Table of contents

→ Retaining primary residence status

→ Paying property taxes

→ Maintaining the property

→ Taking out insurance

→ Conditions so easy, you don’t notice them!

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Releasing the equity from your home can be a smart way to access much-needed funds, but as with many other legal contracts and types of loan, it’s important to read the small print and understand exactly what your responsibilities and obligations are, so you can stay on the right side of your mortgage agreement. Reverse mortgages are significantly less burdensome financially than other types of mortgage, but they do have some conditions.

Retaining primary residence status

To be eligible for a reverse mortgage in the first place, the property on which the mortgage is taken out must be your principal residence, and it must stay this way for the duration of the mortgage. You can only have one principal residence at a time, and for those Canadians who winter abroad or spend summers at the cottage, it’s important to know that you (and any co-owners or co-borrowers on the home) can only be away from home for a certain amount of time each year. If you’re away for more than six months of the year, the home no longer counts as your principal residence, and the mortgage must be closed. There are limited exceptions to this rule, like if you are out of the home for medical reasons or living in a care home, for up to 12 months.

In the case where one borrower is out of the home permanently, but the other remains in the home, the mortgage stays in effect as long as the occupant continues to fulfill the loan requirements. The key here is that at least one of whomever is listed on the mortgage must continue residing in the home. This is one of the biggest requirements associated with reverse mortgages, and you must reconfirm it every year, so it’s crucial to understand and stay in line with this condition.

Paying property taxes

Another major condition of a reverse mortgage is paying all of the property’s taxes, and (if applicable) all of its fees. Your property might be subject to ground rent, condo fees, development fees, and so on. All of these must be paid by you, the homeowner, and it is often part of your mortgage application for the lender to assess your ability to pay these yearly fees before they approve you. They may even require you to set aside money to ensure you can cover the costs in the future, so you don’t fall foul of this condition.

In the event that you do - for any reason - miss a tax or fee payment, you should let your lender know right away so they can help solve the problem before it spirals. If you fail to do this, or miss multiple payments, you can put your mortgage into default.

Maintaining the property

The third major requirement for reverse mortgage holders is to keep the property in a state of good repair, taking care of any and all repairs so that the home is safe and its value is not adversely affected by neglected work. Most homeowners have a vested interest in doing this anyway, as failing to properly take care of their home will impact their quality of life as well as their own equity, but to be on the safe side, the lender may want to perform inspections to verify the home’s condition. An inspection may happen prior to your mortgage approval, or at intervals throughout the mortgage term, and in the instance that the lender identifies any needed work you usually have a set period of time (30-60 days) to perform it. If you fail to do this, you may default on your loan.

Taking out insurance

Lastly, Canadians are required to take out insurance on their home, to financially protect it and the investment the mortgage lender has made in it. The coverage and exact type of insurance required may vary depending on the lender, your home and its exact location, but you can expect to need some basics, such as fire and flood insurance. You have to keep the home insurance policy current for the duration of the mortgage.

Conditions so easy, you don’t notice them!

All of the above conditions may sound a little obvious to you, and you’d be right! Living in and taking proper care of your home is a no-brainer for most people, something they’ve always done and would always do, regardless of their mortgage status. And this has proved to be the case for most; default rates on reverse mortgages are stable in Canada, despite a huge surge in the number of people taking them out.

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