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We are increasingly seeing homeowners over the age of 55 who have nearly paid off the mortgage on their property, yet have not managed to save enough for a comfortable retirement. Selling their homes today is not always the best solution, especially given the changes in the real estate market and the rapidly rising cost of rent.

In addition, more than nine out of ten Canadians want to spend their retirement years in the comfort of their own home, and for many of them, a reverse mortgage is becoming an increasingly practical solution.

This product can help homeowners preserve their familiar lifestyle and, without making major changes, continue building equity if real estate prices grow sufficiently. At today’s interest rates, the minimum required price growth would be approximately 3–4% per year. At the same time, no regular payments are required. With a traditional mortgage, you must make payments while gradually building equity in your home as the principal is reduced. A reverse mortgage works differently: it allows you to access money from the value of your home without making payments during the term of the loan, or, if you prefer, by making interest-only payments.

According to a new survey, nearly 95% of Canadians over the age of 44 said that the ability to age in their own home would allow them to maintain independence, comfort, and dignity.

These results have changed very little since 2020, when a similar survey by the National Institute on Ageing found that nine out of ten Canadians planned to support themselves for as long as possible in order to live safely and independently in their own homes.

Older Canadians who want to remain at home should not have to choose between paying for food and housing or receiving the personal care support they need, the report states.

It is therefore no surprise that many older homeowners are increasingly turning to reverse mortgages, which allow them to access tax-free equity from their homes to support themselves in retirement.

Once homeowners reach the minimum qualifying age of 55, arranging a reverse mortgage becomes relatively straightforward. This product allows homeowners to access the equity they have built in their property either as a tax-free lump-sum payment or in the form of monthly payments.

Reverse mortgages are structured so that borrowers can never owe more than the value of their home. The debt is usually repaid when the property is sold, when the homeowner moves into a retirement residence, or when the heirs sell the property after the owner’s passing.

A real-life example: Natalia and Pavel, whose names have been changed, were both 65 years old and deeply concerned about their debt. Their registered retirement savings plans (RRSPs) were quite modest, and although their home had increased significantly in value over the past few years, they still had to keep making mortgage payments. On top of that, a couple of years earlier Pavel had borrowed money to buy a car, and during the recent period of low interest rates, Natalia and Pavel had used their line of credit to pay for their younger daughter’s university education. Since then, interest rates had risen sharply, and the family’s financial stress had increased. To make ends meet, Pavel decided to continue working until they had fully paid off their mortgage, car loan, and line of credit. The only problem was that this could take years — the very years Natalia had hoped to spend in retirement with her husband.

We advised this couple to approach their debt differently — by using a reverse mortgage.

A reverse mortgage allows homeowners aged 55 and older to convert up to 50% — and in some cases slightly more — of their home equity into tax-free cash. With this type of mortgage, there are no mandatory payments until they decide to sell the property or move out.

This was exactly the kind of solution Natalia and Pavel were looking for. And although a reverse mortgage also carries interest, its main advantage is the absence of mandatory monthly payments. Based on approximate calculations using today’s rates and expected growth in the value of their home, by the time they decide to sell it, their remaining equity should be at least 50%. In this case, both their present and their future are now securely protected.

Reverse mortgages have existed in Canada since 1986, yet there are still many myths and misunderstandings surrounding this product.

Today, we would like to answer some of the most frequently asked questions about reverse mortgages.

Will my debt ever exceed the value of my home?

You keep all the equity that remains in your home. Many years of experience show that more than 99% of homeowners have money left over after the loan is repaid. The amount of equity remaining after the sale depends on the size of your loan, the value of your home, and the length of time that has passed since you arranged the reverse mortgage.

Will the bank become the owner of my home?

As with a regular mortgage, you remain the owner of your home. You will need to keep your account in good standing by paying your property taxes on time, maintaining home insurance, and keeping the property in good condition.

Can I qualify for a reverse mortgage if I do not have regular income or have a poor credit history?

Information such as credit history or proof of income is not required to qualify for a reverse mortgage. The amount of money you can receive depends on your age, the age of your spouse, the location and type of your home, and the current appraised value of the property.

Is a reverse mortgage a desperate solution or a last resort?

Some retirees do use this product to pay off other debts. At the same time, a reverse mortgage can be a very flexible financial tool. It is also used to increase monthly income, pay for home care, cover unexpected expenses, reduce taxes and assist with tax planning, purchase vacation or investment property, or help children, grandchildren, and other family members with a down payment on their own property or other projects.

Are there costs involved in arranging a reverse mortgage?

There is a one-time cost to arrange a reverse mortgage, which includes the property appraisal, independent legal advice, administrative expenses, title insurance, and registration. All of these costs, except for the appraisal, are paid from the funds being advanced.

What if I cannot afford regular payments?

As long as you live in the home, you do not have to make any monthly payments. The debt must be repaid only if you move out or sell the property.

What if I already have a mortgage?

Many of our clients use a reverse mortgage to pay off their existing mortgage or other debts in order to eliminate monthly payments.

In addition to all the advantages described above, a truly unusual situation has developed around reverse mortgages today — one we have not seen in 22 years of arranging mortgages in Canada. Many homeowners have already felt the full weight of sharply rising interest rates. The best offers on fixed-rate mortgages have already moved above 5%, the Prime rate stands at 6.95% as of the time of writing on June 30, and for many borrowers, rates on existing variable-rate mortgages have exceeded 6%.

Unexpectedly, this has made reverse mortgage rates very attractive. Historically, interest rates on this product were significantly higher than those on a standard mortgage. Today, however, they start from 6.89%. This means you now have the opportunity not only to eliminate regular mortgage payments permanently, but to do so at a rate very close to a standard bank mortgage rate.

A reverse mortgage is an excellent tool for a specific category of Canadian homeowners. However, because of the nature of this product and the age of the borrowers, it requires a very careful approach and additional legal advice. We have been working directly for many years with banks that provide reverse mortgages in Canada, and we are ready to help you arrange this mortgage product with the involvement of all the necessary professionals.