What Is a Reverse Mortgage?
What Is a Reverse Mortgage? Everything You Need to Know
For many Ontarians approaching or enjoying retirement, a reverse mortgage can be a useful financial tool to access the equity in their home—without having to sell or move. But what exactly is a reverse mortgage, and how does it work in Ontario?
In this blog post, we’ll break down the basics of reverse mortgages, the eligibility criteria, benefits and drawbacks, and what homeowners should consider before applying.
What Is a Reverse Mortgage?
A reverse mortgage is a special loan for Canadian homeowners aged 55 and older. It lets them borrow money using the equity in their home. They do not have to make monthly mortgage payments.
In a reverse mortgage, the lender pays you instead of you paying them. You can receive this money as a lump sum, monthly payments, or both. You don’t repay the loan until you sell your home, move out, or pass away.
In Ontario, the two main providers of reverse mortgages are:
- HomeEquity Bank (offering the CHIP Reverse Mortgage)
- Equitable Bank (offering the Flex Reverse Mortgage)
How Does It Work?
Here’s a simple example:
If your home in Ontario is worth $800,000, you might be able to borrow up to 55% of that amount. This depends on your age, location, and the condition of your home. That’s potentially $440,000 in tax-free funds.
You can use the money for any purpose, such as:
- Supplementing retirement income
- Paying off existing debts
- Renovations or home maintenance
- Helping family members financially
- Covering healthcare costs
Importantly, you retain ownership of your home.
Who’s Eligible?
To qualify for a reverse mortgage in Ontario, you must:
- Be at least 55 years old
- Own your primary residence in Canada
- Have a minimum home value (usually around $250,000+)
- Be applying as a single person or with your spouse, who also must be 55+
Pros of a Reverse Mortgage
- No monthly payments required
- Tax-free funds that don’t affect Old Age Security (OAS) or CPP
- Stay in your home and maintain ownership
- Flexible disbursement options (lump sum or scheduled payments)
Cons to Consider
- Interest compounds over time, increasing the total repayment
- May reduce the amount of inheritance for your heirs
- Early repayment fees may apply if you sell your home within a few years
- Not ideal for short-term needs or if you plan to move soon
Should You Get a Reverse Mortgage?
A reverse mortgage can be a powerful financial strategy for the right person—especially those who are “house rich but cash poor.” However, it’s important to weigh the long-term costs, interest accrual, and alternative options such as:
- Home equity lines of credit (HELOC)
- Downsizing
- Selling and renting
- Borrowing from family
Always speak to a mortgage professional or financial advisor to understand if a reverse mortgage suits your goals.
Final Thoughts
If you own a home in Ontario and are 55 or older, a reverse mortgage might help. It can unlock your home’s value to improve your retirement lifestyle. Just make sure you fully inform yourself and seek advice before proceeding.
Have questions about reverse mortgages or want to explore your options? Contact us today—we’re happy to help guide you through it!
