Reverse Mortgage in Ontario: How It Works for Homeowners

If you are a senior homeowner with a lot of value in your home but limited income, a reverse mortgage may have been suggested to you. It lets you borrow against the home without making regular payments, but the cost shows up later.

This article explains how a reverse mortgage works in Ontario, what it means for ownership and your family, and why you should have your own legal advice before agreeing.

How a reverse mortgage works

A reverse mortgage is usually for homeowners aged 55 or older and generally allows borrowing up to 55% of the home's current value. You keep ownership of the home.

Unlike a regular mortgage, interest is added to the loan, so the balance grows over time. Compare this with a home equity loan, where you can usually borrow up to 80% of your home's value minus what you still owe. A reverse mortgage generally allows a smaller share of value.

Your home is the security for the loan. If you default, for example by letting the home fall into disrepair, that can lead to foreclosure. Foreclosure is a court process, and courts have broad jurisdiction to set aside a default foreclosure judgment, but doing so is exceptional relief. It is far better to understand the default terms before you sign.

When the loan comes due

The loan comes due when you sell, move out, the last borrower dies, or you default. Because the balance has been growing, the amount owing at that point can be much larger than what you first borrowed.

• Selling the home: the loan comes due when you sell, so plan for how the growing balance will be repaid at that point.
• Moving out: moving out of the home triggers repayment, which matters if you may need long-term care or a different home.
• Death of the last borrower: the estate has a limited time to repay.
• Default: for example, letting the home fall into disrepair can lead to foreclosure.

The exact length of the repayment time for an estate and what counts as default depend on the lender's contract, so read those terms closely.

What it means for ownership and your family

You keep ownership of the home, and the estate has a limited time to repay after the last borrower dies. How the loan interacts with your will, and how much is left for your estate, depends on your lender's contract and your situation, so it is worth confirming with a lawyer. If you want your children or other beneficiaries to inherit the home, talk to them early so they understand the timeline and the growing balance.

If the home is a matrimonial home, a spouse who has no ownership interest but has a right of possession has the same right of redemption or relief against forfeiture as the owner-spouse, and is entitled to the same notice of the lender's claim and its enforcement. Because the loan comes due when the last borrower dies, who is named as a borrower matters for how long the loan can stay in place. Discuss with a lawyer who should be on the loan.

What is registered on title and independent legal advice

A reverse mortgage is secured against your home, so it is a charge that the lender holds on the property. Exactly how it is registered and ranked against other charges depends on the documents and on the property. Where land is under the Land Titles Act, registered instruments generally rank in the order they are entered in the register. If you already have a mortgage or line of credit on the home, ask how it will be dealt with.

In some provinces the lender may require independent legal advice for a reverse mortgage. Whether a given Ontario lender requires it is a matter for that lender, but you should get it either way. A lawyer who acts only for you can explain the documents, the effect on your estate and the consequences of default.

What to do next

Before you decide, compare other ways to use your home's value or ease cash pressure. A second mortgage is a second loan secured on your home; you must keep paying the first mortgage too, and second-mortgage interest rates are usually higher because they are riskier for lenders. A mortgage payment deferral is an agreement with the lender, not a right, and interest keeps accruing, so you will owe more afterwards. How each option fits your situation is worth confirming with a lawyer.

• Ask the lender for the interest rate, fees and a projection of how the balance may grow over time.
• Confirm what counts as default, including upkeep, insurance and property taxes.
• Ask how long your estate would have to repay after the last borrower dies.
• Compare other options, such as selling, downsizing or a home equity loan.
• Share the documents with family you trust, and have a lawyer review them before you sign.

Frequently asked questions