A reverse mortgage is a loan that allows a homeowner to convert some of the equity in their house into cash without having to sell their home. With a reverse mortgage, instead of being required to make monthly payments, the homeowner actually receives cash from the lender.
The loan will need to be repaid when the borrower moves out of their home, sells the home, or when the last borrower dies. Because a reverse mortgage reduces the equity you have in your home, it’s sometimes called “equity release”. However, your reverse mortgage provider doesn’t actually take an ownership share in your home, as is sometimes assumed.
One of the key features of a reverse mortgage over alternatives like a second mortgage or a HELOC (Home Equity Line of Credit) is that a reverse mortgage does not require you to have an income to qualify. Both a second mortgage or a HELOC would need you to still have money coming in, which is not always the case for older Canadians.
One of the downsides of reverse mortgages is that they carry higher rates than conventional mortgages and slightly higher rates than HELOCs.