What is a reverse mortgage?
A reverse mortgage is a loan secured against the value of your home, designed exclusively for homeowners aged 55 and older. It lets you convert up to 59% of your home's value into tax-free cash. Repayment is only required when you sell, move, or the sole homeowner passes.
Monthly payments are optional. You can choose to make them or take the no-payment option. This category is growing by over 28% annually in Canada.
The benefits
- Unlock equity from a home that may have appreciated significantly.
- No required monthly payments.
- Improve monthly cash flow without selling.
What people actually use reverse mortgages for
- Increase monthly cash flow in retirement.
- Modify a current home for accessibility or aging-in-place.
- Renovate to prepare a home for sale and increase price.
- “Right-size” to a different home rather than downsizing.
- Purchase a rental or cottage property.
- Pay off existing debt: mortgage, car loan, line of credit.
- Stay in your home until you're truly ready to move.
- Travel, complete a bucket list, support family.
- Provide in-home health care for yourself or a loved one.
- Give a living inheritance: help kids or grandkids buy a home.
Eligibility & qualification
To qualify, you need to:
- Be a Canadian citizen or permanent resident.
- Be 55 or older. If you have a spouse, both of you must be at least 55.
The lender assesses:
- Your age (older = more available).
- Location of your home.
- Type of home (detached, condo, townhouse, etc).
- Appraised value and condition.
- Your existing home equity.
True or false: the common myths
You no longer own your home.
You stop building equity.
If your spouse dies, you have to move.
The money you take out is taxable.
You'll end up owing more than your house is worth.
You need independent legal advice.
You don't pay tax on the money received.
You can't be evicted if you opt out of monthly payments.
No mortgage insurance is required.
You don't have to make any payments on the mortgage.
Fees you should expect
- An appraisal fee.
- Independent legal advice fee (mandatory).
- Lender setup fee.
Bonus fact
25%
Roughly 25% of first-time buyers receive gifted funds for a down payment, often from parents or grandparents using a reverse mortgage to free up equity.
A reverse mortgage isn't right for everyone, but for the right homeowner, it can be transformational. The conversation worth having is whether it's the right fit for your situation. If it isn't, Danny will say so.