Reverse Mortgage in Canada: Access Your Equity Without Selling

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What is a reverse mortgage?

A reverse mortgage is a financial product that allows homeowners aged 55 and over to convert a portion of their home equity into cash, without having to sell the property or make monthly payments. The concept is simple: instead of progressively repaying a loan to the lender (as with a traditional mortgage), the lender pays funds to the homeowner. The loan balance, including accumulated interest, is repaid when the homeowner sells the property, permanently moves out, or passes away.

Reverse Mortgage (CHIP): A loan secured by the value of the principal residence, offered to Canadians aged 55 and over, where no capital or interest payments are required as long as the owner occupies the property. In Canada, the main product is the CHIP (Canadian Home Income Plan) from HomeEquity Bank.

How does a reverse mortgage work in Canada?

The homeowner can borrow up to 55% of the appraised value of their residence. The available amount depends on the owner's age (and their spouse's, if applicable), the property's location and type, and its market value. Funds can be disbursed as a single lump sum, scheduled periodic payments, or a combination of both. No tax is payable on the amounts received since they represent a loan, not income. Interest accumulates on the balance and is compounded, meaning the amount owed increases over time.

Advantages and disadvantages

Advantage: No monthly payments required as long as you live in the property
Advantage: Funds received are not taxable
Advantage: You keep ownership and title of your home
Advantage: No-negative-equity guarantee (you will never owe more than the home's value)
Disadvantage: Interest rates 1% to 2% higher than conventional mortgages
Disadvantage: Compound interest reduces your equity over time
Disadvantage: High setup costs (appraisal, legal fees, administration fees)
Disadvantage: Reduced inheritance for heirs

Alternatives to a reverse mortgage

Before opting for a reverse mortgage, it is important to consider the alternatives. A home equity line of credit (HELOC) offers lower interest rates (typically prime rate plus 0.5% to 1%) but requires monthly interest payments. Conventional refinancing allows debt consolidation at an advantageous rate with regular payments. Downsizing, as explained in capsule E4.3.2, frees up equity by selling and buying smaller. Finally, some retirees explore life annuities from an insurer, which provide guaranteed lifetime income in exchange for capital.

Quebec-specific considerations

In Quebec, the Civil Code governs real estate security interests, including reverse mortgages. The homeowner must sign a mortgage deed before a notary, and the loan will be published in the Quebec Land Register. It is strongly recommended to consult an independent notary before signing to fully understand the legal implications. Additionally, if the property is part of the family patrimony under the Civil Code of Quebec (art. 415), the spouse must generally consent to the mortgage. Your mortgage broker can coordinate the process and help you choose between a reverse mortgage and alternatives based on your particular situation.

Frequently Asked Questions

Who can get a reverse mortgage in Canada?

To qualify for a reverse mortgage in Canada, it is necessary to be at least 55 years old (both spouses if you are a couple), own your principal residence, and have sufficient equity in the property. The home must be located in Canada and in good condition. HomeEquity Bank is the main provider with the CHIP product. Some credit unions also offer similar products.

How much can I borrow with a reverse mortgage?

You can generally borrow up to 55% of the appraised value of your property. The exact amount depends on your age (the older you are, the higher the amount), the property's location, type, and value. Funds can be received as a lump sum, periodic payments, or a combination of both.

What are the drawbacks of a reverse mortgage?

Interest rates are typically 1% to 2% higher than conventional mortgages. Compound interest accumulates, progressively reducing your equity. There are setup fees, appraisal costs, and legal fees. Additionally, the remaining equity at the estate level will be reduced, which may affect the inheritance you wish to leave.

Can I lose my home with a reverse mortgage?

No, as long as you meet the contract conditions: live in the property as your principal residence, maintain it in good condition, pay property taxes, and maintain home insurance. HomeEquity Bank offers a no-negative-equity guarantee, meaning you will never owe more than the value of your home at the time of repayment.

What are the alternatives to a reverse mortgage?

The main alternatives include a home equity line of credit (HELOC), which offers lower rates but requires monthly interest payments; conventional refinancing with a low-rate mortgage; downsizing (selling to buy smaller); and a life annuity. Each option has its own advantages, and a mortgage broker can help you compare.