Like many folks, there is no doubt that you probably have questions about reverse mortgages.
They are a fairly complicated and difficult to understand mortgage product.
In this article I’ll walk you through some of the most frequently asked questions that I get about reverse mortgages in Canada.
I’ll go through the 5 most common questions followed by some of the shorter and simpler questions I often get.
You can read the article below or watch it in video form in this video:
Will the lender take my house?
No, the lender will never be able to or entitled to take your home in Canada.
You’re legally protected against this happening.
Ironically, a reverse mortgage is safer than a regular mortgage – where the lender could force you to sell your home if you don’t keep up payments.
This is called a foreclosure – they still don’t really own the home, even then – with a regular mortgage – the lender never takes or owns your home, it is simply used as collateral for the loan and sold to recover the loan value.
Can I get a reverse mortgage if I have an existing mortgage?
Yes, you can still get a reverse mortgage if you have an existing mortgage (or home equity line of credit).
Any balance on all mortgages (whether a traditional mortgage, second mortgage, private mortgage or home equity line of credit) need to be paid off using the funds first though.
A simple example:
- You qualify for a reverse mortgage of $250,000.
- You have a $100,000 mortgage.
- The $100,000 mortgage would be paid off using the reverse mortgage funds
- The remaining $150,000 in reverse mortgage funds would be yours to use as you see fit
Can I use a reverse mortgage for a purchase? If so, can I get a pre-approval?
Yes, you can still use a reverse mortgage for a purchase. You would need to have the remaining amount as a down-payment though.
For example, if you qualify for 35% of a home’s value for a reverse mortgage you’d need a 65% down-payment.
You can’t get a pre-approval because the location and home are so important and dictate the percentage you qualify for.
With a regular pre-approval, the amount you can borrow is largely based on your income and credit score.
But with a reverse mortgage, the amount you can borrow is based more on your age, the property and location.
Since the property and location aren’t known until you buy them, you can’t get a pre-approval for this.
However, you can get a rough quote (based on your ages, the town/city and home type you’re looking to buy) and use this to help inform your home buying. Let me know if you’re interested in this – simply email me at email@example.com.
What are the alternatives to a reverse mortgage?
The most common alternatives are the other methods of getting money out of your home, while continuing to live in it:
- A traditional mortgage – you’d need to qualify based on your income and credit score. You’d also need to make payments or you risk losing your home.
- A Home Equity Line of Credit – you’d also need to qualify based on your income and credit score. And – again – you need to keep making payments or risk losing your home.
- Second mortgages or private mortgages – often rates, fees and costs will be higher and you still need to qualify.
There are other alternatives that don’t rely on you borrowing against your home – such as a personal line of credit, traditional loans and so on. But these tend to have much higher rates, since there is no collateral involved to secure the loan.
I wrote an article which goes into detail on the alternatives to a reverse mortgage.
Can I make payments or pay the interest every month?
Yes, you can make voluntary payments towards a reverse mortgage – like almost every mortgage.
The amount you pay is the same as making a ‘pre payment’ with a regular mortgage – it is capped by the lender though.
Most of the lenders will let you make voluntary payments towards (at least) paying the interest down.
The good thing is that these payments are voluntary – unlike a regular mortgage where you have to make these or risk losing your home.
What if my wife / spouse is under 55?
You would not qualify for a reverse mortgage (except with one lender) – it doesn’t matter if they’re not on title due to family law in Canada.
Family law in Canada means you cannot enter into a new mortgage or sell your home, even if your wife is not on title.
What about vacation homes?
Reverse mortgages must be for your principal residence only. You don’t have to live there all the time (e.g. snow birds).
So, for example, you could live outside of Canada for 6 months. That’s completely fine as the home is still your principal residence in Canada.
One lender will ‘blanket’ reverse mortgages with multiple properties together. This is where they take a cottage or vacation home or any second property and group it together with your principal residence and put a reverse mortgage on them all combined. Let me know if you’re interested in this at firstname.lastname@example.org.
Do the lenders in Canada lend on properties in the USA?
No, you’d have to go to a US based lender.
Can I get more than 1 reverse mortgage?
No, you can only have 1.
You can refinance it (move to a different lender) though. Or take out additional money – if your ages have gone up and the home has increased in value too.
How does a reverse mortgage impact taxes / benefits?
There is almost no impact on taxes and benefits.
This article and video goes through almost all the taxes and Government benefits in Canada to explain the impact on each:
Taxes, Government Benefits & Reverse Mortgages In Canada
What about the rates and costs of a reverse mortgage?
It’s definitely important to look at the rates and costs of a reverse mortgage when making your decision.
The latest costs are kept up to date here:
Reverse Mortgage Costs And Fees
And the latest rates – as well as penalties that are applicable to reverse mortgages – are kept up to date here:
Reverse Mortgage Rates And Penalties
In Summary – Frequently Asked Questions About Reverse Mortgages
Having questions about reverse mortgages is very common – they are a very different product to other options out there.
Be careful of other information you can find online – there is a lot of inaccurate information about reverse mortgages.
Make sure you’re educated and know the real facts – one good resource is to check out my free guide to reverse mortgages at ReverseMortgagePros.ca.
Get A Free Reverse Mortgage Assessment In 90 Seconds
If you’re interested in seeing if a reverse mortgage is right for you, exploring your options or simply looking for the best deal on a reverse mortgage, I’ll give you a free assessment and advise you if this is a good solution for you, or if something better works.
I’ll also recommend the lender who can give you the best deal in terms of costs and rate.
All it takes is 90 seconds – again, it’s completely free – simply go to:
A Canadian Chartered Accountant and licensed Mortgage Professional – creator of Reverse Mortgage Pros – the #1 reverse mortgage specialists in Canada. I make it my mission to educate Canadians about how reverse mortgages work so that you can make an informed and educated decision that’s right for you and your family.