‍Discover the ins and outs of reverse mortgages to make an informed decision. Find out if this financial tool is suitable for your specific needs and circumstances.

When you’re retired, managing your finances and leading the life you envisioned can be challenging, especially with the rising cost of living. 

One option gaining popularity among Canadian homeowners over 55 is the reverse mortgage. But is it the right choice for you? 

This guide will help you understand what a reverse mortgage is, how it works, and whether it could be a good fit for your financial needs.

What is a reverse mortgage?

A reverse mortgage is a loan available to Canadian homeowners aged 55 and older. It allows you to access a portion of your home’s equity without selling it. Unlike a traditional mortgage, you don't make regular payments. Instead, the loan is repaid when you sell your home, move out, or pass away. Read more about how you pay back a reverse mortgage.

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. 

If you’d like, you can use Bloom’s free calculator to see how much money you could qualify for. 

Read more: What is a Reverse Mortgage? Everything You Need To Know

How do reverse mortgages work?

Reverse mortgages let you borrow up to 55% of your home’s value, providing a tax-free lump sum or regular payments. You retain ownership of your home, and no payments are required until you sell or move out. The interest on the loan accumulates, increasing the total amount owed over time.

The flexibility of a reverse mortgage lets you customize how you use the funds to meet your specific needs, whether they’re improving your lifestyle, reducing your monthly outgoings, or handling unexpected expenses.

Read more: How does a reverse mortgage work in Canada (with real world examples)?

Who is a good candidate for a reverse mortgage?

A reverse mortgage could be a good idea if:

• You want to stay in your home long-term
• You need to access home equity without selling your property
• You wish to supplement your retirement income
• You want to help family members financially

Meet Jane and Robert

Jane and Robert, a retired couple in their early 70s, have lived in their cozy suburban home in Ontario for over 30 years. Their house, now fully paid off, has appreciated in value, providing them with substantial home equity. Both Jane and Robert receive modest pensions, but with rising living costs, they sometimes struggle to cover all their expenses, especially unexpected medical bills that have become more frequent as they age.

Despite their challenges, Jane and Robert cherish their home and community. They love gardening, hosting family gatherings, and being close to their grandchildren, who live nearby. They want to remain in their home for as long as possible, but they also worry about having enough savings to enjoy their retirement fully and to help their children financially, particularly as they now want to buy homes of their own.

Jane and Robert have considered various financial options but are particularly interested in a reverse mortgage. They see it as a way to unlock the equity in their home, providing them with a reliable source of income to supplement their pensions without the need to sell their beloved home. This financial boost would help cover healthcare costs and allow them to contribute meaningfully to their childrens’ down payments on homes, all while ensuring they can comfortably enjoy their retirement years.

Jane and Robert are ideal candidates for a reverse mortgage. They are Canadian homeowners aged 55 and older who have significant equity in their home, looking to supplement their retirement income, cover healthcare expenses, or provide financial support to family members.

When does a reverse mortgage make sense?

You don't plan to move soon

A reverse mortgage is ideal if you intend to stay in your home for the foreseeable future. Moving out triggers the repayment of the loan.

You want to enhance your retirement lifestyle

A reverse mortgage can provide extra income to enjoy hobbies, travel, or make home improvements, enhancing your overall retirement experience. Almost half (46%) of Canadian homeowners 55+ are considering taking on part-time work during retirement. With a reverse mortgage, you wouldn’t have to do that.

You want to support family members

If you're looking to provide financial assistance to your children or grandchildren, a reverse mortgage can offer the necessary funds without depleting your savings.

You need more to cover healthcare costs

Unexpected medical expenses can be burdensome. Nearly a quarter (23%) of Canadian homeowners 55+ wouldn’t be able to handle a significant unexpected financial need - like a major home repair or medical expense - that was over $15,000. A reverse mortgage can provide the funds needed to cover these costs, allowing you to maintain your quality of life.

You want to pay off existing debts

If you have outstanding debts, such as a traditional mortgage or credit card balances, a reverse mortgage can help consolidate and pay off these debts, reducing financial stress.

You want peace of mind

With a reverse mortgage, you “set it and forget it”, then receive cash when you need it. As long as you continue paying property taxes and insurance and maintaining your home, you won't have to make mortgage payments during the loan term. 

What to consider before getting a reverse mortgage

Other available options

Before opting for a reverse mortgage, consider other financial solutions like a Home Equity Line of Credit (HELOC). 

