The Pros and Cons of Using a Reverse Mortgage to Pay for Long-Term Care

For seniors considering either moving a spouse into a care facility such as a nursing home or modifying their home for at-home care, a reverse mortgage can be one way to cover the associated costs of aging.

What is a reverse mortgage?

A reverse mortgage is a loan geared toward older homeowners with built up home equity. You can apply for a reverse mortgage loan to get the extra funds you need for anything from paying off debt to paying for long-term care.

How does a reverse mortgage work?

The amount of the loan you receive should never go over the actual value of your home, but there are no restrictions on using the money you get. How you receive your loan payment is up to you. You can get your funds in monthly payments or as a lump sum.

A reverse mortgage loan doesn’t require you to make monthly mortgage payments. Your loan balance is only due if you move out of or sell your home, or when you pass away. If you and your spouse apply for a reverse mortgage loan together, the loan will be due when the last borrower dies.

How do you qualify for a reverse mortgage?

Qualifying for a reverse mortgage loan depends on a few factors like your age, appraised value of your home, and where your home is located. There are no restrictions on your health status to qualify, and it doesn’t matter if you’re married, single, or somewhere in-between.

Age: You’ll need to be a Canadian homeowner at least 55 years old to qualify, and there’s no maximum age limit. The older you are, the more funds you’re eligible for, and if you’re applying with your spouse, your loan is determined by the age of whoever is the youngest.

Residence: You can only take out a reverse mortgage on your primary residence, meaning that you live there for at least six months out of the year. The location and appraised value of your home will factor into the amount you qualify for.

Pros and cons of paying for long term care with a reverse mortgage

Pros

• A reverse mortgage can allow you to access the cash value of your home without selling it
• You don’t have to pay a monthly mortgage payment
• Reverse mortgages can pay for adult day care, in-home care, prescriptions, debt, and home repairs
• With a reverse mortgage, you still own your home
• Your beneficiaries can sell your estate within a certain amount of time after you die to pay the loan
• Money from a reverse mortgage won’t interfere with Old-Age Security (OAS) or Guaranteed Income Supplement (GIS) benefits

Cons

• There’s a limit to how much money you can receive
• There are fees and interest rates, as well as potential closing costs
• If you borrow too soon, you can outlive the loan and run out of money
• Your beneficiaries may be responsible for paying the balance of the loan when you die