Reverse Mortgage


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What is a Reverse Mortgage?

After purchasing your home, you may be looking for additional financing without having to sell the property. A reverse mortgage Toronto allows you to tap your home equity and borrow up to 55% of the current property value. The amount you qualify for when taking this mortgage will vary depending on:

  • Your age (most institutions require the youngest borrower to be at least 55 years old)
  • Your home’s appraised value, condition, and type
  • Financial eligibility criteria set by the lender

With a reverse mortgage, you no longer need to pay for the loan until it’s due. However, if you want to move out or sell the home, you will be required to make payments. As you go along without making payments, your interest increases, and this may result in reduced equity in your home.

Reverse Mortgage in Toronto

How a reverse mortgage works

Most homeowners will use the money they get from a reverse mortgage to pay off any outstanding loan or lines of credit that they took using their home. The remaining amount from the reverse mortgage can be used for long term projects such as home renovations or even to repay high-interest debts.

Keep in mind that after taking the reverse mortgage, you may not qualify for other forms of financing that are secured by your home, such as a HELOC. Once you qualify for the reverse mortgage, you have two payment options. What you choose will depend on how you’d like to access the funds.

  • You can take the funds one-time as a lump-sum
  • You can access different amounts over time

There could be restrictions or fees charged by your lender when taking a reverse mortgage. Ask questions to understand the terms of your loan and avoid surprises.

Are you eligible for a reverse mortgage in Toronto?

Lenders have different eligibility criteria for reverse mortgage applications. Typically, the applicant must be a homeowner of at least 55 years of age. If you have more than one name on your home’s title, these individuals must also meet the eligibility criteria.

You will need to get a legal professional to provide independent advice when making this application. Most lenders will ask for proof that you obtained this advice before moving forward with your application.

Note that you can only take a reverse mortgage if you live in the home as your primary residence. This often means that you must prove that you live in the home for at least six months a year. You must also have sufficient equity.

How can you repay your reverse mortgage?

Unlike a typical mortgage where you have to make regular payments, with a reverse mortgage, you can pay the principal and interest as a lump-sum whenever you want. However, some lenders will charge a fee for paying the reverse mortgage before it’s due.

There are several circumstances where you will be required to repay the amount you owe on your reverse mortgage in full. They include:

  • icon When you sell your home
  • icon When you move out of your home
  • icon When the last borrower passes away
  • icon When you default the loan

Defaulting on a reverse mortgage

Different situations could be termed as a default of your reverse mortgage.

  • If the funds are used for anything illegal
  • If you provided false information in your application
  • If you neglect your home or poor maintenance that lowers the property’s value
  • If you fail to follow the stated conditions in your reverse mortgage contract

It’s important to ask your lender to clarify what would be termed as a default when submitting your application.

In the event of death, most lenders will require that the reverse mortgage Toronto be repaid using your estate unless there are other individuals in the title who are still alive.

The time given to repay the funds after the death of the last borrower will be stated in your contract. Typically, lenders provide a period of 180 days to pay the funds in the event of death. However, for homeowners who move into long-term care, the lender can extend the repayment period to 1 year.

Understanding this timing is very critical as it helps you to prepare for such scenarios.

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How much will you spend on a reverse mortgage?

If you’ve taken a typical mortgage before, understand that the costs involved in a reverse mortgage can be somewhat different. For instance, you may be charged a higher interest rate than what you paid for a traditional mortgage. Other costs such as home appraisal fees, set up fees, and legal fees will also apply. Keep in mind that there are some costs that you may have to pay upfront, whereas others will be settled by the lender and then added to the balance of your loan. Find out as much information as possible regarding the costs involved from your independent legal advisor before signing your contract.

Where can you find a reverse mortgage in Canada?

The decision to take a reverse mortgage shouldn’t be taken lightly. We recommend speaking to the right professionals and discussing with your family to understand how it can affect you in the long term. This form of financing will affect your home equity over time so ensure that the funds you access are put into good use.

You can apply for a reverse mortgage in Canada in either of these two financial institutions: Equitable Bank and HomeEquity Bank.

Equitable Bank:

Offers reverse mortgages through brokers across different Canadian provinces like Quebec, Ontario, and Alberta.

HomeEquity Bank:

Offers the CHIP reverse mortgage also through mortgage brokers across Canada.

It’s important to review what both options have to offer before you sign up for any. You may also want to explore other alternatives to getting a reverse mortgage, such as:

  • Taking a personal loan or line of credit
  • Selling your home and replacing it with a smaller home
  • Renting
  • Moving to assisted living


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Advantages of a reverse mortgage

  • You don’t need to make regular payments on the loan.
  • You can access funds using your home’s equity without selling it.
  • You don’t pay taxes from any funds you receive from the reverse mortgage.
  • You still own your property.

  • You can choose when and how to access the funds.
  • Your eligibility for benefits such as Old Age Security (OAS) or Guaranteed Income Supplement (GIS) is not affected after taking this mortgage.
  • It’s easy to access and qualify for without the usual standards of a traditional mortgage.

Disadvantages of reverse mortgages

  • Interest rates are typically higher than most traditional mortgages and HELOCs.
  • If you pass away, the remaining funds have to be repaid within a set time. This could reduce the value of your estate significantly and cause your beneficiaries to suffer.

  • There are additional costs associated with a reverse mortgage that make it even more expensive than the conventional type.
  • Your home equity depletes as you borrow more, and you end up paying even higher interest rates.

Important questions to ask your lender before signing the reverse mortgage contract

  1. How can I access the money once the reverse mortgage application is approved?
  2. Can you state all the fees that I will have to pay before and after the mortgage is approved?
  3. Will the interest rate on the money you borrow change over time?
  4. What circumstances will be considered as a default on the loan?
  5. If you want to sell the home within a certain period, what penalties will you be required to pay, if any?
  6. How much time will you have to pay off the loan balance if you move, die, etc.?
  7. What would happen if your estate required a longer time to repay the loan in full when you die?

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