Reverse Mortgages in Canada: The Pros and Cons
If you’re 55 or older and own your home, chances are you’ve heard about reverse mortgages.
- Sometimes they’re described as a “retirement lifesaver.”
- Other times they sound risky or confusing.
The truth? They’re neither magical nor terrible. They’re simply a financial tool — and like any tool, they work well in some situations and not so well in others – EDUCATION is the key!
Let’s break it down in plain English.
So… What Is a Reverse Mortgage?
A reverse mortgage allows you to borrow money against the value of your home — without making monthly mortgage payments.
Instead of you paying the lender every month, the interest gets added to the balance. The loan is typically repaid when:
- The home is sold
- You move out permanently
- Or you pass away
In Canada, reverse mortgages are currently offered by:
- HomeEquity Bank (CHIP Reverse Mortgage)
- Equitable Bank
- Bloom Financial
You still own your home and your name stays on title. That part often surprises people.
How It Works (Simple Version)
To qualify:
- You must be 55 or older
- You must own your home (you can still have a regular mortgage — it just needs to be paid out)
- You can usually borrow up to about 55% of your home’s value (the older you are, the more you may qualify for)
You don’t make monthly payments.
But you must continue to:
- Pay property taxes
- Keep home insurance in place
- Maintain the home
The money you receive is tax-free. It can come as:
- A lump sum
- Monthly advances
- Or a combination of both
That flexibility is one reason many retirees like this option.
Why Do People Consider Reverse Mortgages?
Most of the homeowners I speak with aren’t looking for luxury spending money.
They’re trying to solve real life situations:
- Covering rising living costs
- Paying off debt before retirement
- Managing health or care expenses
- Staying in their home longer
- Helping adult children with a down payment
For many Canadians, their house is their largest asset — but it doesn’t create monthly income. A reverse mortgage turns some of that home equity into usable cash.
The Pros (The Reasons People Like Them)
1. No Monthly Mortgage Payments
This is the big one. If you’re living on CPP and OAS, removing a monthly mortgage payment can dramatically reduce stress. Cash flow improves immediately.
2. You Can Stay in Your Home
Most people I meet don’t want to move. They love their neighborhood. Their friends are nearby. Family visits often. A reverse mortgage can allow you to age in place instead of selling before you’re ready.
3. The Money Is Tax-Free
Because it’s borrowed money — not income — it does not affect:
- Old Age Security (OAS)
- Guaranteed Income Supplement (GIS)
That’s a major advantage compared to withdrawing from investments.
There are no rules about spending.
- Some clients use the funds to stay in place – health care at home.
- Some clients renovate.
- Some travel.
- Some gift funds to children.
- Some simply create a safety cushion.
It’s your equity – you decide.
5. You Keep Ownership
The bank does not own your home.
As long as you live in your home, maintain it, insure it, and pay property taxes — you own your home and can stay.
6. No Negative Equity Guarantee
In Canada, reverse mortgages include protection so that you (or your estate) will never owe more than the home is worth — even if property values decline.
That protection matters.
The Cons (And Yes, There Are Some)
Reverse mortgages are not cheap money.
1. Higher Interest Rates
Rates are typically higher than traditional mortgages.
Why? Because the lender may wait many years to be repaid and there are no monthly payments coming in. Over time, that interest compounds.
2. The Loan Balance Grows
Since you’re not making payments:
- Interest is added to the balance
- The amount owed increases each year
That means your remaining home equity decreases over time.
If leaving a debt-free home to children is extremely important to you, this needs careful discussion.
3. Setup Costs
There can be:
- Appraisal fees
- Legal fees
- Administrative costs
Often these are rolled into the mortgage, but they still reduce equity.
4. It’s Meant to Be Long-Term
Reverse mortgages work best when you plan to stay in the home for many years.
If you sell shortly after setting one up, the costs and interest may not make sense.
5. You Still Have Responsibilities
You must:
- Maintain the property
- Pay property taxes
- Keep insurance active
If those obligations aren’t met, the lender can require repayment.
Let’s Clear Up a Few Myths
- “The bank will own my house.”
- No. You remain on title.
- “My kids will inherit the debt.”
- No. The loan is repaid from the home’s value — not from your children personally.
- “I could be forced out.”
- Not if you follow the terms of the agreement.
Who Might A Reverse Mortgage Make Sense For?
A reverse mortgage can be a smart solution if:
- You own your home
- You plan to stay in your home long term
- You need additional retirement cash flow
- You don’t qualify for traditional refinancing
- You understand the long-term cost
It may not be ideal if:
- You have cheaper borrowing options available
- You plan to move in a few years
- Leaving maximum equity to heirs is your top priority
My Professional Opinion
I don’t see reverse mortgages as “good” or “bad.”
I see them as strategic. In the right situation, they can:
- Reduce stress
- Improve retirement lifestyle
- Provide breathing room
In the wrong situation, they can erode your homes equity faster than expected.
That’s why education matters. It’s also why I always encourage:
- A family conversation
- A long-term cost review
- A full comparison against other options
A reverse mortgage should never be a last-minute decision made under pressure.
Kelly’s Final Thoughts
Your home is more than an investment. It’s security, comfort, and often decades of memories.
If you’re considering accessing that equity, let’s make sure the plan fits your long-term goals — not just today’s cash flow.
If you’d like to talk through your personal scenario, I’m happy to help.
Warmly,
Kelly Hudson
Mortgage Broker & Reverse Mortgage Specialist
604-312-5009
Kelly@KellyHudsonMortgages.com
www.KellyHudsonMortgages.com
