That's a great question. It's common to think that if something sounds too good to be true, it usually is. But with reverse mortgages, it's more about understanding how they work.
A reverse mortgage is a financial tool designed for homeowners 55 years or older in Canada. It allows you to convert part of your home equity into cash, without having to sell your home or make regular mortgage payments.
Here's how it works:
A reverse mortgage is a loan that's secured against the value of your home. However, unlike a traditional mortgage, you don't have to make regular payments. The loan, plus interest, is repaid when you sell your home, move out, or if the last borrower passes away.
You retain ownership of your home and can stay in it as long as you like. You're also not required to pay back the loan until you decide to sell or move.
The "catch" that some people might refer to is the accruing interest over time since you're not making regular payments. But remember, this only gets repaid once you sell your home or move.
Reverse mortgage interest compounds semi-annually, like regular mortgages - which is unlike Home Equity Lines of Credit (HELOC) that compound monthly.
It's absolutely possible to maintain your home equity, and even increase it while having a reverse mortgage. In fact, 99% of Canadians with reverse mortgages still have equity left in their homes after the loan is repaid.
Plus, Canadian reverse mortgages come with a "No Negative Equity Guarantee". This means you or your heirs can never owe more than the house is worth.