What is a Reverse Mortgage?

The Canadian Centre for Elder Law Studies (CCELS) notes:

..." a reverse mortgage is a type of loan secured by a mortgage of real estate." [1]

"A reverse mortgage is a rising debt loan."[2]

The loan is used to supplement income or purchase an annuity, make a gift to others, or purchase other things.

The loan is repaid after the borrower’s death or when the borrower’s principal residence is sold or abandoned.


 

How are a Reverse Mortgage and Conventional Mortgage Different?

CCELS notes that the main differences are

(a) eligibility for the loan and

(b) repayment terms. [3]

Reverse mortgage lenders only offer their product to senior citizens. In a conventional mortgage a lender advances funds to a borrower. Typically, these funds are applied to the purchase of real estate. [4]

A person must make monthly payments towards the principal amount and interest that build on the loan. For a conventional mortgage lender, the borrower’s ability to make the periodic payments is of prime importance. [5]

Under a reverse mortgage, the real estate has already been purchased and any conventional mortgage has been paid in full ("discharged"). The borrower is not expected to make periodic payments, or any payments, until the loan comes due. This is what makes it “reversal”. [6]

 

 

References

[1] Canadian Centre for Elder Law Studies (2006), pg. 3  Reverse Mortgages.  PDF

[2] Ibid, "Introductory note"

[3] Ibid. p.3

[4] Ibid. p.3

[5] Ibid. p.3

[6]Ibid. p.3


 

 

Resources

Canadian Centre for Elder Law Studies (2006) Reverse Mortgages.  PDF