Meet Mary and John. They’re a retired couple in their early sixties, living in the same Toronto home for over 30 years. Most of their mortgage is paid off, but rising costs and medical bills are making things tight.
They heard about reverse mortgages but were worried it meant big monthly payments. Then they found out there’s a way to use their home’s value without paying anything each month.
Still, they had one big question: how do you pay back a reverse mortgage?
It sounds tricky, but it’s really about knowing when the loan needs to be repaid, what the costs are, and how to plan ahead. That way, there are no surprises later, and the family home stays in good hands.
Whether you’re thinking about a reverse mortgage or just want to be prepared, this article will walk you through everything you need to know.
What Is a Reverse Mortgage in Canada
A reverse mortgage is a special type of loan designed for homeowners to convert a portion of their home equity into tax-free cash, without the obligation of monthly mortgage payments.
Unlike a traditional mortgage where you pay down principal and interest each month, with a reverse mortgage the loan balance grows over time as interest and fees accumulate on the outstanding balance.
Who Offers Reverse Mortgages?
In Canada, the two primary providers are HomeEquity Bank (through its CHIP Reverse Mortgage) and Equitable Bank. Both are federally regulated Schedule I institutions that market to homeowners aged 55 and over, although some provincial lenders and brokers may offer comparable equity-release products.
Eligibility Criteria
Contrary to some misconceptions, the minimum age for a Canadian reverse mortgage is generally 55, not 45. All borrowers listed on the title must meet this age requirement.
Eligible properties include single detached homes, townhomes, and some condominiums; mobile homes and co-ops may be accepted depending on the lender’s policies.
How do you pay back a reverse mortgage?
You usually repay a reverse mortgage when you move out of the home, sell it, or pass away. The loan is paid off using the money from the sale of the home. If there’s anything left over, it goes to you or your heirs.
You don’t need to make monthly payments while living in the home, but you do have to keep up with property taxes, insurance, and basic upkeep.
That’s the short answer. But there’s a lot more to know. We’ll cover when repayment starts, what costs to expect, and how to plan ahead so your home and family are protected. Keep reading to get all the details.
How the Loan Balance Grows?
It might seem like nothing is happening while you’re not making payments, but the loan balance doesn’t stay still. Let’s look at how it slowly grows over time and why that matters when it’s time to pay it back.
Compound Interest in Plain Terms
When you take funds from a reverse mortgage, you are using your home’s equity. Over time, interest is added to the loan balance, usually twice a year. For example, with a 6.34 percent interest rate, a $150,000 advance can grow by over $54,900 in interest after five years.
No Monthly Payments
Since borrowers are not required to make monthly payments, both interest and any applicable fees (administration, insurance) are added to the balance. This “roll-up” effect can make the total owed grow quickly, underscoring the importance of planning ahead for eventual repayment.
Annual Statements
Lenders provide annual statements detailing the current balance, interest charged, and any fees incurred. Reviewing these statements helps homeowners monitor growth and forecast future repayment needs.
Repayment Triggers and Timing
A reverse mortgage doesn’t last forever. Certain events can trigger repayment, and knowing when that happens can help you plan ahead. Let’s break down what starts the clock and what happens next.
A reverse mortgage becomes repayable when one of three events occurs:
Moving Out of the Principal Residence: If you permanently relocate, the mortgage becomes due.
Sale of the Home by the Borrower: Voluntary sale triggers repayment.
Death of the Last Surviving Borrower: Heirs must repay from estate proceeds to retain or sell the home
Notice Periods and Deadlines
Upon any trigger event, lenders typically require notice within 30 to 120 days. After notice, repayment is due within a further 30 to 180 days, varying by lender and province. Early communication with your lender is crucial to avoid penalties or forced sale.
Step-by-Step Repayment Process
Paying back a reverse mortgage might sound complicated, but it doesn’t have to be. Here’s a clear, step-by-step look at how the repayment process works from start to finish.
Obtain a Current Mortgage Statement
Contact your lender for a “loan payoff statement,” which specifies the exact amount needed to settle the reverse mortgage on a given date.
Choose a Repayment Source
You have several options to cover the balance:
Sale Proceeds: The most common option is to sell the home and use the net proceeds, after realtor fees and closing costs, to repay the loan.
Estate Funds: Heirs may use other estate assets if they wish to keep the property.
Refinancing: Replace with a conventional mortgage if you still qualify for standard financing.
Personal Funds or HELOC: Borrow from savings, investments, or a home equity line of credit.
Role of Settlement Agent or Lawyer
A notary (Québec) or lawyer handles conveyancing: disburses funds, pays off the reverse mortgage, and registers a discharge on title.
