Written by a Chartered Accountant - Mich Sneddon, CPA, CA - who won several mortgage awards for helping Canadians with reverse mortgages.
Award Winning Information You Can Trust & Value
I've won dozens of awards for my mortgage advice - including the prestigious Most Trusted Mortgage Agent in Canada award from the Wealth & Finance Awards.
What Is A Reverse Mortgage?
A reverse mortgage is a unique home loan only available to people in Canada aged 55 years and older. It is called this because - unlike other mortgages - it doesn't require regular monthly payments.
The key features are:
You must be 55 years old to qualify.
No monthly mortgage payments are required.
The maximum amount you can borrow is 55% (usually 10% to 55%) of the appraised value of your home.
Interest is charged but added to the amount owed, instead of being paid.
The home must be your principal residence - or primary residence if you have more than one home.
It is specifically for retirees - or those getting closer to retirement - hence the age restriction.
The reverse mortgage proceeds are received as tax free cash and do not impact Government benefits.
There are currently 3 lenders in Canada - HomeEquity Bank (with their CHIP reverse mortgage product), Equitable Bank and Bloom.
How Does A Reverse Mortgage Work? Full Explanation Video With A Real Life Case Study:
If you have 20 to 30 minutes, this video explains reverse mortgages in detail - using a real life case study walking you through the details (using a real life home value and all the associated numbers).
Once you're done, click below the video to get more information emailed to you.
Please note that the above information relates to a reverse mortgage in Canada. For example, the age to qualify for a reverse mortgage in the USA is actually 62. This is why it's important to do your research, as many people get confused between the Canada and U.S. reverse mortgage - the two products are very different.
If you have been reading any information that references the age as 62, or uses terms such as 'HUD', 'HECM', 'FHA', 'home equity conversion mortgage' or 'churning' - then you have been reading information that relates to a reverse mortgage in the U.S.A - none of these terms have anything to do with Canada. See my article on Reverse Mortgages In Canada vs the USA for more information.
You can also see about signing a contract like this on the Government of Canada website or check out the information below to learn more about how it works in Canada.
What About An RBC Reverse Mortgage Or Other Lenders In Canada?
At present, the "Big 5" Canadian banks - RBC, BMO, CIBC, Scotiabank and TD do not offer a reverse mortgage loan.
It is only offered by 3 lenders: HomeEquity Bank - with their CHIP reverse mortgage who are a regulated and Schedule I chartered bank in Canada - as well as Equitable Bank mortgage and the Bloom reverse mortgage.
Manulife and Fraction also have products that can work in a similar way to a reverse mortgage - please contact me if you are interested in learning more about this.
Reverse Mortgage Rates In 2023
Firstly, you should know that the interest rate on a reverse mortgage does tend to be a higher than a traditional mortgage or line of credit - but lower than many other options (such as a private or second mortgage).
Like a regular mortgage, you can also get fixed rates and variable rates (or open / adjustable interest rates) with some lenders.
For more on this and the latest reverse mortgage rates in 2023, check out my reverse mortgage interest rates article. I keep the latest rates in there - as well as explaining how the interest rate can affect your equity.
I was named one of the top Mortgage Professionals in Canada by Canadian Mortgage Professional magazine and I was nominated for a Canadian Mortgage Award - thanks to all the people I have helped discover if a reverse mortgage is right for them.
Some of the reviews from over 22,350 Canadian homeowners I have helped:
"Mich Sneddon gave us an option and everything worked out well for us. We are so thankful for his input... Definitely someone who cares and does his best to help."
Other Frequently Asked Questions (FAQ) From Homeowners Across Canada
Click on the question to reveal the answer.
With a reverse mortgage your home remains yours forever. There are absolutely no exceptions to this. This is the same as with any other mortgage in Canada. In fact, because there are no payments to make, a reverse mortgage is actually safer than a traditional mortgage in this regard (with a traditional mortgage you could lose your home if you don't keep up payments - there are no payments for a reverse mortgage, so this risk is gone).
Even if both homeowners were to pass away, the lender still cannot take your home - it would be passed on to your Estate who would then go through the process of settling the reverse mortgage balance with the lender. Again - this is the same as any other mortgage in Canada. For more on this, see my article on what happens at the end of a reverse mortgage.
