Reverse Mortgage

A reverse mortgage is a loan secured against your home that allows you to receive cash (lump sum, monthly payments, or line of credit) without making monthly mortgage payments. Instead of you paying the lender, the loan balance grows over time as interest accrues. Repayment is triggered when: (1) you sell the home; (2) you move out permanently; (3) you pass away; (4) you fail to pay property taxes or insurance. At that point, the home is sold to repay the loan. Any remaining equity goes to you or your heirs. You cannot owe more than the home's value (non-recourse protection in the US under HECM rules). The home must be your primary residence. See HUD — Home Equity Conversion Mortgages (HECM).

For the US HECM (Home Equity Conversion Mortgage) — the federally insured reverse mortgage: (1) Age requirement: at least one borrower must be 62 years or older; (2) Primary residence: the home must be your principal residence; (3) Home types: single-family, HUD-approved condos, manufactured homes meeting FHA requirements; (4) Equity: sufficient equity required — generally 50%+ home equity; (5) Financial assessment: lenders verify your ability to pay property taxes, insurance, and HOA fees going forward; (6) Counseling: mandatory HUD-approved counseling session before application. HECM loan limits: maximum claim amount tied to the FHA conforming loan limit ($1,209,750 for 2027 in high-cost areas). Proprietary "jumbo" reverse mortgages exist for higher-value homes. See CFPB — What is a reverse mortgage?

The CHIP Reverse Mortgage (by HomeEquity Bank) is Canada's primary reverse mortgage product. Key terms: (1) Age: minimum age 55 for all property owners; (2) Primary residence only; (3) Loan amount: up to 55% of home's appraised value (varies by age, location, property type — older borrowers qualify for more); (4) No monthly payments required; (5) Repayment triggered by: sale, moving out, or death; (6) Non-recourse: you can never owe more than the home's market value; (7) Fixed or variable rate available. Alternative Canadian products: Equitable Bank reverse mortgage (also available in select markets). Canadian reverse mortgage interest rates are typically 1–2% above standard 5-year fixed rates. See CHIP — Canada's Reverse Mortgage and Canada reverse mortgage 2027.

Pros: (1) No monthly payments — frees up cash flow for retirement; (2) Tax-free proceeds (loan proceeds are not income); (3) Stay in your home; (4) Non-recourse protection; (5) Flexible draw options (lump sum, line of credit, monthly payments). Cons: (1) Interest compounds — loan balance grows significantly over time; (2) Reduces inheritance for heirs; (3) Fees are higher than standard mortgages (origination fee, closing costs, MIP for HECM); (4) Property tax and insurance must be maintained — failure can trigger default; (5) If a non-borrowing spouse is younger than 62 and the borrower dies, repayment may be triggered (HECM rules have improved this but complexity remains); (6) Reduces flexibility to downsize or move. Reverse mortgages are best suited for asset-rich, income-poor retirees with significant home equity and no plan to move. See CFPB — Reverse mortgage guidance.

When a reverse mortgage borrower dies: (1) The lender notifies the estate; (2) Heirs typically have 6–12 months (HECM) to repay the loan or sell the home; (3) If heirs want to keep the property, they can refinance the reverse mortgage balance into a standard mortgage; (4) If the home value exceeds the loan balance, heirs receive the remaining equity after repayment; (5) Under HECM non-recourse protection, if the loan balance exceeds the home value, the FHA insurance covers the shortfall — heirs owe nothing beyond the home's value; (6) For proprietary reverse mortgages (non-HECM), non-recourse protection varies by lender. In Canada (CHIP), the estate has 6 months to repay the loan or list the property for sale. Heirs who wish to keep the home must qualify for their own mortgage to pay off the reverse mortgage. See HUD — HECM program.