A reverse mortgage is a loan secured by a home that allows an eligible homeowner to receive funds while generally postponing principal repayment. Interest and fees are added to the balance, so the amount owed tends to grow and home equity tends to shrink relative to a no-loan case.
Rules differ across countries and products. In Canada, reverse mortgages are commonly available to homeowners age 55 or older and may permit borrowing up to a portion of appraised value. In the United States, the common federally insured HECM program is generally for homeowners age 62 or older and includes product-specific counselling and insurance requirements.
How money and interest move
Funds may be provided as a lump sum, scheduled advances, a line of credit, or a combination depending on the product. Interest accrues on amounts advanced and fees may also be added. Without voluntary payments, the balance compounds upward.
A projection should show the loan balance and home value separately. Future home growth is uncertain and should never be used as a guarantee that equity will remain.
When the loan becomes due
Common repayment events include sale of the home, the last borrower moving out or dying, or a default under contract obligations. Exact definitions, timelines, spouse protections, estate procedures, and non-recourse terms vary.
Homeowners may still have to pay property tax, insurance, condominium fees, and maintenance. Failure to meet required obligations can create default risk even when no scheduled principal payment is due.
Costs and alternatives
Reverse-mortgage rates can be higher than traditional mortgage or HELOC rates, and setup costs may include appraisal, legal, title, insurance, or lender charges. The cost can be substantial when the loan is held for many years.
Compare the net cash, total projected balance, flexibility, and family goals with a HELOC, home-equity loan, refinancing, selling and downsizing, renting part of the home, or public-benefit and tax-deferral programs where available.
Questions for independent review
Ask an independent lawyer or qualified housing counsellor to explain repayment triggers, spouse and co-owner status, non-recourse protection, fees, rate changes, required property obligations, default, and what heirs can do. Include family only with the homeowner's informed permission.
Never sign because a salesperson says the offer expires today. A home-secured contract should allow time for verified documents and independent advice.
Frequently asked questions
Do you still own the home with a reverse mortgage?
The homeowner generally keeps title, while the lender holds a security interest. Contract obligations and local law still apply.
Do reverse mortgages require monthly payments?
Many do not require scheduled principal and interest payments while qualifying conditions continue, but taxes, insurance, maintenance, fees, and other obligations remain.
Can a reverse mortgage use all home equity?
Product limits apply and depend on factors such as value, age, rates, existing secured debt, and jurisdiction. Borrowing also reduces remaining equity over time.
Sources and further reading
Mortgage rules and market data can change. Follow the links for current official information.