In Canada, reverse mortgages let you borrow up to 55% of your home’s current value. Unlike other types of home equity borrowing that require monthly repayments, a reverse mortgage only comes due when:

• you move out of your home
• you sell your home
• everyone on your house’s title dies
• you default on your reverse mortgage

Many reverse mortgage horror stories revolve around that last point. However, defaulting on a reverse mortgage and losing your home as a result is both rare and difficult. Additionally, as you’ll see next, many of the most oft-cited reverse mortgage “horror stories” are more nuanced than they initially appear.

A closer look at the most viral reverse mortgage “horror story”

One of the most viral reverse mortgage horror stories online concerns an elderly Alabama woman who had her home foreclosed on because her lender deemed the house unoccupied. The story is especially sympathetic since the woman was dealing with her husband’s recent death and the demise of their family restaurant amid the reverse mortgage drama.

Why this “horror story” is misleading

The lender’s inspector visited the vacant restaurant next door rather than the woman’s home, which she was still very much living in.

This is an extremely atypical situation and the woman eventually received significant compensation in court since the company was grossly negligent. In other words, the flaw lay with the reverse mortgage provider’s actions rather than the type of loan itself.

Unpacking another reverse mortgage “horror story”

Another commonly-cited reverse mortgage horror story concerns a Florida woman who reportedly lost her home after defaulting on a loan.

Why this “horror story” is misleading

The woman in question took out a reverse mortgage to cover the cost of home renovations. She lost the money when a fraudulent contractor vanished with it. Subsequently, the woman fell ill and was unable to keep up with her home insurance premiums, property taxes, and homeowner’s association fees. Her reverse mortgage went into default and she lost her home.

There’s no denying the incredibly unfortunate nature of this situation. However, the reality of any loan – whether it be a traditional mortgage or personal line of credit – is that going into default has dire consequences.

Reverse mortgage horror stories are rare in Canada

Most of the cautionary tales you read concerning reverse mortgages involve American homeowners and lenders rather than Canadian ones. This is no coincidence.

Canadian lenders are more stable and ethical

As we saw during the 2008 financial crisis, mortgage lenders in Canada operate with much more restraint than their American counterparts.

The liberal nature of mortgage lending in America led to staggering numbers of bank failures and foreclosures on homes people really couldn’t afford to begin with. Canada, meanwhile, did not experience a full-scale housing crisis. No banks failed.

This has actually been a recurring theme in Canada, as discussed in a report titled “Why Didn’t Canada Have a Banking Crisis in 2008 (or in 1930, or 1907, or…).”

The authors highlighted the diversified and “robust” nature of Canada’s banking system in contrast with America’s “fragmented” situation.

Additionally, critics of reverse mortgages typically take aim at the way in which American lenders target already-struggling borrowers. In the same way nobody called for an end to mortgages following the 2008 crisis, critics are not against the idea of reverse mortgages as a whole – just the seemingly predatory practices of lenders in the United States.

This is why you don’t hear nearly as much of an outcry about reverse mortgages in Canada, even though the sector has been growing by a staggering 28% annually.

Closing costs on reverse mortgages in America are much higher

Another major difference between reverse mortgages in Canada and the United States is that lenders in the latter nation charge much higher fees, including ongoing service charges borrowers often don’t find out about until they’ve signed on the dotted line.

Canadian lenders, meanwhile, charge much more reasonable fees and are required to be transparent about them.

The reverse mortgage market in America is more cutthroat

In Canada, there are only two reverse mortgage lenders: HomeEquity Bank and Equitable Bank.

By contrast, America has countless reverse mortgage lenders. Thanks to a legislative repeal in the 1990s, these retail banks are allowed to sell their mortgages as investments. This acts as an incentive to issue large numbers of reverse mortgages, assets backed by which are ultimately gobbled up by investors.

Canada, meanwhile, does not have a market for private mortgage-backed securities. In other words, lenders are not rushing to issue reverse mortgages and boost their share prices. Consequently, they’re not competing with hordes of other banks attempting to do the same thing.

This is a large part of why Canadian banks emerged from the 2008 crisis unscathed. They were never – and almost certainly never will be, due to Canada’s strong consumer protections – incentivized to issue loans no matter the cost.

Reverse nortgages in Canada come with common-sense protections built-In

Before 2014, reverse mortgage lenders in the United States only required that one borrower on the home’s title be above the age of 62. In other words, a 62-year-old married to a 55-year-old could’ve gotten a reverse mortgage on their jointly-owned property.

If the 62-year-old passed away, however, the reverse mortgage balance would’ve been due immediately. This is an alarming reality many reverse mortgage borrowers found themselves living in, which produced many of the reverse mortgage horror stories you read about today.

However, this was never the case in Canada. Every single owner on a property’s title has always been required to be above the age of 55, which means no single person’s death can trigger a loan default.