You can still take this out if you have an existing mortgage and/or monthly mortgage payments on your property. It would be the exact same process that you'd go through in taking your mortgage to another lender - they will simply replace your existing loan (essentially moving it to another lender). Like moving any mortggae, an appraisal will be ordered to confirm the home value. You'd then get to keep any excess funds & money available (as tax free cash). Check out this article on the top misconceptions for more like this: the top 8 misconceptions about reverse mortgages in Canada.
A reverse mortgage allows you to move away from having to pay monthly mortgage payments while still gaining access to the equity in your home (in the form of tax free cash - either as a cash lump sum or monthly payments). If you are considering a reverse mortgage, make sure you take a look at my informational pamphlet.
CHIP stands for the 'Canadian Home Income Plan' (so shortened to CHIP as an acronym) - this refers to the reverse mortgage offered by HomeEquity Bank. It is what this was previously called before it was changed to CHIP reverse mortgage. The name was changed to the 'CHIP reverse mortgage ' to more accurately reflect the type of loan this is (it is a mortgage CHIP, after all, and takes into account your equity, since you are accessing the equity in your home). They also changed their name from HomEquity Bank to HomeEquity Bank.
Aside from the CHIP mortgage, there are now 2 other lenders who offer reverse mortgages in Canada - the Bloom reverse mortgage and Equitable Bank reverse mortgage. There may be other lenders considering entering the market as well.
There are 4 key factors in deciding how much you qualify for under a reverse mortgage: (1) The appraised value of your home, (2) Your age, (3) Your home's location and (4) The property type.
You may qualify for a max amount of 55% of your home's appraised value - but it will usually be in the range of 10% to 55% of your home value. In some instances, lenders will even go higher than 55% and up to 60% of your home value. The remaining equity (and any future house price appreciation) remains yours, of course. And remember the cash flow you do receive is as tax free cash.
One thing to note is that the appraised value of your home may be lower than you think your property value is. This is because appraisers tend to be quite conservative and place very little weight to the condition of the home (any upgrades or improvements inside the home). So remember the property value used may be less than you were hoping it to be.
I've tried to cover everything on how reverse mortgages work in the my eBook, including different reverse mortgage lenders, alternatives to long term care (allowing you to live in the home you love with a product that gives you access without having to sell your home) and how it all works with your home value.
You can apply online for a reverse mortgage assessment and get a quote (estimate) of how much you qualify for as a homeowner or homeowners here.
There is a fair bit of flexibility in how you will receive the reverse mortgage proceeds & cash - but it will always be tax free cash.
You can take out a lump sum, get monthly payments or a combination (lump sum plus monthly payments - plus future cash lump sums).
The only thing to be aware of is that interest rates work differently for lump sum payments (which can be fixed or variable interest rate) versus monthly payments (which are almost always a variable interest rate).
You'll find all the advantages and disadvantages of a reverse mortgage - updated for 2023 in detail - right here - pros and cons of reverse mortgages. It outlines everything you need to know.
Reverse mortgages give homeowners the chance to access the money tied up in your home without the risk of losing your home or having to hire a real estate agent and sell your home. They can be a great way to supplement your retirement savings - or even help the kids or grandkids with a down payment on a new home. But it's important to look at the pros and cons.
I believe in this product which allows you to keep your home and improve your finances until the reverse mortgage borrower dies - but want to make sure you have all the facts and answers - things like what happens when the reverse mortgage borrowers pass away, understanding that the reverse mortgage is a loan secured against your home, the comparison to a regular mortgage, and more. Which is why I wrote the article above. Give it a read and let me know of any questions you have!
I am a licensed mortgage agent with Dominion Lending Centres Edge Financial - FSCO License #10710. I'm one of the leading reverse mortgage brokers in Canada. I am also a certified Chartered Accountant. In 2017 I was also named one of the top Mortgage Professionals in Canada (under 35) by Canadian Mortgage Professional magazine largely because of my work on the reverse mortgage product.
My mortgage brokerage is independently owned and operated - this means that you get independent, objective and professional advice on all of your financial needs. I don't work for any bank or lender - you are my client. I personally created this website - Reverse Mortgage Pros - so that it could a hub and provide all the information and advice that anyone would ever need.
