With prices rising and good pensions increasingly rare, millions of Canadians are wondering if they have enough savings for the retirement they envisioned. 

In fact, 67% of Canadian homeowners aged over 55 are concerned that with the cost of living increase and inflation, their retirement savings will no longer be enough to maintain their lifestyle through retirement. 

However, as homeowners, they’ve likely built significant wealth. One way to unlock this wealth and alleviate financial stress is through a reverse mortgage.

What is a reverse mortgage?

A reverse mortgage is a loan available to homeowners aged 55 and older. It allows you to access the equity in your home without having to sell it, in a responsible and secure way.

Instead of making monthly payments to the lender, you receive funds, which can be taken as a lump sum, regular payments, or a combination of both. The loan balance is repaid when you sell your home, move out, or pass away.

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. 

Who is a reverse mortgage for?

A reverse mortgage is a financial product designed for homeowners aged 55 and older who want to unlock the equity in their homes. 

It can be particularly beneficial for those looking to boost their retirement income, providing a steady stream of funds to cover daily expenses or medical costs. 

Additionally, if you want to provide a living inheritance to loved ones or pay off high-interest debt, a reverse mortgage might be a suitable option. 

However, it’s important to consider other options if you plan to move soon, or if you want to leave your home free and clear to heirs.

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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 it. You can access up to 55% of the value of your home while continuing to own 100% of it. 

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.

Related: How do Reverse Mortgages work? 

How can the funds from a reverse mortgage be used?

The funds from a reverse mortgage can be used for almost anything. 

Many homeowners use the money to pay off their current mortgage, cover living expenses, pay for home renovations, handle medical bills, or even travel. 

The flexibility of a reverse mortgage allows you to tailor the use of funds to your specific needs, whether that’s enhancing your lifestyle, securing your financial future, or addressing unexpected expenses.

Eligibility requirements for a reverse mortgage in Canada

To qualify for a reverse mortgage in Canada, you need to meet several criteria:

Age

You must be at least 55 years old. If you own the home with a spouse or partner, they must also be at least 55 years old.

Home ownership

You must own your home. This includes having the title to the property and being responsible for the associated costs.

Property assessment

The location and type of dwelling are important. Eligible properties can include condominiums, detached houses, and townhouses. The specific location of your home will also be assessed to determine its eligibility.

The condition and appraised value of the home will be considered. The home must be in good repair, and its current market value will be evaluated to determine the amount you can borrow.

Financial responsibilities

Unlike traditional mortgages, your income or credit score is not a major factor in eligibility. However, you must demonstrate that you can afford to pay ongoing property expenses such as property taxes, home insurance, and maintenance.

Benefits of a reverse mortgage

Reverse mortgages offer numerous benefits, making them an attractive option for many Canadian homeowners over 55:

Supplement retirement income

Given the current cost of living and inflation, 46% of Canadian homeowners 55+ are considering taking on part-time work during retirement. 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. 

With a reverse mortgage, you’ll have additional funds to cover daily or unexpected expenses.

No monthly mortgage payments

One of the significant advantages of a reverse mortgage is that you don't need to make regular payments on the loan, freeing up your monthly budget.

Flexibility in payment options  

You can receive funds in a way that suits your needs. That might be a lump sum, regular payments, or a combination of both. This flexibility allows you to manage your finances more effectively.

Tax-free income

The money you receive from a reverse mortgage is not taxed, providing you with financial relief without additional tax burdens.

Pay off an existing mortgage

You can use the funds from a reverse mortgage to pay off your current mortgage or other debts, helping you achieve financial stability.

Does not affect 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.

Stay in your home

A reverse mortgage includes a home equity guarantee, ensuring that you will never owe more than your property’s fair market value, even if real estate prices drop or the loan balance exceeds the home’s value. This protection offers peace of mind to borrowers.

Peace of mind

With reverse mortgages, you “set it and forget it”. As long as you meet property obligations, such as paying property taxes and insurance and maintaining your home, you won't have to make mortgage payments during the loan term. 

Potential for home equity growth

If real estate prices rise, your home equity can continue to grow even as the mortgage balance increases.

What to consider before getting a reverse mortgage

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.

While there are many benefits, it’s important to consider the following:

Interest rates

Reverse mortgages typically have slightly higher interest rates than traditional mortgages.

Growing loan balance

The loan balance increases over time as interest accrues. This means that the amount you need to pay when you move out will be larger than the balance you receive today.

Repayment

The loan must be repaid when you move out, sell the home, or pass away.

Prepayment fees

If you decide to pay back the loan early, there may be fees involved.

