If you are looking to supplement your retirement income, and you are 55+ years old, you can use your home’s equity to do so. A reverse mortgage is a simple, smart way to access the wealth you’ve built in your home. This innovative financial solution allows you to stay in the home you love, and only pay down your mortgage when you decide to move, sell, or otherwise cease to occupy your home.

How Does a Reverse Mortgage Work?

A reverse mortgage allows you to access tax-free cash from the value in your home, without having to sell. Canadian seniors can access up to 55% of the value of their home, while continuing to own 100% of their home and retaining control.

Unlike a traditional mortgage, a reverse mortgage requires no regular principal or interest payments. Instead, a low, friendly interest rate is charged, and interest is simply added to the mortgage balance. The loan becomes due when you and your spouse no longer occupy the property.

How Can the Funds from a Reverse Mortgage Be Used?

Thousands of Canadians are accessing the wealth in their homes through a reverse mortgage. They are using the funds for things like:

• Boosting retirement income and overall standard of living
• Making home renovations
• Paying for travel or leisure experiences
• Paying off debts
• Providing a living inheritance to loved ones
• Financing health and live-in care expenses
• Purchasing a new home

Home Ownership and Repayment

When you take out a reverse mortgage, you retain the ownership of your home. No regular payments are required, and as long as you keep up your obligations like paying property taxes and home insurance, and keep your home in good repair, you’ll never have to move out until you’re ready.

Moreover, because of the home equity guarantee that comes with a reverse mortgage, no matter what happens to home prices, the amount you ultimately have to repay will never exceed the fair market value of your home. Even better, if your home appreciates, or rises in value, the appreciation is yours to keep.

Eligibility Requirements for a Reverse Mortgage in Canada

To be considered for a reverse mortgage in Canada, you need to be at least 55 years old, and own your home. If your spouse or partner is also on title to your home, they must also be at least 55. The following factors are usually assessed when you apply for a reverse mortgage:

• You and your spouse’s age
• The location of the property
• The type of dwelling (condo, detached house, townhouse, etc.)
• The condition of the home
• The home’s appraised value

Unlike traditional mortgages, your income or credit score is not a major contributor to your eligibility for a reverse mortgage, as long as you can afford to pay for things like property taxes, home insurance and maintenance.

As you can see, reverse mortgages are pretty simple. If you meet the eligibility requirements, obtaining a reverse mortgage is an easy process.

There’s No Place Like Home When You Retire

As a homeowner, you made a smart decision a long time ago, and have worked hard over the years to take care of your property. If you are like most Canadian homeowners, you’ve likely built a significant amount of wealth in your home over time. The tricky part is being able to access that wealth without having to sell your home. A reverse mortgage makes it possible for you to access the wealth you’ve grown, while staying in the home you love.

Making a Decision

Before taking out a reverse mortgage, you should consider the pros and cons.

Benefits

Reverse mortgages offer the following benefits:

• You can access some of the value (up to 55%) in your home without having to leave the home you love.
• You never have to make regular loan payments during the loan term.
• The money borrowed is a tax-free income source.
• The borrowed money does not affect the Old-Age Security (OAS) or Guaranteed Income Supplement (GIS) benefits you may now be receiving.
• You maintain ownership and control of your home.

Some of the Considerations

Now that you know the benefits, it also helps to explore some other factors to think about.

• A reverse mortgage is sometimes subject to a slightly higher interest rate than a traditional mortgage, because there are no regular payment requirements.
• The mortgage balance will grow over time with interest, so the amount you need to pay when you move out will be larger than the balance you receive today.
• When you cease to occupy your home – whether because you sell it, or pass away – the loan will need to be repaid.
• If you decide to pay back the loan early, you may need to pay a prepayment fee.

As long as you know the pros and cons associated with a reverse mortgage, you will know what to anticipate and how to make a decision that works for you and your family.

Tips for Making the Best Use of a Reverse Mortgage

The Financial Consumer Agency of Canada suggests the following tips for using a reverse mortgage:

• Explore all your options before you take out a reverse mortgage.
• Fully review the terms of a reverse mortgage contract before signing on the dotted line.