Can You Get a Reverse Mortgage With an Existing Mortgage?
Yes, you may be able to get a reverse mortgage while you still have a regular mortgage. The lender must approve the application, and the new loan generally needs to cover the required payout of the existing mortgage and other secured debt.
You do not necessarily need to clear the old mortgage from your own savings before applying. Its repayment can be arranged as part of closing the reverse mortgage, subject to the lender’s requirements.
The key is to find out what would remain after that repayment and the closing fees. Replacing your mortgage payment and receiving extra cash are separate goals, and an offer may not cover both.
In this guide
How is the existing mortgage paid off?
When a reverse mortgage replaces a regular mortgage, part of the new loan pays the old lender. HomeEquity Bank’s CHIP FAQ says proceeds first repay existing loans secured against the home. Any money left can then be used for other purposes, subject to the agreement.
The lender and your lawyer or notary need to confirm which debts must be cleared and which credit accounts must close. This can include a mortgage, a HELOC and other loans secured against the property.
Paying the balance and removing the old lender’s mortgage registration are related but separate steps. The FCAC guide to mortgage discharge explains how the registered interest is removed from title. The process depends on the province or territory.
Have the lender and closing professional confirm the funding and payout instructions before making a separate lump-sum payment yourself. This helps ensure the amount and timing match the closing arrangements.
Will there be enough equity to cover the old loan?
Having an existing mortgage does not establish whether you qualify or how much the reverse-mortgage lender will offer. The assessment considers the homeowners, the property and the product’s requirements.
The lender’s accepted property value matters. Your own estimate of the home’s selling price may differ from the appraisal used for the application.
Compare the amount available at closing with the full required debt payout and closing costs. If it falls short, the transaction cannot be treated as fully funded. Ask whether other funds would be required and what alternatives are available.
Do not assume that a later advance can pay a cost that must be settled at closing. Confirm the first advance before making plans for any extra cash.
How much cash would be left for you?
The approved loan amount is not necessarily the amount deposited into your bank account. Request a breakdown of the first advance, required repayments, deductions and remaining cash.
The first advance
This is the amount funded when the loan closes. It may differ from the total amount the lender is prepared to offer if the product allows later advances.
Existing debt repayments
Part of the advance may go directly to the old mortgage lender and other secured creditors. Use payout figures for the intended closing date, including applicable interest and charges.
Fees and closing expenses
Some fees may be deducted from the advance, added to the loan or paid separately. Check the appraisal, legal and lender charges so you know which costs reduce the cash received.
The cash paid to you
This is what remains after the required payouts and deductions. Compare it with the expense you want to cover, and check whether you also need cash for any separately payable fees.
If the remaining cash is not enough, resolve the gap before committing to a project or purchase. You may need to reduce the expense, use another source of funds or compare a different borrowing option.
Could paying off the old mortgage trigger a penalty?
Yes. Paying out a closed mortgage before its term ends normally involves a prepayment charge. There may also be administration or discharge fees and repayment of a previous cash-back incentive. The FCAC explanation of mortgage-break costs lists charges to check.
Request a written payout quote from the current lender for the proposed closing date. It should separate the outstanding balance, accrued interest, prepayment charge and other fees. Check how long the quote is valid.
Compare closing now with waiting until the current term ends. Waiting may avoid an early-repayment charge, but it does not remove every closing cost or guarantee future approval. It also means continuing the current payments while you wait.
Disclose any HELOC, including one with a zero balance. A related credit account may need to be closed to discharge the mortgage. The closing professional can confirm the requirements for your registration.
Keep making required payments until the old lender confirms settlement. Follow instructions about further HELOC withdrawals, because new borrowing can change the amount needed to close.
What changes after the reverse mortgage closes?
The old mortgage has been repaid, but the property is still mortgaged. The reverse mortgage is a new debt, including the money used to clear the old loan.
Regular reverse-mortgage payments are generally not required. However, unpaid interest increases the balance. This can reduce monthly spending while leaving a larger amount to repay later.
The FCAC reverse-mortgage overview identifies repayment events such as selling, moving out, the last borrower’s death and default. The actual agreement sets the conditions and deadlines.
You still need to pay property taxes, insurance, maintenance and any applicable condominium fees. These expenses do not disappear when the regular mortgage payment ends.
Ask for a projection of the new loan balance when you expect to sell or repay. Include the funds used to pay the old mortgage, financed fees and any additional advances. Compare that future debt with your likely housing costs.
What should you compare before replacing the mortgage?
Start with the current arrangement: the payment, outstanding balance, term-end date and any payout charge. Compare those figures with the reverse mortgage’s fees, cash remaining and projected balance.
Renewing the current mortgage, refinancing, using savings or changing housing may also be worth discussing. Approval, payments and practical costs differ between options.
A HELOC may offer access to equity, but it still needs regular payments. Paying only interest does not reduce the principal. Check whether the payments would remain affordable if its variable rate increased.
For a useful comparison, have these records ready:
- Your latest mortgage and secured-credit statements.
- The mortgage term-end date and a dated payout quote.
- The homeowners’ ages and property details.
- The extra cash needed after closing and the reason for it.
- Your retirement income and likely moving or repayment date.
Powerhaus can help compare available reverse-mortgage options. Its reverse-mortgage guide explains the wider eligibility, cost and repayment considerations.
Existing-mortgage FAQs
Must I pay off my mortgage before applying?
Not necessarily. Repayment may be arranged from the reverse-mortgage funds at closing, subject to approval. Confirm that the first advance can cover the required payout and fees before making a separate repayment.
Can I keep my HELOC?
Do not assume it can remain open. The reverse-mortgage lender may require secured credit to be repaid and closed. Disclose unused accounts too, and ask the lender and lawyer to confirm the requirements.
Do I have to use my current bank?
No. You can compare reverse-mortgage lenders that serve your area and will consider the property. If the lender changes, the existing mortgage must be dealt with and the registration updated as required.
Will my home be debt-free once the old mortgage is paid?
No. The reverse mortgage replaces the old debt with new borrowing. Interest and applicable costs remain payable under the new agreement, even if regular payments are deferred.
Is it better to wait until renewal?
It depends on the payout charge, your cash needs and the cost of continuing the current loan. Compare closing now with waiting until term end. Waiting may avoid an early-repayment penalty, but other costs and approval requirements remain.
Compare the cost of replacing your current mortgage
Have your mortgage and HELOC statements, term-end date and required extra cash ready. Ask Powerhaus to compare available options and explain the debt repayments, fees and estimated money left after closing.
General information for Canadian readers. Eligibility, required payouts and account closure depend on the lender and agreement. Confirm current terms and obtain independent legal advice and appropriate financial or tax advice before committing.