Home Equity Line of Credit (heloc)

A Home Equity Line of Credit (HELOC) allows homeowners to borrow against the equity in their home, similar to a reverse mortgage. However, unlike a reverse mortgage, a HELOC requires monthly payments, which can be a burden, especially for those on a fixed income. HELOCs are typically better for those who need flexible, short-term access to funds and can manage regular repayments. 

You can read more here about how Reverse Mortgages differ from HELOCs.

Selling the home

Selling your home is another option to access the equity built up in your property. This approach provides a lump sum that can be used for various needs but requires moving out and possibly dealing with the costs and emotional impact of relocating. This option may be suitable for those who are willing to downsize or relocate to free up cash.

Traditional mortgage refinance

Refinancing a traditional mortgage involves replacing an existing mortgage with a new one, often with better terms or a lower interest rate. This option can provide additional funds if you borrow more than what you owe on your current mortgage. However, it also requires regular monthly payments and may involve strict credit and income qualifications, making it less accessible for retirees with limited income.

Professional financial advice

Consulting a financial advisor can help you understand the implications of a reverse mortgage and ensure it aligns with your financial goals.

Legal and estate planning considerations

It's crucial to consider how a reverse mortgage will impact your estate and inheritance plans. Legal advice can help you navigate these complexities.

Can you meet the financial and physical requirements of home ownership?

Ensure you can afford ongoing home maintenance, insurance, and property taxes, as these are essential requirements for maintaining a reverse mortgage.

Compare reverse mortgages to other financial options

When considering a reverse mortgage, compare it to alternatives like a HELOC, selling your home, or refinancing a traditional mortgage. Each option has different implications for your finances and lifestyle.

Why use Bloom for your reverse mortgage?

Choosing Bloom for your reverse mortgage in Canada offers several distinct advantages compared to other providers.

Transparent process  

At Bloom, we prioritize transparency. We ensure you fully understand all the costs and terms associated with your reverse mortgage, with no hidden fees or unexpected charges.

Hassle-free appraisal  

In most cases, we can conduct an appraisal without entering your home. The cost of the appraisal is deducted from the proceeds, so you don’t need to pay anything upfront.

Fast approval  

Our Bloom Account Executives work efficiently to provide you with a decision within a few days, making the process quick and straightforward.

Home ownership  

With a Bloom reverse mortgage, you retain full ownership of your home, just like with a traditional mortgage.

Home equity guarantee  

Bloom offers a Home Equity Guarantee, ensuring that even if your home’s value decreases, you will never owe more than its fair market value.

Customer service  

Our dedicated team provides personalized support and expert advice throughout the entire process, guiding you every step of the way.

Bloom's Home Equity Prepaid Mastercard  

Bloom offers the Home Equity Prepaid Mastercard which is designed to meet the needs of Canadian homeowners aged 55 and older.  This pre-paid card allows you to spend up to $2,000 each month without having to make any payments until you sell your home or pass away. 

This flexibility helps manage interest accumulation and provides a cost-effective way to cover everyday expenses like groceries and bills. With minimal fees and competitive rates, the Bloom Card offers added convenience and control over your finances.

Frequently asked questions

What happens if I default on my reverse mortgage?

Defaulting on a reverse mortgage, such as failing to maintain the home or pay property taxes, can result in the loan becoming due. 

Can you owe more than the home is worth with a reverse mortgage?

No, with a reverse mortgage, you can never owe more than the value of your home at the time of repayment. This is ensured by the non-recourse feature of reverse mortgages, which protects borrowers and their heirs from owing additional debt beyond the home’s value.

What are the costs of a reverse mortgage?

Costs include interest, legal fees, and potential appraisal fees. These costs are typically rolled into the loan, so you don't pay upfront.

Can you walk away from a reverse mortgage?

No, you cannot simply walk away. The loan must be repaid, usually through the sale of the home or other means.

What happens to my reverse mortgage if I decide to sell my home or move?

If you sell your home or move, the reverse mortgage becomes due. The loan, including interest and fees, must be paid off from the proceeds of the sale.

What will happen to my government benefits?

The money you receive from a reverse mortgage does not affect Canada Pension Plan (CPP), Guaranteed Income Supplement (GIS), or Old-Age Security (OAS) benefits that you may be receiving.

Conclusion

A reverse mortgage can be a valuable financial tool for Canadian homeowners aged over 55 looking to access their home equity without selling their property. It's essential to weigh the benefits and potential drawbacks carefully. For personalized advice and to see if a reverse mortgage is right for you, contact Bloom today at 1-866-882-5666, or leave your contact information here, and we'll call you at your preferred time.

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