When you take out a reverse mortgage, you are borrowing back some of the money you put into your home over the years. How much can you borrow? In most cases, the loan will equal between 10% and 40% of your home’s value. It depends on:
- What your home is worth
- Your age. Older, single homeowners may be able to borrow more
- Interest rates. The higher rates are, the less you can borrow.
Example: A single person 75 years of age whose house is worth $200,000 might get a reverse mortgage of almost $93,000.
Who can get a reverse mortgage?
There are no income or medical tests. The only conditions are:
- You must pay off any other loans on your home, including any unpaid mortgage
- You must keep your home and property in good condition
- You must stay up to date with property taxes, fire insurance, and any condominium or maintenance fees.
Also, for a standard reverse mortgage, you (and your spouse, if you own property together) must be age 60 or over.
How do I get money from a reverse mortgage?
Choices include:
- Take a lump-sum payment of cash
- Set up a regular monthly payment
- Make withdrawals from time to time. Like with a line of credit, you take out as much as you need, when you need it.
When do I have to pay back what I borrow?
There's no fixed date. As long as either you or your spouse is living in the home, you will never be forced to sell your home and pay back what you owe. Your home also stays in your name. You keep full ownership and control.
What happens if I (and my spouse) stay in my home until we both die?
Your estate will pay back the debt, either by selling the home or using other savings. If your home is worth more than you owe, the extra money goes to your estate. If it is worth less, the bank takes the loss.
Tip: Most reverse mortgage plans guarantee you will never have to pay back more than your home is worth when you sell. Always look for that guarantee.
Remember: Reverse mortgages are not right for everyone
These loans can be costly to set up and the interest rates are higher than they are on a normal mortgage. You may build up a lot of debt over the years. It’s important to get good advice on the drawbacks and benefits before you decide.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.
