25,000. Later draws may carry a fee and may change the rate on the whole balance. With regular payments, the FCAC gives a typical first amount of around $20,000, then $1,000 a month or $3,000 every three months.
How the balance grows
You make no regular payments, so your lender adds the interest to what you owe. The rate is usually higher than on a regular mortgage or a home equity line of credit. As the interest adds up, the equity you hold in your home may go down, and there may be less to leave to your children. Use the reverse mortgage calculator to see how this plays out with the rate you are quoted.
When it has to be repaid
The balance comes due when you sell the home, move out or default, or when the last borrower dies. Your estate usually has a limited time to repay it, and lenders set their own timing and consequences, so ask for this in writing. You can usually repay in full at any time, but paying early may cost a fee.
Fees to ask about
The FCAC lists home appraisal fees, set-up fees, legal fees, closing costs and prepayment penalties. They vary by lender. Your lender may add them to the balance, or you may have to pay some up front.
Benefits and legal advice
The FCAC says money from a reverse mortgage does not affect Old Age Security or the Guaranteed Income Supplement. In some provinces and territories, your lender may require independent legal advice. Elsewhere you may still want it.
Alternatives to compare
The FCAC names selling and buying a smaller home, renting an apartment, or moving to assisted living or other housing. You could also look at a home equity line of credit, a mortgage or a personal loan. The HELOC calculator shows what a line of credit could offer, and the HELOC guide explains the risks, and the mortgage relief guide covers what to do if you are struggling with a current mortgage.
Try the reverse mortgage calculator →
Official source
This guide explains general rules. Confirm your figures with your lender, lawyer, or the official source before you act.