Reverse mortgages have become a popular option for Canadians 55 and older who want to access the equity in their home without selling. They provide a way to free up cash flow while staying in the home you love. But what happens if you still have an existing mortgage on your property? The good news is you can still qualify — in fact, many homeowners use a reverse mortgage to pay off their current mortgage first. Here’s how it works.

1. How Reverse Mortgages Work

A reverse mortgage allows you to borrow up to 55% of your home’s value in tax-free funds. Unlike a traditional mortgage, you don’t make monthly payments. Instead, the loan is repaid when you sell the home, move out permanently, or pass away. Interest accrues over time, but you remain the owner of the home and keep the title in your name.

2. Can You Qualify If You Still Have a Mortgage?

Yes. Having an existing mortgage does not prevent you from getting a reverse mortgage. In most cases, the funds from the reverse mortgage are first used to pay off your current mortgage balance. Once that is cleared, any remaining funds are available to you for other uses, such as covering living expenses, paying down debt, or helping family members.

3. What You’ll Need to Qualify

The requirements for a reverse mortgage are different from traditional mortgages. Your income and credit score are not major factors. Instead, lenders look at:

  • Your age – You must be 55 or older.
  • Home equity – The more equity you have, the more you can access.
  • Location – Homes in major urban centers are typically eligible. Properties in remote or rural areas may not qualify.
  • Property condition – Lenders want to see that your home is in good shape and marketable.

4. Benefits of Paying Off Your Mortgage With a Reverse Mortgage

For many Canadians, the biggest appeal is eliminating monthly mortgage payments. Other benefits include:

  • Freeing up monthly cash flow
  • Staying in your home without having to downsize or sell
  • Using your home’s equity to cover retirement expenses, medical costs, or renovations
  • Peace of mind knowing you don’t need to worry about making payments on a fixed income

5. What to Watch Out For

Reverse mortgages aren’t for everyone. It’s important to understand the trade-offs:

  • Higher interest rates – Reverse mortgages typically have higher rates than traditional mortgages.
  • Equity reduction – Your equity decreases over time as interest accumulates.
  • Repayment requirement – The loan must be paid back when you move, sell, or pass away.

Getting independent legal advice is mandatory in Canada before finalizing a reverse mortgage, which ensures you understand the long-term impact.

Final Thoughts

If you’re 55 or older and still paying off a mortgage, a reverse mortgage can provide relief by eliminating those monthly payments and unlocking cash flow. Just be sure you fully understand the costs and long-term implications before making a decision. Speaking with a mortgage broker can help you compare options and determine if it’s the right fit for your retirement plan.

FAQs

1. Do I need to be mortgage-free to get a reverse mortgage?
No. You can qualify even if you still owe money, but your current mortgage must be paid off with the reverse mortgage funds.

2. How much can I borrow with a reverse mortgage?
Typically between 15% and 55% of your home’s value, depending on your age, location, and property type.

3. Can I still leave my home to my children?
Yes. You still own the home and can pass it on, but the reverse mortgage must be repaid first, usually through the sale of the property.

4. Are reverse mortgages safe in Canada?
Yes. They are federally regulated, and independent legal advice is required before you sign, giving you added protection.