Understand the ins and outs of reverse mortgages in Canada, including eligibility requirements and repayment options. Make an informed decision for your financial future.

When you’re retired, managing your finances can be challenging, especially with rising living costs. 

A reverse mortgage can provide financial flexibility and peace of mind. It allows you to access the equity in your home without having to sell it, in a responsible and secure way.

In this guide, we'll explain how reverse mortgages work in Canada, who qualifies, and provide real-world examples to illustrate their benefits.

What is a reverse mortgage?

A reverse mortgage is a loan available to homeowners aged 55 and older that allows you to access the equity in your home without having to sell it. 

Instead of making monthly payments to the lender, you receive funds, which can be taken as a lump sum, regular payments, or a combination of both. 

The loan balance is repaid when you sell your home, move out, or pass away. Over 99% of reverse mortgage customers have equity in their home when the time to repay the loan arrives. In most cases, the amount of equity is more than 50% of the home value. 

Learn more about reverse mortgages in our guide: What is a Reverse Mortgage? Everything You Need to Know

Who qualifies for a reverse mortgage?

To qualify for a reverse mortgage in Canada, you must meet the following criteria:

• Homeowners must be at least 55 years old. 
• You must own your home, which must be your primary residence. 
• Your home must meet certain property standards
• Your mortgage balance must be low enough to be paid off with the proceeds from the reverse mortgage.

Read more in our guide to applying for a  reverse mortgage.

How do reverse mortgages work in Canada?

Reverse mortgages in Canada work by allowing homeowners aged over 55 to convert their home’s equity into cash. The process is simple and secure.

Here’s a detailed look at how it works:

Step 1: See how much you could qualify for

If you’d like, you can use Bloom’s free calculator to see how much money you could qualify for. All you need to provide is some basic information:

• Your age
• Your location
• A rough idea of how much your home is worth

If you’d prefer to skip this step and talk directly with a Bloom representative, they can provide you a quick estimate over the phone. Just call 1-866-882-5666, or leave us your contact information here and we’ll call you at your preferred time.

Step 2: Apply

You can begin your application here, or give us a call at 1-866-882-5666.

You’ll speak with one of Bloom’s experienced representatives, who will answer any questions you might have about reverse mortgages, and how this solution could work for you.

If you’re interested in exploring further, your Bloom representative will collect a bit of information about you and your home. This process takes about 15 minutes.

There is no obligation at this stage. We want to make sure you have all the information you need to make an informed decision, in consultation with your family.

After this, our team will review your information and determine whether you qualify for a reverse mortgage, and how much you qualify for. As part of this process, we may need to conduct an appraisal (valuation) of your home. If this is needed, it is organized and paid for by us upfront – there is nothing for you to pay out of pocket!

When this process is completed, the Bloom representative will call you and let you know the results.

Step 3: Receive a commitment

If you are approved for a Bloom Reverse Mortgage, our representative will send you a Commitment Letter, which will outline the amount available to you, the key terms and conditions, everything you need to know. 

Our Bloom representative will take as much time as needed to review this with you, ensuring you’re comfortable and informed.

There is still no obligation for you at this point. Take the time to review this document with your family and advisors, and ensure that a reverse mortgage from Bloom is the right solution for you. We’re here to answer any questions you or they have.

Step 4: Get advice

By law, everyone must get independent legal advice from a lawyer before taking out a reverse mortgage. This will ensure that you fully understand everything you need to know, and the terms and conditions of a reverse mortgage.

It is important that this lawyer be unaffiliated with Bloom, so that the advice you’re getting is truly independent. If you don’t have a lawyer already, your Bloom representative will be happy to provide a list of lawyers in your area for you to choose from.

Once you let us know which lawyer you’d like to work with, we will send the mortgage documents to them so that they can review and ensure they’re in good order for you. They’ll then set up a time with you to meet, discuss, and answer any further questions you have.

Until you sign the mortgage documents, you’re still under no obligation to enter into a reverse mortgage.

In most cases, the cost for the lawyer is deducted from the reverse mortgage proceeds, so there is still nothing for you to pay out of pocket.

Step 5: Access your equity

Once you’re ready to move forward, your lawyer will help you sign the required mortgage documents. You will choose a date you would like to receive the funds and the bank account you’d like to receive them in. On this date, Bloom will deposit the funds directly into your account, and the process will be completed.

The funds are yours to do what you wish, such as:

• Help keep up with weekly expenses
• Payoff your mortgage, reducing monthly expenses
• Pay for renovations to your home
• Help your children or grandchildren make a down payment on a home
• Pay for a dream vacation

Costs of a reverse mortgage

The costs associated with a reverse mortgage are straightforward. These expenses are typically rolled into the loan, so you don’t have to pay upfront.

Interest rates are competitive and similar to traditional mortgages. 

Closing costs include fees for processing the loan. 

Additionally, there may be appraisal fees, legal fees, and administrative costs. 

How will I receive the money for my reverse mortgage?

Bloom offers flexible options for receiving your reverse mortgage funds:

Lump-sum: Receive the entire amount at once.

Combination: Take part of the reverse mortgage as a lump sum and receive the rest over time.

Regular payments: Get monthly payments.

Bloom Card: Access funds conveniently using Bloom’s Home Equity Prepaid Mastercard, the first of its kind in Canada. This card acts like a debit card, allowing you to spend up to $2,000 each month without having to make any payments until you sell your home.

Paying back your reverse mortgage

You repay a reverse mortgage when you sell your home, move out permanently, or pass away. The loan balance, including interest and fees, is deducted from the sale proceeds. For more details, visit our guide on how to get out of a reverse mortgage early.

