If you're a homeowner in Canada, you've likely heard about reverse mortgages. This financial product for older Candians can be a game-changer for those looking to supplement their retirement income.
In this article, we will look at the age requirements for reverse mortgages in Canada: what are the rules, and why they exist.
- All homeowners must be at least 55 years old in order to qualify for a CHIP Reverse Mortgage or a Flex Reverse Mortgage
- If one or all of the homeowners is less than 55 years old, they may be able to get a reverse mortgage from one of the smaller, regional lenders that work with mortgage brokers
- The reverse mortgage age requirement in Canada is created by lenders, not the Canadian government, whereas the American government mandates the minimum age rule in the United States
What is a Reverse Mortgage?
Before we delve into the age rules, let's briefly touch on what a reverse mortgage is. A reverse mortgage is a loan that homeowners aged 55 or older can take out against the equity in their home. It's a financial decision that can provide a steady stream of income, a lump sum, or a line of credit to help meet retirement expenses, healthcare costs, or simply to improve your quality of life in your golden years.
Unlike a traditional mortgage where you make payments to a lender, a reverse mortgage pays you. The loan, along with interest and fees, is repaid when you die, move or sell the home. The key difference from a traditional mortgage is that regular loan payments are not required, which can provide significant financial relief for those on a fixed income.
For a more in-depth look at reverse mortgages, I encourage you to read our other articles on the subject:
- Benefits of Reverse Mortgages
- Why You Should Use a Mortgage Broker to Get a Reverse Mortgage
- Complete Guide to CHIP Reverse Mortgages
What is the Age Requirement for a Reverse Mortgage?
Now, let's talk about the age rules. In Canada, the minimum age for a reverse mortgage is 55 years old. There is no maximum age limit to reverse mortgage eligibility (in fact, the older you are, the bigger your loan approval).
This minimum age requirement was set by HomeEquity Bank in 1986 when it started offering the CHIP Reverse Mortgage. Equitable Bank, who provides the Flex Reverse Mortgage, has the same requirement that all homeowners be at least aged 55.
While these 2 banks have the same age requirements for their reverse mortgage products, their reverse mortgage products are different. You can learn more about their reverse mortgages by reading our comparison of the CHIP reverse mortgage and the Flex reverse mortgage. The key point to note here is that the minimum age requirement for a reverse mortgage in Canada is not mandated by the government, unlike reverse mortgages in the United States.
People often get confused by the online material they read that says a homeowner must be 62 years old to get a reverse mortgage. A minimum age of 62 is the requirement to be eligible for a reverse mortgage in the United States and does not apply to Canadian homeowners.
We understand much of the online material discussing reverse mortgages is focussed on American requirements and can be confusing for Canadians, so we wrote an article about the differences between Canadian and American reverse mortgages to help avoid confusion.
Remember, age isn't the only factor to qualify for a reverse mortgage. To be eligible, the home must be your primary residence, and you must either own your home outright or have a small remaining mortgage balance. Other factors, like the appraised value of your home, its condition, and location, also play a role in determining your eligibility and the amount you can borrow.
We discuss all of these other reverse mortgage eligibility criteria in this article:
Why Is There an Age Requirement for a Reverse Mortgage?
There are generally 3 reasons a reverse mortgage has a minimum age requirement. Firstly, by the time homeowners reach the age of 55, they have typically built up substantial equity in their homes. This equity is the foundation of a reverse mortgage. The more equity a homeowner has, the more they can borrow. By setting a minimum age requirement, lenders ensure that homeowners have had sufficient time to build up this necessary equity.
Secondly, as individuals approach retirement, their income often begins to decrease as they move from full-time employment to part-time work or complete retirement in their mid-50’s. This drop in income can make it challenging to meet financial needs and reverse mortgages become more attractive.
Thirdly, the age requirement is in place to protect lenders for providing the "negative equity guarantee" to borrowers. Lenders need to make sure their loans are typically paid back before the loan balance becomes greater than the home value and the “negative equity guarantee” would become applicable; so after analyzing trends in average life expectancies, interest rates and home values, they concluded that lending to people who were at least 55 years old balanced all of the interests.
What If One Homeowner is Under 55?
When it comes to reverse mortgages, age isn't just a number. It plays a crucial role, especially for couples with age differences. In Canada, if one spouse is 55 or older but the other isn't, then they are not eligible for a CHIP reverse mortgage or a Flex Reverse Mortgage.
