What is a Reverse Mortgage?

A reverse mortgage is a loan option for homeowners, typically aged 55 or older, allowing them to borrow against their home equity without selling the property. This loan converts a portion of your home equity into tax-free funds, sometimes referred to as "equity release."

Key Features:

Borrowing Limit: You can usually borrow up to 55% of your home's current value. This loan does not affect your Old Age Security (OAS) or Guaranteed Income Supplement (GIS) benefits.
Eligibility: The home must be your primary residence, meaning you live there for at least 6 months a year.

Costs Associated with a Reverse Mortgage:

Interest Rates: Higher than conventional mortgages or home equity lines of credit (HELOCs). Interest is added to the loan balance over time.
Additional Costs: May include home appraisal fees, setup fees, prepayment penalties, legal fees, and closing costs. Some fees may be added to the loan balance, while others might need to be paid upfront.

Disbursement Options:

1. Lump-Sum Payment: Receive the full loan amount at once, which means paying interest on the entire sum. This can be costly if not fully utilized immediately.

2. Partial Lump-Sum and Installments: Take part of the loan upfront, with the remainder disbursed over time. This may involve minimum withdrawal amounts and additional fees.

3. Regular Payments: Receive regular payments, such as monthly or quarterly. An initial amount may be required.

Considerations Before Getting a Reverse Mortgage:

-Understand Costs and Impact: Evaluate the costs and how a reverse mortgage might affect your finances and estate. Compare other options like selling your home, moving to assisted living, or alternative loans.

-Seek Professional Advice: Consult with a mortgage broker and your family. 

-Limitations on Other Financing: A reverse mortgage may restrict other home-secured loans, such as HELOCs. You may need to pay off existing loans, which can be covered by the reverse mortgage.

-Repayment: The loan is repaid when you sell the home, move out, pass away, or default. Ensure you understand the repayment terms and any potential early repayment fees.

Pros and Cons:

Pros:
- No regular payments are required.
- Convert home equity into cash without selling.
- Maintain home ownership.
- Flexible disbursement options.
- Tax-free funds and no impact on OAS/GIS benefits.

Cons:
- Higher interest rates compared to other financial products.
- Home equity decreases over time as interest accrues.
- Estate may need to repay the loan and interest after your death.
- Potentially reduced inheritance for beneficiaries.

Understanding these aspects will help you make an informed decision about whether a reverse mortgage is the right choice for you.