What Happens to a Reverse Mortgage When the Owner Dies in Ontario

If your parent had a reverse mortgage and has died, you may be an executor or an adult child trying to understand what happens to the home. The loan did not require regular payments, so it may feel like a surprise that a large balance now needs to be dealt with.

This article explains in general terms how repayment works, what the estate may face, and what practical steps help. The details depend on the lender's contract and the will, so a lawyer should review your particular situation.

When the loan becomes due

A reverse mortgage does not require regular payments. The balance must be repaid when the home is sold, the owner moves out, the last borrower dies, or the borrower defaults. If there were two borrowers, the trigger is the death of the last one, so the loan does not usually fall due at the first death. Confirm this against the contract.

When the borrower dies, the estate may have to repay the reverse mortgage plus interest within a set period. That period may be shorter than the time needed to settle the estate. Each lender sets its own timing and late-repayment consequences, so there is no single deadline to rely on. Find the figure in the mortgage documents or ask the lender in writing.

How big the balance may be

Interest on a reverse mortgage is added to the balance, so the amount owed grows over time. Fees may also have been added to the balance rather than paid upfront. The result is that less equity may remain for heirs.

Ask the lender for a written payout statement showing the principal, the interest to date, fees, and any early-repayment fee. Early repayment may carry a fee, and prepayment penalties are among the possible costs of these loans. Compare the payout figure with a current appraisal or realtor's estimate of the home's value.

Your options as executor or family

• Sell the home: sale proceeds can be used to pay off the reverse mortgage. How any remaining money is handled depends on your situation, so it is worth confirming with a lawyer.
• Keep the home: a family member or beneficiary can repay the loan from their own funds or by arranging new financing, if the lender is willing to lend. How this works depends on the lender and the circumstances, so it is worth confirming with a lawyer.
• Use other estate assets: the estate may have cash or investments that can pay the balance, though that reduces what other beneficiaries receive.
• Do nothing: this is the risky option, because late repayment can have consequences set by the lender.

Who can sell or keep the home also depends on the will and on who has authority to act for the estate. Settling an estate often takes time, which is why asking the lender about timing early matters.

If the loan is not repaid

Failing to repay is a default, and default is one of the events that makes the balance due. A lender may then enforce its security. Where the mortgage has a power of sale, a lender may sell once the borrower has been in default for at least 15 days and at least 35 days' notice has been given to everyone with an interest in the property. If the mortgage has no power of sale clause, the statutory power of sale applies, after three months of default and 45 days' notice to interested persons.

If a sale happens, the proceeds go first to the principal and interest owed to the lender, the expenses of the sale, and other encumbrances in order of priority. Any remaining surplus goes to the mortgagor. Whether and how those rules apply to a particular reverse mortgage depends on its terms, so get legal advice if you receive any notice.

Other issues to check

• Surviving spouse: spouses have rights in a matrimonial home, including rights to notice of enforcement against it. If a spouse is living in the home, tell the lawyer and the lender.
• Other debts: how any other debts secured on the home affect the estate depends on the documents and the order of priority, so it is worth confirming with a lawyer.
• Tax and benefits: money borrowed through a reverse mortgage is tax-free and did not reduce OAS or GIS. Tax on the estate itself is a separate question for an accountant.

What to do next

Act early. The estate's repayment window may be shorter than the time needed to settle the estate, so waiting can cost money.

• Locate the reverse mortgage agreement and the latest lender statement.
• Notify the lender in writing of the death and ask for the repayment deadline and a payout statement.
• Get a current value for the home, such as an appraisal or realtor's opinion.
• Do not promise the lender or family members any outcome until you know the numbers.
• Speak with a lawyer about the will, your authority as executor, and the best route to repay or sell.
• Ask the lender in writing what happens if the estate needs more time.

Frequently asked questions