How Does a Reverse Mortgage Affect Government Benefits?
A reverse mortgage is borrowed money, not employment or pension income. Taking a reverse mortgage does not automatically mean you lose government benefits, but the way you receive, hold or invest the proceeds can matter for some income-tested programs.
← Back to Reverse Mortgage QuestionsThe Reverse Mortgage Itself Is a Loan — Not Income.
Reverse mortgage proceeds are borrowed against the equity in your home. That is different from earning additional employment, pension or investment income. However, some government programs use income or other eligibility rules, so what happens after you receive the money can still be important.
Reverse Mortgage Proceeds Are Borrowed Funds
The money received from the reverse mortgage represents a loan secured against the property rather than wages or pension income.
CPP Is Different From Income-Tested Benefits
Canada Pension Plan benefits are based on your CPP contribution history rather than simply being reduced because you borrow against your home.
OAS Has Its Own Income Rules
Old Age Security has income-related rules, so the relevant question is whether the reverse mortgage proceeds create other income after they are received.
GIS Requires More Care
The Guaranteed Income Supplement is income-tested, so homeowners receiving GIS should consider whether investing or otherwise using the proceeds could create reportable income.
Provincial Programs Can Be Different
Provincial benefits, subsidies and assistance programs can have their own eligibility rules and should be reviewed separately.
Your Individual Situation Matters
The effect depends on which benefits you receive, how much you borrow and what you do with the reverse mortgage proceeds afterward.
What You Do With the Money Can Matter More Than Receiving the Loan.
Suppose you take a large reverse mortgage advance and leave the money invested. The borrowed funds themselves are different from income, but those funds may generate interest, dividends or other investment income.
That new income can matter when a government program calculates eligibility or benefits using taxable or other qualifying income.
Taking more money than you currently need may leave a large amount sitting in cash or investments.
Interest, dividends or other income generated after the funds are invested may have tax or benefit implications.
Programs that use income to determine eligibility or payment amounts deserve additional review.
Accessing only the amount actually needed can sometimes avoid creating unnecessary cash or investment income.
Look at the Benefit Rules and the Withdrawal Strategy Together.
If you receive GIS or another income-tested benefit, it can make sense to review how much money you actually need and whether taking the funds all at once is appropriate for your situation.
Identify the Benefits You Receive
Start by confirming exactly which federal and provincial benefits currently form part of your income.
Determine How Much You Need
Borrowing substantially more than you currently need can increase both the reverse mortgage balance and the amount of unused cash you have to manage.
Consider How the Funds Will Be Used
Money used to pay off a mortgage or debt creates a different situation from money that will remain invested for a long period.
Review Available Advance Options
Depending on the reverse mortgage product, different ways of accessing approved funds may be available and should be compared.
Consider the Tax Consequences
If the proceeds will be invested or used in a way that creates taxable income, review that impact before deciding on the withdrawal amount.
Get Benefits or Tax Advice Where Needed
If income-tested benefits are significant to your household, confirm the specific consequences with the appropriate tax or benefits professional before taking a large advance.
A Reverse Mortgage Is a Loan, but the Money Can Still Affect the Bigger Financial Picture.
Taking a reverse mortgage does not automatically mean losing government benefits. The important issue is which benefits you receive and whether the way you hold, invest or use the proceeds creates income or another eligibility issue under those programs.
Let's Talk →