Canadians 65 and older are expected to grow by 1 million in 2025, according to TD Economics. This means nearly 900,000 workers will leave their jobs in the next three years, a 50% increase compared to the average annual retiree count over the past decade. Meanwhile, a 2023 report from the National Institute on Aging found that only 35% of Canadians aged 50 and older who plan to retire feel financially prepared to do so on their desired timeline. In contrast, 39% said they are not financially ready, while 26% remain uncertain about whether they can afford to retire when they wish.
As Canadians consider how they can afford to retire, many also hope to “age in place” in their own home and community. This allows them to continue accessing the health and social supports they’re accustomed to, while maintaining the stability and comfort needed to live safely and independently at home for as long as possible.
Given today’s uncertain economic environment and the growing aging population in Canada, more seniors are looking for guidance around what their financial future in retirement can look like. This growing market presents an excellent opportunity for mortgage professionals to offer strategic solutions to help seniors navigate their retirement plans and secure the financial stability they need. By offering tailored mortgage solutions, you can provide seniors with the flexibility to access their home equity to supplement their retirement income and achieve their goal of aging in place comfortably and securely.
Reverse mortgages: A flexible solution for seniors
Reverse mortgages have become an important financial option for senior homeowners preparing for retirement who may benefit from additional income support.
Designed for individuals aged 55 and over, a reverse mortgage allows homeowners to access a portion of their home equity as tax-free cash—without needing to sell their home. Unlike traditional mortgages, there are no monthly payments required. Instead, the loan balance accumulates over time and is typically repaid in full when the homeowner sells the property, moves out, or passes away. At that point, the mortgage amount plus any accrued interest is settled through the sale of the home and repaid in a single lump sum.
Understanding the benefits and limitations of reverse mortgages
A reverse mortgage can be a valuable option for retirees, especially those with significant home equity but insufficient monthly income. It gives them access to tax-free funds while staying in their home, offering added flexibility to cover expenses, reduce financial pressure, or stretch their retirement savings.
Since there are no required monthly mortgage payments, homeowners can continue living in their home as long as it remains their primary residence. Another benefit is that the funds from a reverse mortgage are not considered income and don’t affect Old Age Security (OAS) or Guaranteed Income Supplement (GIS) benefits—making it a useful tool for retirees who want to boost their income without putting those supports at risk.
However, reverse mortgages are not suitable for everyone. Unlike traditional equity take-out mortgages, which typically allow borrowing up to 80% of a home’s value, reverse mortgages are typically capped at 55%. They also come with various costs, including appraisal fees, set-up fees, legal fees, closing costs, and potential prepayment penalties, all of which vary by lender.
It’s important to note that interest on the loan accrues over time and is added to the mortgage balance. Over the long term, this can significantly reduce the remaining home equity. While most reverse mortgages include a “no negative equity” guarantee—ensuring that neither the homeowner nor their estate will owe more than the home’s value when sold—declining property values or extended loan durations can still limit the equity left behind for heirs.
A reverse mortgage may also limit other financing options secured by the home. For example, the borrower may not be able to take out a Home Equity Line of Credit (HELOC) or similar solution at the same time. Additionally, borrowers will be likely be required to pay off and close any loans or lines of credit that are secured by the home, including any current mortgage or HELOC, before proceeding with a reverse mortgage.
Eligibility typically requires the home to be the borrower’s primary residence, meaning they must live there for at least six months each year. As with any borrowing solution, it’s essential to carefully review all terms, fees, and conditions with clients to ensure they understand their responsibilities and the long-term implications.
In summary, a reverse mortgage may be a helpful solution for older homeowners looking to improve their cash flow in retirement, access funds without monthly payments, and remain in their homes. However, it’s crucial to weigh the benefits against the costs and limitations to determine whether it aligns with their long-term financial goals.
A reverse mortgage as part of a broader strategy
For seniors seeking additional income beyond what a reverse mortgage can provide, combining a reverse mortgage with a private second mortgage can offer a viable solution. This strategy allows homeowners to access more of their home equity while still benefiting from the no-monthly-payment structure of a reverse mortgage.
Combining a reverse mortgage with a private second mortgage
A reverse mortgage allows homeowners to borrow up to 55% of their home’s value, providing tax-free funds without the need for monthly payments. However, some seniors may need access to more equity than a reverse mortgage can offer.
Many private lenders, like CMI, offer a second mortgage than can be registered behind a reverse mortgage. By combining a reverse mortgage with a second mortgage, seniors can access more equity in their home—typically up to a combined total 75% loan-to-value (LTV). Since the reverse mortgage does not require monthly payments, the homeowner is only responsible for payments on the smaller second mortgage.
While this strategy provides increased access to home equity, there are some important guidelines to consider.
Key considerations:
- Additional equity available: The reverse mortgage LTV limit plays a significant role in determining how much additional equity can be accessed through the second mortgage. A private second mortgage can typically help a homeowner access up to an additional 10-20% of their home value (LTV).
- Approval from the reverse mortgage lender: In most cases, the second mortgage must first be reviewed and approved by the holder of the reverse mortgage. This approval process ensures that the second mortgage does not conflict with the terms or conditions set by the reverse mortgage lender.
- Property value fluctuations: If property values decline during the term of the second mortgage, it may be more difficult to repay both the reverse mortgage and the second mortgage. It’s important to be aware of potential risks and understand how changing property values could impact the repayment structure.
- Clear exit strategy: Before proceeding with this strategy, it’s crucial to evaluate the long-term outlook for the property and develop a clear understanding of how the situation will evolve at the end of the second mortgage term. Having a clear exit plan is critical. The typical term for a second mortgage is 12 months, and at the end of this term, the home may need to be sold to repay both the reverse mortgage and the second mortgage.
In summary, combining a reverse mortgage with a private second mortgage can be a smart strategy for clients who need access to more of their home’s equity. That said, it’s important to understand the approval process with the reverse mortgage lender, ensure both loans work together smoothly, and have a clear exit plan in place. With careful planning, you can help your clients make informed decisions that support their broader financial goals.
A personalized approach
By offering a range of mortgage solutions, including reverse and private mortgages, you can help homeowners create a flexible financial strategy that meets both their immediate needs and longer-term goals. This approach not only helps you attract new clients but also strengthens relationships with existing ones, fostering trust and encouraging long-term engagement.
It’s important to ensure that clients fully understand the benefits, limitations and terms of any mortgage solution, including interest rates, repayment structures, and potential impacts on their estate planning. Clear communication about these factors will enable you to provide the best possible guidance.
At CMI, we’re here to help you navigate the complexities of private lending—whether on its own or as part of a broader mortgage strategy—to meet your clients’ short- and long-term needs. With the right lending partner, you can deliver more tailored solutions and confidently support clients through key financial decisions at every stage of life, including retirement.
