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Pros & Cons of Reverse Mortgages

Canadians are living longer and changing our society in significant ways. Expected to grow by 68% in the next 15 years, this surging demographic is heavily influenced by aging baby boomers, advances in modern medicine, healthier lifestyles, and an increased resilience through widespread vaccines. 


Our senior population has been hit particularly hard by the COVID-19 pandemic and is at greater risk of requiring hospitalization or dying from the disease. This health emergency and unrelenting unpredictability has led to a growth in demand for reverse mortgages as seniors long for the comfort and stability of staying in their homes rather than transitioning to long-term care facilities. 


A reverse mortgage allows Canadians aged 55 and over to borrow up to 55% of the equity in their home, which has likely increased due to a surge in real estate prices over the past year. Whether financing renovations to make a home more accessible or paying for at-home care, a reverse mortgage offers a viable solution for the flexibility and freedom so many seniors are seeking. 


As with any significant financial transaction, there are advantages and drawbacks to consider before deciding whether a reverse mortgage is right for you. Your mortgage agent will help you navigate the entire process. 


Advantages of a reverse mortgage

  You get to stay in your home without having to make regular mortgage payments
• The loan is tax-free and can be used based on your unique needs and desires
You have the flexibility to select a lump sum or advances over time
• There is no impact on other income from government programs such as Old-Age Security
• Proof of income is not required in order to qualify as it is with other types of financing 
• There are no repayments required until you leave the home or pass away
• The amount you eventually repay will never exceed the fair market value of your home 


Disadvantages of a reverse mortgage

• The interest rate tends to be higher than with a traditional mortgage

• You may experience a possible reduction in equity as interest accumulates

• The loan plus interest must be repaid within a set period of time when you pass away or leave your home 
• Increasing your debt means potentially less money in your estate to leave your beneficiaries
• The closing costs and fees may be higher than a regular mortgage or other credit products
• There are a limited number of lenders who offer reverse mortgages in Canada
• Your qualification is based on your primary residence only 


While many of us are taking one day at time to get through this challenging period, Canadian seniors, faced with retirement costs that may last well into their nineties, are looking ahead and planning for an affordable standard of living and enjoyable quality of life. As we adapt to new and unusual circumstances, the growth and popularity of reverse mortgages seem to be increasing with the demand to meet the needs of more people.


Have questions about whether a reverse mortgage makes sense for you or your loved ones? Find out more on our Reverse Mortgage page.

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