How Reverse Mortgages Work


A reverse mortgage is the opposite of a regular mortgage. In a reverse mortgage, you do not pay the lender; instead, you are being paid. The process or procedures of how a reverse mortgage works aren’t as straightforward as most residents in Canada think. So, if you are trying to understand the full details of how a reverse mortgage works, then this article is for you. To this effect, you need to keep reading as it promises to be enlightening and informative. However, the first question to address is what a reverse mortgages is and how it work? 

What is a Reverse Mortgage? 

The reverse mortgage is an advanced loan or a financial tool that gives homeowners leverage to maintain their monthly bill payment, especially when they have limited funds. In addition, a reverse mortgage usually needs to meet specific requirements or criteria before being granted. 

How Does a Reverse Mortgage work? 

A reverse mortgage works by paying off your mortgage after using a fraction of the individual’s home equity for residents who have a pending mortgage balance. The exciting thing about a reverse mortgage is that you are free or not mandated to make monthly payments. Instead, the only time the loan balance comes to fruition is when the borrower chooses to either fail to maintain the property, decides on relocating, or worse, passes away. 

What makes a reverse mortgage soothing for residents in Canada is that you get to keep your home and have a tax-free fund as well. It would interest you to know that a reverse mortgage has three kinds. They are; 

  • Single-purpose reverse mortgage 
  • Proprietary reverse mortgage 
  • Federally-insured reverse mortgages   

Single Purpose Reverse Mortgage

This is a form of the agreement through which borrowers receive payments from lenders in return for a portion of the receiver (the borrower’s) home equity. The lender then has to approve the specific purpose for which the borrower intends to use the payments. With single-purpose reverse mortgages, there is a limit on what the borrower can use such payments for. For instance, a borrower might want to use the payments to settle some outstanding bills, purchase equipment, or whatever the case may be. However, the lender can reject such proposals and demand that such funds maintain the property or carry out renovations. 

Proprietary Reverse Mortgage 

The proprietary reverse mortgage is somewhat different from other kinds of reverse mortgages since senior homeowners are being given the freedom to access their equity where they reside. However, this is made only possible through a private lender. A lot of times, most people refer to proprietary reverse mortgages as “jumbo” reverse mortgages. The reason for such a name is that it is most prevalent among individuals who want more funds than the limit set by a federally insured mortgage. This kind of reverse mortgage is not expected as most lenders aren’t interested in doing business

Federally- Insured Reverse Mortgage 

This can also be referred to as Home equity conversion mortgages. This happens to be the most expensive reverse mortgage. It would interest you to know that this kind of reverse mortgage is void of income limitations, as well as medical requirements. In addition, it isn’t limited once being granted. This means that the loan can be used to either settle an outstanding issue or generally any cause. 

Moving further, as you know, people have different financial needs and wants, which is why senior homeowners in Canada are being given the option of determining how they receive the funds. To this effect, the following line of focus is on how then can a reverse mortgage be put to use? Or better still, what can it be used for? 

What a Reverse Mortgage Can Be Used For 

There are tons of reasons why most individuals opt for a reverse mortgage. While some choose to reach a certain target, others are comfortable managing their retirement with it. A reverse mortgage can be used to achieve the following purposes:  

  • Make home improvements: A property would need some form of renovations or general improvement as the years go by. With a reverse mortgage in place, it is possible to achieve this. 
  • Boost savings: No one likes living from getting a paycheck and waiting for the arrival of the next one. This is why most homeowners decide on a reverse mortgage, as it gives them an opportunity to increase or better still boost savings. 
  • Reduce or eliminate monthly mortgage payments: It is impossible to avoid settling bill payments in Canada, especially your monthly mortgage payment. However, a reverse mortgage can be used to either reduce or better still eliminate monthly mortgage payments. 

A reverse mortgage comes with some form of responsibility, as most people tend to forget that it is still a loan. Some of the responsibilities that come with it are; ensuring the house is duly kept in good condition and even paying homeowners insurance as well to name a few. 

Plus, it should be made known that before you can be eligible for a reverse mortgage, you may have to tick the following boxes. 

  • You must be nothing less than 62 years. 
  • You must be sure you will be successful with your loan after going through a financial assessment. 


A reverse mortgage is best suited for senior citizens, most especially the retired ones. While most people don’t get granted a loan, it is a result of them failing to reside in that particular property or home. Also, they fail to ensure that the home is in good condition and meets the required FHA standards. So, people who are curious and would like to know more about how reverse mortgages work can see more here

Lastly, having gone through how a reverse mortgage works and what it can be used for, it can now be assumed that residents in Canada know the right steps and measures to take when opting for a reverse mortgage. 



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