Few financial products are as misunderstood as the reverse mortgage. Here are the seven we hear most, and the facts.
Myth 1: “The bank owns your home.”
Fact: You retain title to the property and ownership. The lender simply registers a mortgage against the property, the same as with a conventional mortgage. You remain the owner, you benefit from any appreciation, and the lender cannot take your home as long as you meet your obligations (keep property taxes and insurance current, maintain the home, and live there as your principal residence). They cannot ask you to move or sell.
Myth 2: “You could owe more than your home is worth and leave your kids with the debt.”
Fact: Reverse mortgages from the major Canadian lenders include a No Negative Equity Guarantee. Provided loan conditions are met, you or your estate will never owe more than the home’s fair market value at the time it’s sold. Your family does not inherit a debt the loan is repaid from the home, and your heirs’ own finances are never on the hook.
Myth 3: “It’s a last resort for people who are desperate.”
Fact: This is perhaps the most expensive myth of all, because it stops well-off homeowners from considering a legitimate planning tool. For an asset-rich, income-light retiree, a reverse mortgage can be a deliberate strategy: accessing tax-free equity without selling investments at a gain, keeping a portfolio invested, funding a living legacy, or holding a standby reserve. It’s used by plenty of people who have options they’ve simply chosen the most efficient one.
Myth 4: “The interest rates are outrageous.”
Fact: Reverse mortgage rates are higher than a conventional mortgage, but the gap has narrowed considerably as more lenders compete, and the relevant comparison isn’t a mortgage you can’t qualify for on retirement income. Against the alternatives actually available a callable HELOC with monthly payments, selling taxable investments, or selling the home and paying commissions and transfer tax the all-in cost often looks very reasonable. And with no required payments, the rate buys you cash-flow freedom.
Myth 5: “You only get one lender, so there’s nothing to compare.”
Fact: Canada has several reverse mortgage lenders, and they offer slightly different rates, borrowing limits, and features. Going directly to the one brand you’ve heard of means you’ll never know whether another would have lent you more, charged you less, or offered a feature that fit you better. Comparing them, which an independent broker does, is where money is saved.
Myth 6: “It’ll claw back my OAS and government benefits.”
Fact: Reverse mortgage proceeds are a loan, not income, so they’re generally tax-free and don’t count toward the income thresholds that reduce OAS or GIS. CPP, which is based on your contribution history, is unaffected entirely. In fact, drawing tax-free equity instead of taxable income is sometimes the strategy that protects benefits. (Confirm your situation with your tax advisor.)
Myth 7: “You can’t change your mind or pay it off.”
Fact: You can repay a reverse mortgage. They’re designed to stay in place long-term, so early repayment can trigger a prepayment charge but most lenders build in ways to reduce or avoid it: an annual penalty-free prepayment amount, charges that decline or disappear after a few years, and waivers in events like a move to long-term care or the borrower’s death. If flexibility matters to you, it’s simply a feature to compare across lenders.
The cost of believing the myths
Some homeowners dismiss a reverse mortgage out of hand and miss a strategy that would have suited them. Others never compare lenders and leave money on the table. Get accurate information and a real, numbers-based comparison before you decide anything.
That’s what we do. As an independent, CPA and CFA-led brokerage, we’ll give you the unvarnished facts for your situation — including the honest downsides — and model every option so the decision is yours, made with eyes open.
Get the facts for your situation, free and with no obligation