The benefits of a reverse mortgage

Reverse mortgages can significantly enhance your financial well-being. Here’s a closer look at how these benefits can make a difference:

Financial flexibility and stability

Reverse mortgages provide access to the equity built up in your home, giving you the financial flexibility to cover living expenses, medical bills, or other essential needs without having to sell your property. This can be particularly beneficial for those on a fixed income who need additional funds to maintain their lifestyle.

Estate planning 

A reverse mortgage allows you to provide a living inheritance to your loved ones while ensuring your financial security. By accessing your home equity, you can support your children or grandchildren with significant financial gifts, such as helping them make a down payment on a home, without compromising your own financial stability.

Improved quality of life

The funds from a reverse mortgage can be used to enhance your quality of life in various ways. Whether you want to travel, make home renovations, or simply enjoy your retirement without financial stress, the additional resources can help you achieve these goals and live more comfortably.

Tax-free income

One of the major advantages of a reverse mortgage is that the money you receive is not subject to income tax. This means you can enjoy the full benefit of the funds without worrying about tax implications, providing a more effective way to manage your finances.

No monthly payments

Unlike traditional mortgages, reverse mortgages do not require regular monthly payments. This eliminates the burden of having to make mortgage payments, allowing you to focus your resources on what’s important to you. The loan is repaid when you sell your home, move out permanently, or pass away, making it a convenient and stress-free option.

Why use Bloom for your reverse mortgage?

Choosing Bloom for your reverse mortgage in Canada comes with several advantages:

- Transparent process: Complete transparency with no hidden fees or unexpected charges.

- Fast approval: Get a decision within a few days.

- Minimal fees: Cost-effective solution with no fees for each withdrawal.

- Competitive rates: Enjoy rates similar to traditional reverse mortgages with added flexibility.

- Exceptional customer service: Personalized support and expert advice throughout the process.

Bloom Card: Access funds as you need them with Bloom’s Home Equity Prepaid Mastercard, the first of its kind in Canada. It allows you to use your home equity like a debit card without having to make any payments until you sell your home.

Real world reverse mortgage examples

Here are a few scenarios where a reverse mortgage has helped people manage their finances.

Supplementing retirement income

John, a 70-year-old retiree, finds that his pension and savings are not quite enough to cover his daily living expenses and medical bills. With the cost of living rising, John is concerned about maintaining his standard of living. 

By taking out a reverse mortgage, John is able to access the equity he has built up in his home over the years. He chooses to receive the funds as regular monthly payments, supplementing his pension and providing the financial stability he needs to cover his daily expenses and medical bills without the need for additional income sources or cutting back on necessities.

Home renovations

Mary and Paul, both 65, live in the home they have owned for over 30 years. As they age, they realise their house needs several modifications to remain accessible and safe, such as installing a stair lift, widening doorways, and renovating the bathroom to accommodate their changing needs. 

They decide to take out a reverse mortgage to fund these renovations. With the lump sum payment they receive, Mary and Paul can make the necessary updates to their home, allowing them to live comfortably and safely in the house they love for many more years.

Paying off debt

Sarah, 58, has an outstanding mortgage and high-interest credit card debt that have become increasingly difficult to manage on her fixed retirement income. The stress of keeping up with monthly payments is taking a toll on her health and well-being. 

Sarah decides to take out a reverse mortgage, which allows her to pay off her existing mortgage and credit card debt. By consolidating her debts into the reverse mortgage, Sarah eliminates her monthly mortgage payments and significantly reduces her financial stress, enabling her to enjoy a more relaxed and worry-free retirement.

Helping family members

David and Linda, both in their early 70s, have a daughter who is struggling to come up with a down payment for her first home. They want to help her but are concerned about dipping into their retirement savings. 

By taking out a reverse mortgage, David and Linda can access the equity in their home and provide their daughter with a generous down payment without affecting their own financial security. This solution allows them to support their daughter’s dream of homeownership while maintaining their financial stability and peace of mind.

Covering unexpected medical expenses

Helen, 75, recently faced an unexpected medical emergency that required expensive treatments and medication not fully covered by her insurance. The sudden financial burden was overwhelming, and Helen was unsure how to manage the costs. 

By obtaining a reverse mortgage, Helen was able to access the funds needed to cover her medical expenses without selling her home or depleting her savings. This financial assistance provided Helen with the relief she needed to focus on her recovery without worrying about her finances.

How a reverse mortgage works in Canada FAQs

What happens if I default on my reverse mortgage?

Defaulting on a reverse mortgage is rare. However, if you fail to meet the loan obligations, such as maintaining the home or paying property taxes, the lender may require repayment of the loan.

Can I get a reverse mortgage with a low credit score?

Yes, you can qualify for a reverse mortgage with a low credit score. The primary consideration is the equity in your home, not your credit score.

What are the interest rates on a reverse mortgage in Canada?

Interest rates on reverse mortgages in Canada are competitive and similar to traditional mortgage rates. You can find Bloom’s current rates here.

What happens if I want to get out of my reverse mortgage early?

If you want to exit your reverse mortgage early, you can repay the loan balance at any time. Be aware that there may be early repayment fees. For more details, consult your reverse mortgage agreement.

Conclusion

A reverse mortgage can be a valuable financial tool for Canadian homeowners aged 55 and older, providing access to home equity without the need to sell your home. Whether you need to supplement your retirement income, pay off debts, or make home improvements, a reverse mortgage offers flexibility and peace of mind.

For more information on how Bloom can transform your finances, call 1-866-882-5666, or leave us your contact information here and we’ll call you at your preferred time.

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