A reverse mortgage is a loan that allows you to get money from your home equity without having to sell your home. This is sometimes called “equity release”. You may be able to borrow up to a certain percentage of the current value of your home. The maximum amount you will be able to borrow in a reverse mortgage will depend on your age, your home’s appraised value and your lender.
You don’t need to make any payments on a reverse mortgage until the loan is due. This is usually when you move out of your home, sell it or the last borrower dies. You will owe more interest on a reverse mortgage the longer you go without making payments. This may result in you having less equity in your home.
Eligibility for a reverse mortgage
To be eligible for a reverse mortgage, you must be:
- a homeowner (reside in a detached, semi-detached, condo or townhouse in Ontario)
- principal residence (must reside in property for at least six months each calendar year)
- at least 55 years of age (this applies to each borrower registered on the property)
If you have a spouse and you are both on the title for your house, both of you must be listed on the reverse mortgage application. Both of you must be at least 55 years old to be eligible for a reverse mortgage. Further to this note, any additional people registered on title must be on the application and must be over 55 years of age.
The home you’re using to secure a reverse mortgage must also be your primary residence. This usually means you live in the home for at least six months a year.
If you have a mortgage on your house you must pay it off when you get a reverse mortgage. You can use the money you get from a reverse mortgage to pay any mortgage, debt or lien against your house.
Qualifying for a reverse mortgage
When you apply for a reverse mortgage, your lender will consider:
- your age, and the age of your spouse if they are registered on the title of your house
- where you live
- your home’s condition, type and appraised value
In general, the older you are and the more home equity you have when you apply for a reverse mortgage, the more money you could get. Current market trends will also impact how much money you could get.
Your lender may ask you and your spouse to show proof that you received independent legal advice before you get a reverse mortgage.
Accessing money with a reverse mortgage
You may be able to get the money from your loan by:
- taking the money as a one-time lump sum
- taking some of the money up front and taking the rest over time
Ask your lender what payment options they offer for a reverse mortgage and whether there are any restrictions or fees.
You must first pay off and close any outstanding loans or lines of credit that are secured by your home, such as a mortgage or home equity line of credit. You could use the money you get from a reverse mortgage to do this.
You can use the remainder of the loan for anything you wish, such as to:
- pay for home repairs or improvements
- help with regular bills
- cover healthcare expenses
- repay debts
You may not be able to take out another loan secured by your home, such as a home equity line of credit, if you have a reverse mortgage.