If you’re considering a loan of any kind, you need to be sure about the costs involved. The fees, costs and other expenses can add up quickly to turn a good deal into an expensive one.

‍

At Bloom, we specialise in reverse mortgages. We want to make sure everybody knows about the costs involved – upfront, crystal clear and with no hidden surprises.

‍

We’ve written this article to give a full and clear breakdown of the costs involved in taking out a reverse mortgage. For good measure, we’ve also compared the costs with a few alternative options, so you can make an initial comparison before deciding which approach to choose.

‍

What is a reverse mortgage?

A reverse mortgage is a secure way of accessing your home equity, without selling your home or relocating. Reverse mortgages are loans guaranteed against your home equity, due for repayment when you leave your home.

‍

With Bloom Finance, you can apply for a reverse mortgage if you:

‍

• Are over 55
• Own the property and it’s your primary residence
• Your home is in Ontario, Alberta, or British Columbia

‍

We’ve explained everything you need to know about reverse mortgages in another article, if you want a fuller explanation.

‍

How does a reverse mortgage work?

A reverse mortgage is guaranteed against your home equity – similar to how a traditional mortgage works.

‍

Homeowners can borrow up to 55% of their home’s value in a tax-free cash payment. You’ll be charged interest on the balance, but only have to repay your loan (and the interest accrued) when you eventually leave your home.

‍

If it helps, you can almost think of it as an advance on the future sale of your home.

‍

Understand the details of how a reverse mortgage works in our detailed guide.

‍

All the costs associated with a reverse mortgage

No matter what type of loan you choose to apply for, borrowing money will always come with costs. Reverse mortgages are a great way to borrow money, but you need to be aware of the costs involved.

‍

Interest rates

You’ll be charged interest on your reverse mortgage, generally at a fixed rate.

‍

You can choose to pay off the interest with monthly payments, or let it accrue over the lifetime of your loan. Either way, the full balance of your loan will be due for repayment when you leave your home.

‍

Setup fees

Your lender will charge you for the time and financial costs of creating, registering and otherwise arranging your reverse mortgage.

‍

You might also see these called origination fees, arrangement fees or processing fees.

‍

At Bloom, we charge a flat processing fee of $1,650.

‍

Legal fees

A reverse mortgage is a legal agreement with high stakes – your home and a significant amount of the lender’s money are on the line. You’ll need to instruct a lawyer to conduct all the necessary checks, searches and general advocacy on your behalf.

‍

You’ll also need an Independent Legal Advice (ILA) certificate, to prove you’ve been independently advised in the process of taking out your loan.

‍

Since your lawyer’s fees aren’t up to us, we can’t put a number on the full cost of your legal fees.

‍

Appraisal fees

To lend you a percentage of your home’s value, your lender needs to know exactly what that value is. They’ll hire a professional, independent appraiser for this and add their costs to your final bill.

‍

With Bloom, your appraisal fee is $350. This is typically deducted directly from the mortgage proceeds, and is not charged unless you complete a mortgage with us.

‍

Closing costs

Closing costs are the sum of the fees you’ve built up in the entire application process. They can total anywhere between 2 and 5% of the loan value, or your lender might have a flat fee system or a cap on closing costs.

‍

Ongoing fees

If you need to update your details or change some information related to your reverse mortgage, your lender might charge you an admin fee.

‍

You will also have to keep up your property tax and insurance premium payments. While these costs don’t originate from your reverse mortgage, they are a condition of your loan agreement.

‍

Reverse mortgage costs compared with other options

There are other ways you can use your home equity to borrow money, but they all cost you something.

‍

Reverse mortgages are one of the best options in terms of affordability, but you might prefer one of these alternatives based on your personal situation.

‍

Home Equity Line of Credit (HELOC)

‍

• Similar rates to a reverse mortgage, but you have to make regular repayments

‍

When taking out a HELOC, you’ll have to pay a similar collection of fees as with a reverse mortgage (legal and setup fees, etc.).