Surplus vs Shortfall
Surplus: If sale proceeds exceed the loan balance, heirs receive the difference.
Shortfall: Reverse mortgages are “non-recourse,” which means heirs are not responsible for any amount that exceeds the value of the home. The lender absorbs the loss and may recover it through insurance coverage.
Costs and Fees Associated with Repayment
Repaying a reverse mortgage comes with more than just the loan amount. There are some costs and fees to be aware of. Let’s go over what you might need to pay and how to be ready for it.
Prepayment or Discharge Fees
Some products include a discharge fee, often calculated as a percentage of the loan, if the mortgage is repaid within a fixed-rate term. Open reverse mortgages may waive these fees.
Legal and Conveyancing Fees
Expect legal disbursement costs ranging from $500 to $1,500, depending on province and complexity.
Appraisal and Inspection Charges
A current appraisal may be required by the lender, typically costing $300–$600.
CMHC Insurance Refunds
If you secured your reverse mortgage through the CMHC-insured Home Equity Plan, you may be entitled to a partial insurance premium refund upon early repayment.
Tax Considerations
Wondering how a reverse mortgage affects your taxes? The good news is, it’s usually more straightforward than people think. Let’s take a quick look at what you need to know.
Principal Residence Exemption
Any capital gains realized on sale retain full exemption under Canadian tax law, since you remain owner until sale.
Tax Treatment of Interest and Refunds
Interest and insurance premiums paid on a reverse mortgage are not tax-deductible for personal residences. Refunds of prepaid insurance may need to be reported as income.
Impact on Income-Tested Benefits
Reverse mortgage proceeds are non-taxable but may affect eligibility for income-tested federal benefits like Old Age Security (OAS) and Guaranteed Income Supplement (GIS) if transferred into income-earning investments.
Provincial and Regional Variations
Canada’s provinces impose unique rules around discharge, lien registrations, and probate.
Ontario
Lien Registration: Reverse mortgages register as first liens, requiring a formal discharge on title.
Probate: Estate executors must report the mortgage on probate applications.
British Columbia
Discharge Timing: Must be discharged before sale completion, or lender may hold sale proceeds in trust.
Property Transfer Tax: Refunds may be possible if the home qualifies as a principal residence.
Québec
Notarial Regime: Notaries handle all real estate transactions, including reverse mortgage discharges.
Legal Formalities: Specific registry rules and hypothec procedures apply.
Other Provinces
Alberta, Newfoundland & Labrador, Prince Edward Island: Generally follow federal guidelines with minor procedural differences.
Consumer Protections and Regulations
Reverse mortgages come with built-in safeguards to protect homeowners. From legal rules to lender requirements, here’s what’s in place to keep things fair and secure.
CMHC-Insured Home Equity Plan
The Home Equity Plan (CMHC-insured) ensures that any shortfall between the home’s value and the loan balance is covered by CMHC insurance, protecting heirs from any additional liability.
Disclosure and Counselling
By law, lenders must provide:
A Statement of Obligations detailing all fees
A 30-day cooling-off period
Access to independent reverse mortgage counselling
Ombudsman and Complaint Resolution
If issues arise, homeowners can escalate complaints to the Financial Consumer Agency of Canada or relevant provincial ombudsman offices.
Alternatives and Complementary Strategies
A reverse mortgage is one way to tap into your home value. You may also consider other options that fit your needs or work alongside a reverse mortgage.
Home Equity Line of Credit (HELOC)
A HELOC lets you borrow against up to 65 percent of your home equity. Rates can be lower than for a reverse mortgage. You do need to make monthly interest payments and have good credit to qualify.
Downsizing
Selling a larger home and buying a smaller more affordable one can free up equity. It can also lower utility bills and reduce maintenance work.
Government Pension Top Ups
Programs such as Guaranteed Income Supplement and provincial senior benefits add to retirement income without increasing debt.
Renting Out Part of Your Home
If you have extra rooms or a basement suite, renting them out can bring in steady rent income. This does not borrow against the home itself.
Deferred Payment Home Renovation Loans
Some provinces offer low interest or no interest loans for home updates for seniors. These loans are repaid when you sell the home.
Line of Credit on Investments
If you hold investments, you might borrow against them through a margin account or a securities backed credit line. This can be an option but it carries risk if markets fall.
Selling and Renting
Selling your home and then renting a smaller unit or a retirement community unit gives you full access to equity. It also reduces long term upkeep and commitment.
Life Lease Housing
In some areas seniors can buy the right to live in a retirement community for less cost than full ownership. That frees other funds for living costs.
Family Support Agreements
Some retirees make formal plans with adult children for regular support. In return there may be inheritance arrangements or shared ownership later on.
