When Is A Reverse Mortgage Not Right For You?

A reverse mortgage in Canada isn’t always the right option depending on your situation.

There are times when it may be better to take a look at some of the other financial options available to you before choosing to go with a reverse mortgage.

It’s always a good idea to get independent advice about your personal finance options.

Let’s take a look at some of the key factors here and what you might want to think about when making your decision regarding a reverse mortgage and how it will work for your financial goals and situation.

(If you are new to the idea of reverse mortgages in Canada, I suggest you start by downloading our free guidebook at this page)


Financial Goals

1. Your Financial Goals

There may be times when your financial goals are much more short term. Shorter term loans in this case may better fit with what you are looking for. The important thing here is that, should you take a short-term loan out, you have full intention to pay it back quickly, as many short-term loans have high interest rates that can accumulate and become a burden quickly, whereas a reverse mortgage is much more aligned with a longer-term loan as it doesn’t require any payment over the lifetime of the loan until the loan becomes due (when you sell your home or should you pass away).


Retirement Living

2. Your Housing Situation – Where And How
Do You Want To Live In Retirement

Some people, upon retirement, desire a smaller home and intend to live off their pension, savings, as well as the money made from the sale of their original home. If you fit into this category, a reverse mortgage would not be a great fit, as you would be wanting to move and downsize anyways. If you want to live in your home still, however, and don’t want to downsize, then a reverse mortgage is the chance to take advantage of some of the equity that has been built up in your house over the years.



3. Your Level Of Savings And Pension
Available To Carry You Through Retirement

Those who have been lucky enough to save for a long retirement, or are lucky enough to have a decent pension to help supplement income, and don’t like the idea of carrying a loan from their home equity, would be in an ideal position to finance their own retirement. That’s a great position to be in, and it is becoming more and more rare as retirements become longer as we live longer and as pensions shrink. Should you find yourself in a less than ideal situation and don’t desire to go back to work or can’t go back, a reverse mortgage does offer the chance to supplement income and a pension, which is a big reason why we believe reverse mortgages are a great opportunity for seniors who are facing such situations.


Existing Mortgage

4. Any Existing Mortgage And Fees For Closing It Early

There are many mortgage products out there, and some of them are structured in a way that favours the borrower less than others. Some mortgages, for instance, have exorbitantly high fees associated with prematurely closing a mortgage, or paying a mortgage in full. In many cases, retirees still have a mortgage on their home when they wish to obtain a reverse mortgage. This isn’t an issue should your current mortgage be in your favour – that is, you can use part of the proceeds from the reverse mortgage to pay off and close your current mortgage, and keep the remaining funds from the reverse mortgage and do as you please. However, not all mortgages will be worth it to close out early. In some cases, you may be better off to wait until the end of the term of your current mortgage.


Retirement Community

5. Retirement Communities Or Assisted
Living Accommodation Options

This is a tough choice, and is similar to downsizing. Choosing to leave your home and move into a retirement community or assisted living is a large decision, and one that is not made easily. Should you be facing this choice, and you want to leave your home or are considering in the near future, then a reverse mortgage is not going to be the best choice for your financial needs.


Is A Reverse Mortgage A Good Fit For You

These are cases when a reverse mortgage may not be the best fit. There are certainly questions we get, though, about the nature of reverse mortgages and how they fit into a retirement plan that can confuse people, and we want to make sure people understand all they need to know about reverse mortgages before deciding whether they are right for them or not.

We often hear the concern that a reverse mortgage will affect Old Age Security (OAS) or Guaranteed Income Supplement (GIS) – however, a reverse mortgage does not affect these benefits you may be receiving or entitled to in any way.

Another concern we hear that often deters people is that they fear that a reverse mortgage taking out their home equity will make the amount withdrawn become taxed – however, the money you borrow through a reverse mortgage is absolutely tax-free. You can use your home value and turn it into cash without having to sell it, but you also get to receive this money tax-free.

The last concern we will cover here today is that we hear retirees concerned that should the housing market drop or interest rates increase, they may be facing a shortfall. This is never the case though, and should the housing price drop or interest rates go up, you are not responsible for the shortfall.

If you are wondering if your plans for a reverse mortgage make sense, then make sure and check-out our article on 8 interesting ways to use a reverse mortgage.


Deciding On Reverse Mortgages And How We Can Help

So before you make your decision about whether to get a reverse mortgage or not, consider the above-mentioned cases and if you fit into any of them. You may have more questions about reverse mortgages, or about whether they are a good fit for you – we are always here to help, and offer a free assessment and support where we can answer any questions you may have about your financial situation and reverse mortgages.

Reverse Mortgage Pros is a website run by licensed mortgage brokers from Dominion Lending Centres to help individuals all throughout Canada work out if a reverse mortgage is ideal for them.

Comments 14

  • one question……how does this work if you own your property outright and have no income

    • Hi Renee

      You are not required to have any income to qualify for a reverse mortgage. In your case, you’d be taking a new mortgage out on your property and you can receive the funds as a lump sum if you like.

      Let me know if this makes sense or if you have any other questions.


  • If I wanted to size down It would be ok to do that

    • Hi Elemir

      I’m not sure what you mean. If you were looking to down-size, a reverse mortgage probably isn’t the best option. Unless, you down-sized and then took a reverse mortgage out on the new property.

      Hope this helps.


  • Why RM interest rates are so high ?
    I was told 6.5 % . Seems like highway

    • Hi Rasa

      I suggest you read this article on interest rates, which should help clarify how they compare to other options and why they are set at the levels they are: https://www.reversemortgagepros.ca/rates-and-penalties/

      As noted, reverse mortgage rates are less than credit cards, line of credits and car loans. They are slightly higher than mortgage rates or a Home Equity Line of Credit. The reason why is that with either of these products you need to make monthly payments and you could also lose your home if you don’t. The rate you get is the price you pay to have a product that doesn’t require you make payments and has almost no risk if you losing your home.


  • I did not receive a reply and I attempted to contact your office 2 days ago. Was there an error?
    I gave my home phone but I think it is better to use my cell number as my 95 year old mother lives with me and she is mostly deaf and may hang up not uderstanding why you phoned. Thanks.

  • Can a reverse mortgage be used on a rental property.

    • Hi Marco

      Not as a single property, as reverse mortgages are intended to be used on your principal residence only. The only way would be if you took a reverse mortgage on your principal residence and the rental property together – this is called a blanket mortgage and is the only option that allows you to get a reverse mortgage on a rental property.



    • Hi John

      I’m not sure what you mean by your question – can you clarify?

      With a reverse mortgage there is less risk of losing your home than almost every other mortgage product in Canada – that’s what I mean. The reason is that every other mortgage product requires payments and if you don’t make those payments you lose your home. Since a reverse mortgage doesn’t require payments, it does not have this risk.


  • Enjoying your articles. My problem is cash flow. I’m out of savings for supplementing my monthly income shortfall. My plan is to take out a RM on a 3 year term, complete some much needed renovations and then downsize at the end of the term. Do you see any problem with this rational?

    • Hi Murph

      No, this seems like a good plan. I might consider not doing the renovations if you’re planning on downsizing – unless you think every $ you put in will get you more $ when you sell. So downsize, no renovations then take out a reverse mortgage. I’m actually writing an article about this (it’s intended for people who don’t qualify for a reverse mortgage) – I can let you know when it’s ready!


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