| ▶ | The bank does not take your house. You stay on title. Your estate never owes more than the home sells for. |
| ▶ | It is expensive money. Nothing is paid, so the interest compounds on itself every month. |
| ▶ | It is the fourth door, not the first: refinance, line of credit, your renewal - then this. |
| ▶ | Bring your kids to the table before you sign. Every one of these files goes better that way. |
I am going to be honest with you. A reverse mortgage is the most misunderstood product I deal with, and it is both better and worse than what people have heard.
Most of what circulates at the coffee shop is wrong. The bank does not take your house. You do not get evicted at 80. Your kids do not inherit a bill.
What is true is that it is expensive money, and it is the right answer for a narrower group of people than the television ads suggest. So let us go through it properly.
What a reverse mortgage actually is
It is a mortgage against your home that requires no regular payments. Interest accrues and gets paid when the home is eventually sold or the estate settles. You stay on title. It is your house.
The rules, from the lender side:
- You must be at least 55, and so must every co-owner on title.
- Maximum available is up to 55 percent of the home value, depending on your age, the property, and the location. Older borrower, larger percentage.
- The home must be your primary residence, lived in at least six months of the year.
- The funds come to you tax free. They are a loan, not income, so they do not affect OAS or GIS.
- Income and credit score are not the qualifying test the way they are on a regular mortgage.
- An existing mortgage does not disqualify you, but it has to be paid out from the proceeds.
The part the ads skip
Interest compounds. No payment goes out the door, so the balance grows every single month, and it grows on the interest already added. Over fifteen years that compounding does serious work on your equity.
Reverse mortgage rates also run meaningfully higher than a conventional mortgage from the same era. You are paying for the no payment feature, and it is not free.
The estate conversation. Canadian reverse mortgages carry a no negative equity guarantee, so as long as the terms are met your estate never owes more than the home sells for. But your heirs may inherit a much smaller share of the house than they expect. Have that conversation with your family before you sign, not after. Every reverse mortgage file I have ever done went better when the adult kids were in the room.
Three cheaper doors to try first
Here is what most people miss. A reverse mortgage should be the fourth option you look at, not the first.
One, refinance the regular way. If you have income that services debt, a standard mortgage or a refinance at your renewal is far cheaper money. Plenty of 60 and 65 year olds qualify perfectly well. Pension, CPP, OAS and investment income all count.
Two, a home equity line of credit. Interest only payments, draw what you need, pay it back when you want. It requires qualifying, but if you do qualify it usually beats a reverse mortgage on cost. Worth comparing the two on the HELOC versus refinance page.
Three, the renewal you already have coming. If there is still a mortgage on the house, your renewal date is the one moment you can restructure without a prepayment penalty. Pull the equity you need then, at ordinary mortgage pricing, and skip the reverse mortgage entirely. A lot of people burn that window without knowing it existed.
So when does it fit
It fits when the cash flow is not there to service a payment, the equity is, and moving is not on the table. That is the honest profile.
The couple in their late seventies, mortgage free, house worth $700,000, living on pension income that covers groceries but not the new furnace and the trip to see the grandkids. Selling means leaving the community they have been in for forty years. For them, unlocking some equity with no payment is a reasonable trade, made with eyes open.
It does not fit when the real problem is short-term cash flow that regular refinancing would solve, when the kids are counting on the house and nobody has told them, or when someone is being pushed into it.
The move this month
If you are 55 or over and thinking about your equity, do this before anything else. Write down what you need the money for and how long you need it to last.
Then call me and we will work through the ordinary options first. If a reverse mortgage still looks like the best fit after that, at least you will know why, and so will your family. Background reading is on the Alberta reverse mortgage guide.
No pressure, and no rush
This is a decision that deserves a couple of conversations, not one. Bring your spouse. Bring your kids if you want them there. I will lay out every option, including the ones that pay me nothing.
Call or text 403-703-6847Shawn Selanders, Mortgage Broker with Mortgage Architects, serving High River, Okotoks, Calgary, Foothills County and Southern Alberta since 1999, with access to 30+ lenders. This article is general information, not financial, tax or legal advice. Speak with your own advisor about how a reverse mortgage would affect your estate and your taxes. Product terms and eligibility vary by lender and change without notice. All lending O.A.C. E.&O.E. Source: HomeEquity Bank CHIP reverse mortgage eligibility criteria, chip.ca.