I'm also licensed with Dominion Lending Centres - the number one company in Canada for any kind of mortgage loan, not just a reverse mortgage and registered with the Better Business Bureau and you can also see me on TrustPilot.
Just so you have it in black and white: my eBook, my 90 second reverse mortgage assessment and all the advice and recommendations I provide you regarding a reverse mortgage are completely free - you will never pay me a penny ever for any of my reverse mortgage advice.
Most reverse mortgages can be an incredibly useful option to access the value of your home, depending on your situation. While a reverse mortgage is tax free cash, it's important to look at the cost of reverse mortgages - such as legal fees (including independent legal advice), closing costs, and other administrative fees - and weigh them against your other options, including how it works with the reverse mortgage interest rate, and more.
If you are interested in what costs and fees are required to take out a reverse mortgage in 2023, check out my article on costs and fees of a reverse mortgage in Canada. I cover everything in there, including how it works (including whether you want to pay monthly mortgage payments or not) and more.
Since I'm an independent mortgage broker - I don't work for either HomeEquity Bank, Bloom, Fraction or Equitable Bank - I want to make sure that you see all of the options out there, and see what the reverse mortgage allows you to do. I've done my best to lay out all of the factors, including the closing costs, when you have to repay the loan, how it works to access the appraised value of your home, how the fair market value of your home is assessed, and how you qualify. Take a look at my article above to learn more!
Whether you're looking to get some more cash or pay off credit cards this year or next year - you'll find all your options explained in this article.
While it is much easier to get than any other kind of loan, since we're still talking about lending large amounts of money, this does not make it a walk in the park. The companies that offer this - HomeEquity Bank, Bloom, Fraction and Equitable Bank - are either Schedule I banks or funded by Schedule I banks (the highest level in Canada - the same as RBC, BMO, CIBC, Scotiabank and TD) - so they do require some mortgage reverse paperwork.
There are also factors to ensure that you are eligible for a reverse mortgage, including that you must be at least 55 years old, as mentioned above, as well as an assessment of the value of your home, how you'd like to receive the money and more. You'll also need to get independent legal advice. For more on the requirements, please get in touch with me.
The funds received are tax-free cash and how you use the money is your own personal choice - they don't impact home insurance, Government benefits, other money received from agencies or any other income tax either.
Most common uses of the funds & cash is received (for example) are to travel, having extra day to day cash, buying / selling other real estate or simply enjoying the benefits of living in your property mortgage free.
Like all mortgage products in Canada, there are penalties for early payment of a reverse mortgage, if you wish to pay it off early.
You need to factor in the penalties you'd pay (as well as the other costs, such as legal fees) when making your decision on the product and lender - rather than just trying to find the lowest reverse mortgage rates.
Generally speaking, the penalties you'd pay are highest during the first 3 years and then drop down considerably after this. This is covered in detail in my article on reverse mortgage rates and penalties.
Reverse mortgages are available to all homeowners across Canada - with the exception of the Yukon.
Some lenders do not serve or impost a limit on certain areas and there are some property types and places they will not lend on (for example it is usually the case that you'll find issues getting a lender if you have leased land, a mobile home or are on native land).
You'll find all the answers you need about the downsize, dangers and negatives of reverse mortgages outlined in detail here.
It's important to make sure you understand the positives and negatives of a reverse mortgage before you make your final decision.
This is a very common belief and it's perfectly normal (and quite smart) to be a little skepitcal as a potential reverse mortgage borrower.
Reverse mortgage loans are a bit of a 'win-win' in that you get to access money tied up in your property and the lender gets to charge a slightly premium rate (above that of traditional mortgages) on the loan.
My advice is to read everything you can, talk to a financial advisor (if you have one) and read my eBook as well as all the other reverse mortgage articles I've written on my website.
In addition to this, every lender will require you to take out independent legal advice - so you will also be getting a third party to look at what you're doing and make sure everything is above board.
Property taxes and insurance remain the responsibility of the homeowner - as is the case with every mortgage in Canada - so you must continue to pay property taxes and insurance. Note that sometimes property taxes are included in your mortgage payment (with a traditional mortgage) - so paid through the lender - but it's always the case that it's you who is paying them.
Yes, I have a reverse mortgage calculator where you can see how much you can qualify for - how much you can get - as well as the impact on your home equity.