Retirement should be a time to enjoy life, yet many Canadians find themselves “house rich and cash poor.”  Their net worth is tied up in the family home, leaving them with limited cash flow to cover rising living costs, health care and unforeseen expenses.  A reverse mortgage can unlock a portion of that wealth, offering a lifeline without the requirement to make monthly payments.  But this solution isn’t for everyone.  Understanding how reverse mortgages work, their costs, and their impact on your estate is critical before signing on the dotted line.

How reverse mortgages work

Reverse mortgages are available to homeowners aged 55 and older.  The amount you can borrow depends on your age, your spouse’s age (if applicable), your home’s value and its location.  Generally, the older you are and the more valuable your home, the more you can borrow—often up to 55 % of the appraised value.  You can choose to receive the money as a lump sum, in regular installments or a combination.  Unlike traditional mortgages, you don’t make payments.  Interest and principal accumulate until the loan becomes due, usually when you sell the home, move out or pass away.  At that point, the loan, plus accrued interest and fees, must be repaid.  Any remaining equity belongs to you or your estate.

Costs and considerations

• Interest rates and compounding. Reverse mortgage interest rates are typically higher than those of conventional mortgages because the lender waits longer to be repaid.  Rates are fixed or variable and interest compounds over time, meaning the balance grows at an increasing rate the longer the loan is outstanding.  This can substantially reduce the equity left for your heirs.
• Fees. Setup costs include an appraisal, independent legal advice and administrative fees, which can total several thousand dollars.  There may also be a fee to switch or renew the loan.
• Impact on inheritance. Because the loan balance increases, the amount of equity available to pass on to your children or beneficiaries decreases.  Some people view this as using their children’s inheritance; others see it as using their own money while they’re alive.
• Eligibility and restrictions. Certain property types—like vacation homes, co‑operative housing or properties in remote areas—may not qualify.  The home must be your primary residence, and you must keep property taxes and insurance up to date.  You are still responsible for maintenance and repairs.

Alternatives to consider

1. Downsizing. Selling your larger home and moving to a smaller property releases capital without taking on debt.  This approach reduces maintenance and property taxes, although moving costs can be significant and the emotional attachment to your home must be considered.
2. Home equity loan or second mortgage. If you have sufficient income to make payments, these options may offer lower interest rates and preserve more of your equity.  Some loans allow interest‑only payments, giving you flexibility in how you manage cash flow.
3. Sale‑leaseback. Some companies buy your home and allow you to stay as a tenant.  You receive a lump sum from the sale, but you no longer own the property.  Lease costs and contract terms must be carefully reviewed.
4. Family support. Family members may be willing to provide a loan or monthly support in exchange for a share of the inheritance.  This option avoids lender fees but requires clear agreements to prevent future disputes.

Who benefits from a reverse mortgage

A reverse mortgage makes sense in certain situations:

• Limited retirement income. If your pension, savings and government benefits don’t cover expenses and you want to age in place, a reverse mortgage provides tax‑free cash without monthly obligations.
• Lack of heirs. If leaving a large estate isn’t a priority because you don’t have children or heirs, converting equity to cash to enhance your lifestyle can be a rational choice.
• Need for a safety net. A reverse mortgage can serve as a financial buffer for unexpected medical bills or home repairs.

However, if your goal is to maximize your estate’s value or if you have the means to make monthly payments, other solutions may be preferable.

Lighthouse Lending’s approach

At Lighthouse Lending, we treat reverse mortgages as one tool in a larger retirement strategy.  We start by understanding your full financial picture—income, assets, health and family situation.  We then compare the cost of a reverse mortgage to alternatives such as downsizing, refinancing or drawing income from investments.  If a reverse mortgage is the best solution, we work with providers offering competitive rates and clear terms.  We also encourage clients to involve family members in the discussion to maintain transparency and avoid future misunderstandings.

Case study: Funding retirement dreams

Maria and José are both 72 and own a home in Barrie valued at $900,000.  Their pensions and savings cover basic living expenses, but they wish to travel and help their grandchildren with education costs.  They don’t want to leave the house they’ve lived in for 35 years.  Lighthouse Lending helped them obtain a reverse mortgage of $300,000 at a fixed rate.  They took $100,000 up front and arranged for $15,000 annual advances over the next 13 years.  This structure provides them with the funds they need while preserving some equity for later.  Their children were part of the decision, understanding that the loan would reduce their inheritance but improve their parents’ quality of life.

Wondering if a reverse mortgage is right for you?  Apply today to explore your options and plan your retirement confidently.