Homeowners in this situation should consult with a mortgage brokerage that specializes in reverse mortgages as there are several smaller, regional lenders that will provide a reverse mortgage where one of the homeowners is less than 55 years old.
What If Both Homeowners are Under 55?
If both homeowners are younger than 55 years old, they are not eligible for the CHIP Reverse Mortgage or the Flex Reverse Mortgage. Homeowners who still wish to get a reverse mortgage would need to use a mortgage broker who deals with the smaller, regional lenders that provide products similar to the national lenders.
These other lenders are not as common and provide their loans with different terms and conditions. It's crucial to do your research and understand the specifics of these programs before proceeding. As always, its recommended you work with an experienced financial advisor to ensure you're making the best decision for your circumstances.
How Does a Reverse Mortgage Work?
Now that we've covered the age rules and options for younger homeowners, let's briefly touch on how a reverse mortgage works. Remember, the focus here is on age, but it's essential to understand the reverse mortgage process. Once you're deemed eligible (remember, you must be at least 55 years old), you can choose how you receive your loan funds: as a lump sum, regular payments over time, or a line of credit.
The loan amount is determined by several factors, including your age, the appraised value of your home, and current interest rates. The beauty of a reverse mortgage is that there are no monthly payments. The loan is repaid when the home is sold or no longer your primary residence.
Costs Associated with a Reverse Mortgage
While a reverse mortgage can provide financial freedom, it's not without costs. Reverse mortgage rates are typically higher than traditional mortgages or home equity lines of credit but less than credit cards, personal loans and payday loans.
There are also additional fees to consider, such as home appraisal fees, setup fees, legal fees, and possibly prepayment penalties if you choose to repay the loan early.
You can read these articles if you’re interested to learn more:
Where to Get a Reverse Mortgage in Canada
If you've decided that a reverse mortgage is the right choice for you, the next step is to find a lender.
Two national financial institutions in Canada offer reverse mortgages, each with their own terms and conditions. And of course, there are the smaller, regional lenders to consider.
It's essential to shop around and compare options to find the best fit for your needs. Remember, while the minimum age requirement of 55 is standard, other factors such as interest rates, fees, and loan amounts can vary between lenders. If the process seems overwhelming, or if you have questions, then consider using a mortgage broker who is experienced in arranging reverse mortgages.
Mortgage brokers provide unbiased advice and have access to promotions that are not available to the public. Homeowners do not pay anything for these services as the mortgage broker is paid by the lender.
Alternatives to a Reverse Mortgage
Reverse mortgages are not the best option for all homeowners and there are other possible options to consider. These could include a regular mortgage, a traditional home equity line of credit, selling your home, or downsizing.
Each of these alternatives has its own set of pros and cons, and it's important to consider all your options before making a decision. Navigating through all of these options is much easier if you are working closely with an experienced financial advisor.
Understanding the age rules for a reverse mortgage in Canada is a crucial step in deciding whether this financial tool is right for you. Remember, the minimum age to qualify for a CHIP Reverse Mortgage or a Flex Reverse Mortgage is 55, but other factors such as your home's value, its condition, and your financial situation also play a role. You may be able to get a reverse mortgage from a smaller, regional lender if you are not 55 years old.
As with any significant financial decision, it's essential to do your research and consult with a financial advisor who is experienced in arranging reverse mortgages. A reverse mortgage can be a great tool for some, but it's not the right fit for everyone’s retirement strategy. By understanding the age rules and other requirements, you can make an informed decision that best suits your needs and goals.
Q1. Is there a reverse mortgage age chart I can use to check my eligibility?
A. In Canada, there are no accurate reverse mortgage age charts that are publicly available. To check your reverse mortgage eligibility, or to find out how much of a loan you may be eligible for, you can try our online reverse mortgage calculator or contact us.
Q2. Will I pay a higher interest rate on my reverse mortgage if I use a mortgage broker?
A. No, you will not pay a higher interest or any fee for using a mortgage broker to arrange your reverse mortgage. In fact, by using a mortgage broker you might pay a lower interest rate or receive promotional discounts not available to the public. It’s essential to consult with a mortgage broker who is experienced in reverse mortgages as they are a unique product and differ from traditional mortgages.
Q3. Can I get a reverse mortgage with bad credit?
A. Your credit score is checked, but does not play a big role in the reverse mortgage approval process. It can affect which reverse mortgages will be available to you. You can learn more by reading our article about bad credit and reverse mortgage eligibility.