‍

You can arrange a HELOC with a variable or fixed rate, which will affect the amount you owe in interest. Check our guide to HELOC interest rates in 2024 for more information. 

‍

HELOCs are structured in two phases – the draw and repayment periods. Your draw period is when you can take money out of your HELOC, up to your limit. When that ends, you move into the repayment period, in which you make regular payments to your lender to pay off your debt.

‍

If you’re stuck between choosing a reverse mortgage or a HELOC, you can read our dedicated article on the topic.

‍

Selling the home

‍

• Unlocks 100% of your equity, but takes time, costs a lot in fees and you still need to pay for future accommodation

‍

The ultimate way to get your equity out of your home is to sell it outright. A reverse mortgage can offer up to 55% of the value of your home, but if you want the remaining equity, your only option is to sell.

‍

As anybody who’s done it can attest to, selling a home isn’t exactly quick or easy. Nor is it especially cheap. You might unlock 100% of your equity, but you’ll need to pay all the closing costs and then have to pay for your next home, whether that’s a rental or a purchase.

‍

You can downsize, moving somewhere smaller (and cheaper) and keeping the difference in prices for yourself. Even then, there are costs involved and potential downsides. Check our guide to downsizing after retirement for more thoughts on that.

‍

Traditional mortgage refinance

‍

• One tax-free cash payment, but increases your monthly expenses and decreases your equity

‍

Refinancing can put your equity to good use, as well as capitalizing on any increase in your home’s value since you first mortgaged it.

‍

The downside is that you’ll owe more in monthly mortgage payments, having reduced your equity. You’ll also have to account for the fees involved in arranging a new mortgage and paying off your old one. If you remortgage to a much lower rate, you might find that the difference in repayments isn’t so significant.

‍

Who should consider a reverse mortgage?

There are some restrictions on who can apply for a reverse mortgage, which means the pool of ideal candidates is naturally smaller. To be considered, you need to be:

‍

• Over 55
• The owner of the property 
• Applying for a reverse mortgage on your primary residence

‍

Situations where it makes sense

There are countless reasons Canadian seniors might be looking for a cash injection, but some of the most common (and some of the nicest) examples we see include:

‍

• Ready to retire - if you feel ready to retire but need a final boost to your finances to get over the line
• Giving a living inheritance - a reverse mortgage makes it possible for you to enjoy seeing your estate being put to good use before you pass
• Fulfilling dreams - if you want to renovate your home or go on the family vacation you always hoped for, you could use some of your reverse mortgage funds to make it happen
• Making a home for life - as we age, our mobility and access needs can change. Using a reverse mortgage to future-proof your home can give you peace of mind as you head further into your retirement

‍

Why use Bloom for your reverse mortgage?

We’ve mentioned our own reverse mortgage product a few times in this article, but we haven’t told you why it’s an increasingly popular choice for Canadians.

‍

• Choose when and if you want to make interest payments.
• Our unique Home Equity Guarantee gives you the assurance that you’ll never owe more than the fair market value of your home at the time your loan comes due. This protects you from a negative equity situation and means your estate will be secure.
• You can choose to take a lump sum payment or apply for our Bloom Home Equity Prepaid Mastercard® – allowing you to draw on your home equity month-by-month, as you need it. It sits somewhere between a HELOC and a reverse mortgage.

‍

Head to our reverse mortgages webpage for the full picture of what you can get.

‍

Affordable, reliable finance for Canadian seniors

Reverse mortgages are a great way to boost your finances if you’re over 55. No option is right for everybody, of course, but if you own your home and want to unlock some of the equity you’ve built up, a reverse mortgage should be high up your list.

‍

Compared to other options for releasing equity, a reverse mortgage is either similar in price or cheaper.

‍

If you’re seeking a low-cost and secure way of unlocking your home equity, take some time to read about Bloom’s reverse mortgages. It might be the perfect fit for your retirement plans.

‍