Annuities or Investment Income
Using savings to buy a life annuity can give guaranteed monthly income for life. You can also adjust investments to aim for more cash flow, while balancing risk.
Part Time or Flexible Work
Many seniors choose light freelance work or part time roles. This adds income and helps stay active and engaged.
Planning Ahead for a Smooth Repayment
Simple steps now can save your family stress later. A little planning goes a long way when it comes to reverse mortgage repayment.
Start the Conversation Early
Talk with your family or whoever will handle your estate. Let them know about the reverse mortgage and what you expect. This way no one is surprised later.
Review Statements Each Year
Look at your loan balance, interest and fees every year. This helps you see how the amount is growing and gives you time to adjust if needed.
Keep Papers Together
Store your mortgage papers, home title, insurance info and contact details in one folder or digital folder. Make it easy to find when someone needs them.
Update Your Will and Plans
Check that your will or estate plan mentions the home and how to handle the loan. If things change, update these documents.
Plan a Small Fund
If you can, put aside a bit of money in savings or choose a simple investment. Even a small cushion can help cover costs when it is time to repay.
Check Insurance
Make sure home insurance is active and offers enough protection. Good coverage can avoid extra costs or surprises.
Talk to an Advisor
A friendly financial advisor can help you see options and guide you on how to meet goals without risk.
Consider Small Payments
If you find extra cash now and then, think about making a payment on the loan. It can slow how fast the balance grows.
Review Every Few Years
Life can change. Every few years, check if your plan still fits. If your needs or goals shift, tweak your approach.
Tell the Estate Executor
Let the person in charge of your estate know the plan for the reverse mortgage. Give them clear notes so they can act smoothly when the time comes.
These steps keep things clear and calm for you and your family. Let me know if you want a short checklist or any extra detail.
Real-Life Case Studies
Real stories. Real results. See how others handled their reverse mortgage journey and what you can learn from their experience.
Mary and John (Senior Couple in Toronto)
Used their home equity wisely and sold at the right time.
Mary and John took out a reverse mortgage in 2015 and used about 35 percent of their home’s value. They used the money for a kitchen upgrade, some health-related expenses, and helping their grandkids with school.
In 2023, they sold their home during a strong market. After paying off the $120,000 loan and the interest, they still walked away with $300,000.
What we can learn
With smart planning and good timing, a reverse mortgage can help you enjoy retirement while still keeping money in your pocket when you sell.
Rebecca (Single Homeowner in Vancouver)
Used a reverse mortgage as a stepping stone to a better loan.
Rebecca took out a reverse mortgage in 2018 when she needed funds for major home repairs and to help her daughter with a down payment. Her credit wasn’t strong enough for a regular loan.
Over time, she paid down some small debts and improved her credit. By 2022, she switched to a regular mortgage with lower interest. This helped stop the loan from growing and saved her money each month.
What we can learn
A reverse mortgage doesn’t have to be forever. With a little effort, you can improve your financial situation and move to a more affordable loan.
Lucette (Widowed Retiree in Montreal)
Relied on built-in protections when her home sold for less.
Lucette took out a reverse mortgage in 2014 to help cover living costs and her husband’s care. When he passed in 2021, her estate had to sell the home. The sale price was lower than expected, and it didn’t fully cover the loan.
But because her reverse mortgage included a no negative equity guarantee, her family didn’t have to pay the difference.
What we can learn
Reverse mortgages can offer peace of mind. Even if the home sells for less than the loan, your family won’t be stuck with the bill.
Conclusion
Repaying a reverse mortgage means knowing what triggers repayment, the timelines involved, and the costs you’ll face. It also means working with your lender, your lawyer, and your family.
By planning ahead, reviewing your annual statements, exploring your options, and getting trusted advice, you can protect your legacy and avoid financial stress.
Ready to get clear guidance? Contact AJP Mortgage today. Our friendly counsellors and senior lending specialists will walk you through every step and help you make the best choice for your future and your family’s peace of mind.
Frequently Asked Questions
Can I pay out my reverse mortgage early without penalty?
Some products permit penalty-free repayment at any time (e.g., open reverse mortgages), while fixed-rate products may have discharge fees within the initial term.
What happens if my heirs do not want to keep the home?
Heirs can sell the home, repay the reverse mortgage from proceeds, and split any surplus. If proceeds are insufficient, CMHC insurance covers the shortfall.
How long do I have to repay after moving out?
Notice is typically required within 30 to 120 days, with final repayment due within 30 to 180 days of notice, depending on the lender and provincial rules.
Are there government programs that offset repayment costs?
While no direct repayment subsidies exist, programs like the Guaranteed Income Supplement can ease financial burdens, and partial CMHC insurance refunds may apply on early repayment.
