A reverse mortgage allows homeowners aged 55 and over to access a part of their home’s equity in the form of a loan with higher interest rates than a traditional mortgage or secured line of credit. Homeowners can withdraw up to 55% of their equity as a single sum or in monthly instalments. Yet, the homeowner is not required to repay the loan until they sell their property or die.
Several financial experts are suspicious of the product since it can swiftly deplete equity, leaving homeowners and their next of kin with nothing.
Yet, it is gaining favour among seniors. According to the Office of the Superintendent of Financial Institutions, reverse mortgages increased by 35% year on year in December 2022.
HomeEquity Bank, Canada’s largest reverse mortgage issuer, reported $1 billion in new reverse mortgages granted for 2022, a 30% increase over the previous year, according to Vivianne Gauci, senior vice-president of HomeEquity Bank.
So, is it a good idea to apply for a reverse mortgage if you’re in a financial bind? Experts advise that before taking a reverse mortgage, you should exhaust all other choices. While a reverse mortgage can help you pay off debt and stay in your home longer, it comes at a steep cost. Selling the house and downsizing is also an option, according to Friesen. If a homeowner has a $2 million property, they can either downsize and purchase a condo or rent and avoid the stress of property maintenance. A condo or apartment also provides the possibility of elevator access, which might assist elderly folks with mobility issues.