# How does a reverse mortgage work, and what are the key requirements?

> Reverse mortgages allow homeowners to borrow against home equity without monthly payments .

Category: Advanced
Last verified: 2026-02-18
Source: https://ratellow.com/faqs/advanced/how-does-a-reverse-mortgage-work-and-what-are-the-key-requirements

## Answer
Reverse mortgages allow homeowners to borrow against home equity without monthly payments . The loan (plus interest) is repaid from the home's sale when the borrower moves out. To qualify for specific risk weights, FRFIs need independent appraisals, documented underwriting, and LTV monitoring . This includes stress-testing against occupancy, property values, and interest rates.

## Institutional highlights
- Lenders use a consistent method to evaluate the risk of your reverse mortgage.
- You're typically not personally liable if the home sells for less than you owe on your reverse mortgage.
- The amount you can borrow depends on how much equity you have in your home; borrowing less means lower lender risk.
- When determining your home's value, lenders won't include expected future price increases and will consider potential market changes.
- Lenders have documented processes for estimating things like who will live in the home, how property values might change, and future interest rate changes.

## Related guide
- https://ratellow.com/guides/reverse-mortgages-seniors

## Sources
- 4.1.14 Reverse mortgages — https://www.osfi-bsif.gc.ca/en/guidance/guidance-library/capital-adequacy-requirements-car-2026-chapter-4-credit-risk-standardized-approach#4.1.14
- OSFI exempts uninsured mortgage straight switches from the prescribed MQR and implements portfolio LTI limits — https://www.osfi-bsif.gc.ca/en/guidance/guidance-library/osfi-exempts-uninsured-mortgage-straight-switches-prescribed-mqr-implements-portfolio-lti-limits
- I. Purpose and scope of the guideline — https://www.osfi-bsif.gc.ca/en/guidance/guidance-library/residential-mortgage-underwriting-practices-procedures-guideline-2017#1.0
- Contents — https://www.sagen.ca/ups/underwriting-documentation/#documentation