Understanding Your Responsibilities After Obtaining a Reverse Mortgage

Utilizing a reverse mortgage to release equity from your home can be a smart financial move, providing access to much-needed funds. However, as with any legal contract or loan, it's essential to delve into the details and comprehend your responsibilities and obligations. By doing so, you can ensure you're in compliance with your mortgage agreement. While reverse mortgages are generally less financially burdensome than other mortgage types, they do come with certain conditions.

1. Retaining Primary Residence Status

To qualify for a reverse mortgage, your property must be your principal residence, and it must remain so for the duration of the mortgage. Keep in mind that you can only have one principal residence at a time. If you find yourself spending an extended period away from home, such as over six months a year, the property no longer qualifies as your principal residence, and the mortgage must be closed. Some exceptions exist, such as medical reasons or residing in a care home, allowing for up to 12 months away.

In situations where one borrower permanently leaves the home, while another remains, the mortgage remains in effect as long as at least one individual listed on the mortgage continues to reside in the home. This is a critical requirement associated with reverse mortgages, and you must reconfirm it annually to remain in compliance.

2. Paying Property Taxes

Another significant condition of a reverse mortgage is the responsibility to cover all property taxes and any applicable fees. This could include ground rent, condo fees, development fees, and more. It is often part of the mortgage application for the lender to evaluate your ability to meet these yearly financial obligations before approving your loan. In some cases, the lender might require you to set aside funds to ensure future payment, reducing the risk of non-compliance.

If, for any reason, you miss a tax or fee payment, it's crucial to promptly inform your lender, allowing them to help resolve the issue. Failure to address missed payments or repeated lapses could lead to mortgage default.

3. Maintaining the Property

The third key requirement for reverse mortgage holders is the upkeep of the property. You must ensure that the home remains in good repair, attending to any necessary maintenance and repairs to preserve the property's safety and value. Most homeowners naturally have an interest in this as it directly affects their quality of life and equity. Nonetheless, lenders may conduct inspections to verify the property's condition. These inspections can occur before mortgage approval or at intervals during the mortgage term.

4. Taking Out Insurance

Canadian homeowners are required to obtain insurance to protect their homes and the investment made by the mortgage lender. The type and coverage of insurance can vary by lender and property location, but basic coverage such as fire and flood insurance is typically necessary. You must keep the home insurance policy current throughout the mortgage's duration.

Conditions: Simple and Routine

All of these conditions may seem rather obvious, and for most homeowners, they are. Living in your home, maintaining it, paying taxes, and having insurance are fundamental aspects of responsible homeownership, regardless of your mortgage status. In fact, the stability of default rates on reverse mortgages in Canada, despite a significant increase in their popularity, highlights that these conditions are generally easy to fulfill for responsible homeowners.