‍Discover the ins and outs of repaying a reverse mortgage with Bloom. Learn about your options and make informed decisions.

Reverse mortgages can be a great solution for many Canadian seniors, but understanding the repayment process is crucial. In this guide, we'll explore how to pay back a reverse mortgage and provide you with the information needed to make informed decisions about your financial future.

What is a reverse mortgage?

A reverse mortgage is a loan available to homeowners aged 55 and older that allows them to access the equity in their home without having to sell it. It allows you to access up to 55% of the value in your home, while retaining 100% ownership.

Unlike traditional mortgages, with a reverse mortgage, you receive funds instead of making monthly payments to the lender. 

The loan is repaid when you sell your home, move out permanently, or pass away.

You can read more about reverse mortgages and how they work in this guide.

Do you have to pay back a reverse mortgage?

Yes, a reverse mortgage must be repaid. However, the repayment is structured differently than traditional loans. Instead of making regular payments, the loan is typically repaid in full when one of several triggering events occurs.

When is a reverse mortgage due?

A reverse mortgage is usually due when one of the following events takes place:

Sale of the home: If you decide to sell your home, the reverse mortgage must be repaid from the proceeds of the sale.

Death of the borrower: Upon the death of the last remaining borrower, the loan becomes due, and the estate must repay the reverse mortgage.

Moving out permanently: If you move out of your home permanently, such as moving into a long-term care facility, the reverse mortgage will need to be repaid.

Default on loan terms: If you fail to meet the terms of the loan, such as not maintaining the home or not paying property taxes and insurance, the lender may require repayment.

How do you pay back a reverse mortgage?

There are several ways to repay a reverse mortgage:

Selling the home

The most common method is selling the home. The proceeds from the sale are used to repay the loan, and any remaining equity goes to the homeowner or their estate.

Lump sum payment

You can choose to pay off the reverse mortgage with a lump sum payment using savings, investments, or other financial resources.

Refinancing the mortgage

Another option is to refinance the reverse mortgage with a new mortgage, potentially at a lower interest rate or with different terms.

Taking out a new (conventional) mortgage

Some homeowners opt to replace the reverse mortgage with a conventional mortgage to manage the repayment.

Is it possible for a family member to pay back a reverse mortgage?

Yes, a family member can pay back a reverse mortgage. This often happens when heirs want to keep the home in the family. The family member can use their own funds, take out a mortgage, or use other financial resources to repay the reverse mortgage balance.

Reasons to repay a reverse mortgage early

There are several reasons someone might want to get out of a reverse mortgage:

Changing financial needs

If your financial situation changes and you no longer need the reverse mortgage, you might decide to repay it.

Moving to a new residence

If you plan to move to a new home, you will need to repay the reverse mortgage on your current home.

Protecting home equity for heirs

Some homeowners prefer to repay the reverse mortgage to preserve the home’s equity for their heirs.

Market conditions

If the real estate market is favourable, selling the home and repaying the reverse mortgage might be a good financial decision.

How do you pay back a reverse mortgage? 

Step 1: Review your loan agreement

The first step is to thoroughly review your loan agreement. This document contains crucial information about the terms and conditions of your reverse mortgage, including any penalties or fees associated with early repayment. Pay special attention to the following:

• Interest rates: Understand how the interest is calculated and how much you have accrued.
• Prepayment penalties: Check if there are any penalties for early repayment and how they are calculated.
• Additional fees: Look for any additional fees that may apply when you repay the loan early.

Step 2: Consult with your lender

After reviewing your loan agreement, schedule a meeting with your lender. Discuss your intention to repay the loan and ask for detailed information about the repayment process. Important points to cover include:

• Exact payoff amount: Get an accurate figure of the total amount you need to repay, including interest and any applicable fees.
• Repayment procedures: Understand the steps involved in repaying the loan.
• Potential penalties or fees: Confirm any penalties or fees that will apply and how they will affect your total repayment amount.

Step 3: Assess your financial situation

Before deciding on a repayment method, assess your current financial situation. Consider the following:

• Available funds: Determine how much money you have available for repayment.
• Income and expenses: Evaluate your ongoing income and expenses to understand your financial stability.
• Other debts: Consider any other debts you have and how repaying the reverse mortgage will impact your overall financial health.

Step 4: Choose a repayment method

Based on your financial assessment, choose the most suitable method to repay your reverse mortgage. 

Here are some common options:

• Sell the home: Selling your home is a common way to repay a reverse mortgage. The proceeds from the sale can be used to pay off the loan balance.
• Make a lump sum payment: If you have sufficient savings, you can make a lump sum payment to repay the loan in full.
• Refinance the loan: Refinancing into a traditional mortgage or a new reverse mortgage with better terms can be an option.
• Take out a new mortgage: If you qualify, you could take out a new mortgage to repay the reverse mortgage.

Step 5: Notify relevant parties

Once you have chosen your repayment method, notify your lender and any other involved parties, such as your real estate agent if you plan to sell the home. Provide them with the necessary information about your repayment plan and any required documentation.

Step 6: Execute the payoff

Complete the necessary steps to repay the loan and settle any remaining balance. This may include:

• Final payment: Make the final payment to your lender, ensuring it covers the total payoff amount.
• Documentation: Complete and submit any required paperwork to finalise the repayment.
• Confirmation: Obtain written confirmation from your lender that the loan has been fully repaid and the reverse mortgage has been discharged.

What are the tax implications of repaying a reverse mortgage?

Repaying a reverse mortgage does not have direct tax implications. The funds received from a reverse mortgage are not considered taxable income. However, it’s advisable to consult with a tax professional to understand any potential impacts on your overall financial situation.

Why use Bloom for your reverse mortgage?

Bloom offers several advantages for your reverse mortgage needs in Canada:

Simple and seamless application process: We make the application process easy and efficient.

Fast approval: We’ll get you a decision within a few days.

No hidden fees: We believe in transparency and are upfront about all the costs associated with your mortgage. A one-time processing fee, an appraisal fee and an ILA Certificate fee will be deducted from your proceeds, so you don’t need to pay anything out of pocket.

Competitive rates: We offer competitive rates, similar to traditional reverse mortgages, with added flexibility.

Conclusion

Repaying a reverse mortgage is a manageable process with various options to suit different situations. 

Whether you choose to sell your home, make a lump sum payment, or refinance, Bloom is here to help you every step of the way. 

For more information on reverse mortgages and to see if it’s the right option for you, call 1-866-882-5666, or leave us your contact information here and we’ll call you at your preferred time.

‍