What is a reverse mortgage in Canada?
Just like a conventional / traditional mortgage, a reverse mortgage is a loan, secured by your home, that allows you to access the equity in your home and convert it into tax-free cash.
You have no monthly payments to make and you defer paying back the loan until the time when you no longer occupy the home.
How does a reverse mortgage work?
Your home holds a certain amount of equity, a cash value. A reverse mortgage lends the homeowner money in exchange for a lien on a portion (up to 55%) of the home's equity. You receive cash from the bank either in lump-sum amounts, or according to a schedule of your choice, like a monthly pension, for example.
There are no regular mortgage payments to make as long as you or your spouse live in the home. This is why reverse mortgages are gaining such popularity in Canada, Australia, the United Kingdom, Denmark, the USA, and other highly-developed countries.
Who can get a reverse mortgage?
In Canada you must be a homeowner aged 55 and older. If you have a spouse, then your spouse must be aged at least 55 as well. Lastly, you must live in a Canadian province, not a territory (such as Yukon or Nunavut).
Is a reverse mortgage a loan of last resort?
Absolutely not. Increasingly, reverse mortgages are recommended as an important component of a comprehensive, tax-efficient retirement plan. Financial planners and wealth managers are increasingly recommending reverse mortgages as a way to supplement Canadians' monthly incomes.
Of the few alternatives to reverse mortgages, private mortgages and home equity loans are the real loans of last resort - their fees and interest rates are prohibitive to anybody on a fixed income, and they put the homeowner in danger of foreclosure and eviction.
Reverse mortgages, on the other hand, have fair interest rates, only come from Canada's most highly-regulated banks, and will never require the homeowner to leave the home.
Is a reverse mortgage a "demand loan"?
No. Reverse mortgages are NOT demand loans, which are loans that give the lender the right to "call the loan" (demand payment) at any time, for any reason the lender sees fit. These reasons can be the death of a spouse (which could mean less household income), an anticipated fall or dip in house prices, etc. Reverse mortgages will not be "called" (demanding payment) at any time.
How long does the reverse mortgage last?
It lasts as long as you want. This means that, as long as: (1) the property taxes and insurance are in good standing, (2) the property remains in good condition, and (3) the homeowner lives in the home, then the loan won’t be called under any circumstances, even if the home decreases in value.
If one spouse dies, the other can continue living in the home as long as he or she wishes, as long as these conditions are met.