When is the Right Time to Take Out a Reverse Mortgage?

reverse mortgage canada

Is now the right time to apply for a reverse mortgage? Here is when taking out a reverse mortgage can make the most sense.

When Interest Rates are Low

It makes the most sense to take out a reverse mortgage when interest rates are low, especially if you want to leave some money to loved ones.

When interest rates are low, you’ll have more equity leftover for loved ones. This is important if you want to leave your adult children with some equity from the home you worked so hard to purchase and pay off.

Interest rates being low can also help maximize the amount you are able to borrow from your home. If you want to take out as much money as possible, waiting until interest rates are low can certainly help.

When You Can’t Qualify for Traditional Mortgage Financing

A reverse mortgage makes the most sense when you can’t qualify for traditional mortgage financing. We’re talking about a mortgage or HELOC.

A mortgage and HELOC will almost certainly be less expensive than a reverse mortgage. The problem is qualifying for them when you’re on a fixed income.

In an ideal world, you would have applied for them before you retired from your job. Unfortunately, people often don’t do that. You might not have an immediate need for the funds. However, things can change.

You may need to upgrade your home in order to be able enjoy it in your senior years. If you don’t have the savings, you’ll need to borrow the money to pay for the upgrades. Unless you can borrow the funds as a mortgage, a reverse mortgage might be your next best option.

When You’re Old Enough

In order to qualify for a reverse mortgage, you need to be at least 55 years old. Not only that, your spouse has to be at least 55 years old as well. If there’s a big age gap between you two, a reverse mortgage may not be an option anytime soon, as you’ll need to wait until your spouse is at least 55 years old as well before applying.

Just because you qualify at age 55, it doesn’t mean it makes sense to apply right away. If you don’t have any immediate needs for the funds, it can make sense to delay withdrawing the money. That’s because the older you are, the more money you’ll be able to borrow by way of a reverse mortgage.

You don’t want to run out of money, but by delaying applying for a reverse mortgage, you can qualify for that much more in the coming years.

When You Need a Borrow a Large Sum of Money

A reverse mortgage probably doesn’t make the most sense when you need to borrow a small sum of money. If you need to borrow $50,000 or less, you’re generally better off going to an unsecured line of credit or personal loan.

There are set up costs for reverse mortgages. It doesn’t make a lot of sense to pay those set up costs when you only need a small amount of money. Assuming you qualify, you’re almost certainly better off with an unsecured line of credit or personal loan.

However, when you need to borrow more than $50,000, that’s when a reverse mortgage can make sense. Unsecured lines of credit don’t generally come with a credit limit higher than $50,000. If that’s not going to be enough, that’s when you’ll want to consider a reverse mortgage.

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Smarter Loans Staff

The Smarter Loans Staff is made up of writers, researchers, journalists, business leaders and industry experts who carefully research, analyze and produce Canada's highest quality content when it comes to money matters, on behalf of Smarter Loans. While we cannot possibly name every person involved in the process, we collectively credit them as Smarter Loans Writing Staff. Our work has been featured in the Toronto Star, National Post and many other publications. Today, Smarter Loans is recognized in Canada as the go-to destination for financial education, and was named the "GPS of Fintech Lending" by the Toronto Star in 2019.