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December 02, 2021

Reverse mortgages carry hidden risks: report

Looking for a way to stretch their money, many older people are exploring reverse mortgages, which allow homeowners 60 or older to trade the equity they’ve built up in their home for a lump sum and tax-free monthly payouts.

Although still small, the number of reverse mortgages rose last year to 7,000 with an outstanding value of $837 million — just about all of that offered through the Canadian Home Income Plan Corporation program sponsored by the newly-minted HomEquity Bank, and offered through brokers and lenders.

But these loans can be terrible for seniors who don't understand the complicated rules governing them and how quickly high fees and interest charges can balloon, maintains Consumer Reports.

Since the borrower doesn't pay interest each month, interest charges compound — meaning you pay interest on interest. As a result, you likely pay much more than you would on an ordinary mortgage or home equity loan.

Looking at the much more established U.S. market, CR worries about unsuspecting seniors ending up stranded in their homes without any remaining equity to cover unexpected costs down the road.

Too often, CR claims, sales pitches to seniors appeal to emotions rather than reason, emphasizing the positives and playing down the high costs of the loans.

And while the predatory practices in the U.S. don’t seem to have crossed the border just yet, older Canadians need to be on the lookout.

Here’s AARP’s advice on the challenges of squeezing the lifeblood out the family homestead. For another “whoa boy!” take, have a look at this cautionary tale from the Money Smart Life blog.

So would you consider using a reverse mortgage to help fund your retirement?

By Gordon Powers/MSN Money



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

James HaversJames Havers

James is the senior editor of MSN Money living in Toronto. He has worked for the Nikkei Shimbun (Tokyo),,, Canadian Business and other publications. Havers turned to journalism after teaching overseas.

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...