Reverse mortgage horror stories: which ones are true in Canada?

FCAC lists "you still own your home" among a reverse mortgage's advantages, and each lender says it in its own words. HomeEquity Bank: you remain the owner and the bank never takes ownership, provided you have met your mortgage obligations. Equitable Bank: you remain the owner, the lender does not take control of the home, and it holds a lien on the property, the same kind of registered claim any mortgage lender holds. Bloom Finance: you still own 100% of your home. Home Trust: you continue to own your home.

The US rule is the same. A handbook from the US Department of Housing and Urban Development (HUD) says the borrower keeps ownership of the home and the title stays with the borrower or the borrower's estate until the home is sold, and calls the idea that the lender owns the home "a common consumer misconception". What can end ownership, in either country, is a default. That is the next story.

A reverse mortgage has no monthly payment, but it has conditions. FCAC lists the ways to default: using the money for anything illegal, being dishonest in your application, letting the home fall into disrepair that lowers its value, or not following a condition of your contract, such as paying the property taxes and home insurance. Each lender sets its own list: HomeEquity Bank also names unpaid condo fees and bankruptcy. FCAC says a default can lead to foreclosure. The loan also falls due if you move out.

In the United States, the Government Accountability Office (GAO) found that about 40,000 government-insured reverse mortgages ended in default in fiscal years 2014 to 2018: about 29,000 because the borrower no longer met the rules on living in the home, and about 11,000 for unpaid property taxes or insurance. It said those borrowers likely lost their homes, and noted some might have lost them even without the loan. Earlier, in its June 2012 report to Congress, the US Consumer Financial Protection Bureau (CFPB) cited HUD's figures: at the end of February 2012, 9.4% of active government-insured reverse mortgages were in default on taxes or insurance, about 54,000 borrowers at risk of losing their homes. The CFPB also found 70% of borrowers taking everything as a lump sum, and warned that this could leave them without money for taxes and insurance later. The US changed the rules in 2015: lenders must now assess whether a borrower can keep paying the property charges, and can hold back part of the loan to pay them.

In Canada each of the four lenders on this page sets these same obligations. Equitable Bank says it can only sell or foreclose if the mortgage obligations are not met, and Home Trust says you will never be forced to sell as long as the taxes and insurance are paid on time, the house is in good shape and you keep living there. The lesson is the same in both countries: keep money aside for the taxes and insurance, keep the home in repair, and keep it your home.

In the US, a spouse was sometimes left off the loan. The CFPB (2012) gave three reasons this may happen: the spouse was under 62 and could not qualify, the younger spouse was left off so the older one could get more money (the amount depends on the youngest borrower's age), or the couple married after the loan was made. When the borrower died, the spouse who was not on the loan had to sell or pay it off. HUD changed the rules for new loans from August 4, 2014, in 2015 let lenders choose to offer similar protection on older loans, and widened both in 2021.

Each of the four lenders on this page handles couples in its own way. HomeEquity Bank requires both spouses to be 55 or older and says a surviving spouse who is a co-borrower keeps living in the home with no change to the loan. Equitable Bank says that if both spouses are registered as joint tenants, the surviving spouse can continue to be a borrower, with all the benefits of the reverse mortgage. Bloom Finance requires everyone on title to be a borrower. Home Trust also lends where a spouse is not on title: that spouse gets separate independent legal advice and, under Home Trust's BC terms, consents to the mortgage and releases their interest in the home as far as the lender's rights require. That spouse is not a borrower, and the same terms make the loan due 180 days after the last borrower dies. The protection that matters is being a borrower (at Equitable Bank, a joint tenant on title too): then the survivor carries on.

In the US the government-insured loan is "non-recourse": neither the borrower nor the heirs owe more than the home sells for, and the federal insurance covers the shortfall. Heirs who want to keep the home pay the balance or 95% of its appraised value, whichever is less.

In Canada the same promise is each lender's own guarantee, in its own terms. HomeEquity Bank, Equitable Bank, Home Trust and Bloom Finance all guarantee you will not owe more than the home's fair market value, as long as every obligation under the mortgage was met, such as paying the property taxes and home insurance and keeping the home in good repair. The guarantees leave some amounts out: HomeEquity Bank excludes administrative expenses and interest that has built up after the due date; Equitable Bank excludes fees and interest that build up after the due date; Home Trust's BC contract excludes its costs and servicing fees, and interest that builds up after the due date. So an estate should not sit on it.

The time allowed to repay after the last borrower dies: HomeEquity Bank, 180 days; Bloom Finance, six months; Home Trust's BC contract, 180 days. Home Trust's contract also makes the loan due one year after the last borrower moves into a long-term care facility or retirement residence.

In a 2015 CFPB study built on 97 reverse mortgage ads, many participants came away thinking it was a government benefit or that it would let them stay in their homes for the rest of their lives, and most of the ads did not mention the taxes, insurance and upkeep. In 2016 the CFPB penalized three US reverse mortgage companies whose ads said borrowers could not lose their homes (US$400,000, US$325,000 and US$65,000). US households received an estimated 48 million reverse mortgage mail ads in 2022.

In Canada a reverse mortgage is a loan from a lender such as a bank, a trust company or a finance company, not a government benefit. FCAC names HomeEquity Bank and Equitable Bank as federally regulated lenders and says the protections you get depend on who regulates the lender. Home Trust's lender is Home Trust Company, a trust company, and Bloom Finance shows provincial licences in Ontario, British Columbia and Alberta.

With no payments, the interest is added to the loan, so the total amount you owe increases over time (FCAC). FCAC's own list of disadvantages: interest rates higher than most other financial products, such as a mortgage or a home equity line of credit; equity in your home that may go down as interest builds up; an estate that may need to repay within a set time after you die; an estate that may take longer to settle than the time allowed to repay; and possibly less money to leave to your children or other heirs.

HomeEquity Bank says its clients, on average, still have over 50% of the home's value left when the loan is repaid. The catch, year by year shows how the balance grows on a worked example, at the assumptions it states.

A US government-insured reverse mortgage carries a mortgage insurance premium: 2% of the home's value counted for the loan up front (capped at a US$1,249,125 value in 2026), plus 0.5% of the balance every year (HUD). None of the four Canadian lenders' published reverse mortgage fees is a premium of that kind. What they publish for setting one up, item by item on What it costs, is a set-up or closing fee, an appraisal and your own lawyer's advice, plus, at Equitable Bank and Home Trust, the legal work of closing as a separate cost. Our costs page shows each of those with its source.