The potential risks of reverse mortgages

Loss of home equity

As you borrow against your home, the amount of equity you have in your home decreases. This means that over time, you own less of your home and have less equity available to leave to your heirs or use for other purposes.

Impact on heirs

Your heirs might inherit less because the loan balance must be repaid when the home is sold. This can significantly reduce the value of the inheritance, especially if the loan balance has grown substantially over time.

Potential for foreclosure

If you fail to meet the terms of the loan, such as keeping up with property taxes, home insurance, and necessary maintenance, you risk foreclosure. This could result in the loss of your home.

Complex terms and conditions

Reverse mortgages come with complex terms and conditions that can be difficult to fully understand. Thoroughly review the agreement and seek professional advice to ensure you comprehend all aspects of the loan.

Fees and interest rates

Reverse mortgages often come with higher fees and interest rates compared to traditional loans. These additional costs can add up over time, increasing the overall amount that must be repaid.

Impact on government assistance

Receiving funds does not affect eligibility for certain government programmes.

In the past, some bad actors offered products similar to reverse mortgages that have led to some misconceptions about them today.

How do you pay back a reverse mortgage?

Paying back a reverse mortgage typically happens when you sell your home, move out permanently, or pass away. The loan balance, which includes the amount borrowed plus interest and fees, is repaid from the proceeds of the home sale.

Read our dedicated guide on the pros and cons of reverse mortgages.

Why use Bloom for your reverse mortgage in Canada?

Choosing Bloom for your reverse mortgage in Canada comes with several advantages compared to other providers.

Transparent process

We believe in complete transparency, ensuring you are fully aware of all the costs and terms associated with your reverse mortgage. There are no hidden fees or unexpected charges.

Hassle-free appraisal

In most cases, we don't need to enter your home to conduct an appraisal. The appraisal cost is deducted from the proceeds, so you pay nothing out of your own pocket.

Fast approval

Our Bloom Account Executives work diligently and efficiently to get you a decision within a few days, making the process quick and hassle-free.

Home ownership

You continue to own 100% of your home, just like with a traditional mortgage.

Home equity guarantee

In the rare event that your home’s value decreases, Bloom offers a Home Equity Guarantee, so you will never owe more than the fair value of your home.

Customer service

Our dedicated team is here to guide you through every step of the process, providing personalized support and expert advice.

Bloom's Home Equity Prepaid Mastercard

Almost three in five of Canadian homeowners 55+ say the ability to access micro-amounts (between $1,000 - $3,000) on a monthly basis to support necessities (groceries, ongoing bills) would significantly help them live the quality of life they want. 

Bloom has introduced a Home Equity Prepaid Mastercard, the first of its kind in Canada.  This card acts like a debit card, allowing you to spend up to $2,000 each month without having to make any payments until you sell your home.

It's a flexible, convenient way to access smaller amounts of your home equity as needed, which can help manage interest accumulation more effectively.

There are no monthly payments, allowing you to use the card without worrying about regular financial commitments. Additionally, the Bloom Card has minimal fees, unlike other products that charge for each withdrawal, making it a cost-effective option.

With easy access to funds, you can borrow as needed rather than in large lump sums, giving you greater control over your finances. The Bloom Card also provides competitive rates, similar to traditional reverse mortgages, but with added flexibility and convenience.

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Frequently asked questions

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‍How does a reverse mortgage work?

A reverse mortgage allows homeowners aged 55 and older to convert a portion of their home equity into tax-free cash. Unlike a traditional mortgage, you don’t need to make monthly payments. Instead, the loan is repaid when you sell the home, move out, or pass away.

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.

Is a reverse mortgage better than a HELOC?

Whether a reverse mortgage is better than a Home Equity Line of Credit (HELOC) depends on your financial situation and needs. Reverse mortgages provide tax-free cash without monthly payments, making them ideal for retirees with limited income. 

In contrast, HELOCs require regular payments and are often used for short-term financing needs. HELOCs also have loan-to-value caps that could force you to sell your home if the balance exceeds a certain limit. Reverse mortgages do not have this risk.

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

If you decide to sell your home or move, the reverse mortgage becomes due. The proceeds from the sale of your home will be used to repay the loan balance, including any interest and fees. Any remaining equity after the loan is repaid belongs to you or your heirs.

Conclusion

Whether you want to boost your retirement income, pay off debts, or fund home renovations, a reverse mortgage can help you achieve your goals. Explore your options with Bloom to ensure you’re making the best decision for your financial future.

For more information on how Bloom can transform your retirement planning, call 1-866-882-5666, or leave us your contact information here and we’ll call you at your preferred time.

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