Reverse Mortgage Property Tax and Insurance Obligations in Ontario

"I took out a reverse mortgage so I wouldn't have to make any payments — so why does my lender keep reminding me about property taxes and insurance?" This is one of the most misunderstood aspects of reverse mortgages in Canada. While it is true that you have no monthly mortgage payments, you do have ongoing obligations — and failure to meet them can put your reverse mortgage in default. This guide explains exactly what you must do, what happens if you fall behind, and what programs can help you stay on track.

This article is for educational purposes only and does not constitute financial advice.

Your Ongoing Obligations as a Reverse Mortgage Borrower

When you sign a reverse mortgage agreement with any Canadian lender — HomeEquity Bank (CHIP), Equitable Bank, Bloom Financial, or Home Trust — you agree to a set of ongoing obligations that remain in effect for the entire life of the loan. These are not optional and are explicitly stated in your mortgage contract.

Obligation	Requirement	Why It Matters
Property taxes	Must be paid in full and on time	Tax arrears can create a lien that ranks ahead of the mortgage
Homeowner's insurance	Must maintain adequate coverage at all times	Protects both you and the lender against loss
Property maintenance	Must keep the home in reasonable condition	Protects the property value that secures the loan
Occupancy	Must continue to live in the home as your principal residence	Reverse mortgages are only available on principal residences
Condo fees (if applicable)	Must be paid in full and on time	Unpaid fees can create a condo lien with priority over the mortgage

According to the Financial Consumer Agency of Canada (FCAC), reverse mortgage borrowers must continue to pay property taxes, maintain insurance, and keep their home in good repair. Failure to meet these conditions can result in the lender requiring repayment of the loan.

Property Taxes: The Most Critical Obligation

Why Lenders Care So Much About Property Taxes

In Ontario, unpaid property taxes create a tax lien on your property that has priority over all other liens and mortgages — including a reverse mortgage. This means that if your municipality sells your home for tax arrears, the municipality gets paid first and the reverse mortgage lender may lose some or all of their security.

This is not a theoretical concern. Under the Ontario Municipal Act, 2001, municipalities can begin the tax sale process after property taxes are in arrears for three years. The timeline is:

Stage	When It Happens	What Occurs
Tax bill issued	Annually or quarterly (varies by municipality)	Regular tax billing cycle
Late payment penalty	1.25% per month (15% annually) in most municipalities	Penalty begins immediately after due date
First arrears notice	After first missed payment	Municipality sends reminder
Tax arrears certificate registered	After taxes unpaid for 2+ years	Legal notice registered on title
Tax sale process begins	After 3 years of arrears	Municipality can sell the property to recover taxes
Tax sale completed	After required notice period	Property sold; proceeds applied to taxes first, then liens

The penalty rate of 1.25% per month (15% per year) on unpaid property taxes is one of the highest interest rates most homeowners will ever face. It exceeds the reverse mortgage interest rate itself, making tax arrears an extremely expensive mistake.

How Lenders Monitor Property Taxes

Reverse mortgage lenders actively verify that your property taxes are current. The monitoring process varies by lender but typically includes:

• Annual verification: The lender checks with the municipality (or requires you to provide proof) that taxes are paid in full at least once per year
• Title monitoring: Some lenders subscribe to title watch services that flag any new liens registered on the property, including tax arrears certificates
• Condition of advance: If you are receiving scheduled advances, the lender may verify tax status before releasing each advance

Rick Sekhon emphasizes to every client that property tax compliance is non-negotiable. It is the single most common reason reverse mortgages are placed in default status across Canada.

What Happens If You Fall Behind on Property Taxes

If the lender discovers that your property taxes are in arrears, they will take action — typically in this order:

1. Written notice. The lender sends a letter notifying you that your taxes are overdue and requesting immediate payment.
2. Grace period. Most lenders provide a reasonable grace period (30–90 days) to bring taxes current.
3. Forced payment. If you do not bring the taxes current, the lender may pay the taxes on your behalf and add the amount to your reverse mortgage balance. This protects the lender's security but increases your loan balance and the interest you owe.
4. Holdback or reserve. The lender may establish a tax holdback from your remaining approved but undrawn funds (if using scheduled advances) to ensure future taxes are paid.
5. Demand for repayment. In extreme cases — particularly if there is a pattern of non-compliance — the lender may declare the loan in default and demand full repayment. This is rare but is within the lender's contractual rights.

Action	When It Occurs	Impact on Borrower
Written notice	First discovery of arrears	Notification; no immediate financial impact
Grace period (30–90 days)	After notice	Time to pay; penalties from municipality continue
Lender pays taxes on your behalf	After grace period expires	Taxes paid; amount added to loan balance with interest
Tax holdback established	After forced payment	Future advances reduced by holdback amount
Loan declared in default	Extreme cases only	Lender may demand full repayment

Ontario Property Tax Amounts by Region

Property tax rates vary significantly across Ontario. Here is a snapshot of approximate annual property taxes for a home assessed at $600,000:

Municipality	Approximate Tax Rate (2025)	Annual Tax on $600,000 Assessment
Toronto	0.67%	$4,020
Mississauga	0.84%	$5,040
Ottawa	1.07%	$6,420
Hamilton	1.26%	$7,560
London	1.34%	$8,040
Kitchener	1.14%	$6,840
Windsor	1.58%	$9,480
Barrie	1.12%	$6,720

Rates are approximate and based on 2025 municipal tax rates applied to MPAC assessed values. Actual taxes depend on your specific assessment, which may differ from market value.

The Municipal Property Assessment Corporation (MPAC) determines the assessed value of every property in Ontario. Note that MPAC assessments are often lower than current market value, so your actual tax bill may be lower than the table suggests for a home with a $600,000 market value.

Homeowner's Insurance: Your Second Critical Obligation

What Coverage Is Required

Your reverse mortgage agreement requires you to maintain homeowner's insurance (also called property insurance or dwelling insurance) on your home at all times. The insurance must:

• Cover the full replacement cost of the dwelling (not just market value)
• Include fire, theft, liability, and standard perils
• Name the reverse mortgage lender as a loss payee (or mortgagee) on the policy
• Remain active and paid up for the entire duration of the loan

If your home is a condominium, you must maintain unit owner insurance (often called condo insurance or HO-6 coverage) in addition to the coverage provided by the condo corporation's master policy.

What Happens If Insurance Lapses

If your homeowner's insurance lapses — due to non-payment of premiums, cancellation by the insurer, or failure to renew — the lender will be notified (because they are named on the policy as a loss payee). The consequences follow a similar escalation to property tax arrears:

1. Lender notification. The insurance company automatically notifies the lender when a policy is cancelled or not renewed.
2. Written notice to borrower. The lender contacts you immediately and requires proof of replacement coverage.
3. Force-placed insurance. If you do not obtain replacement coverage within a specified period (typically 30 days), the lender may purchase force-placed insurance on your behalf. This coverage protects only the lender's interest (not your personal property or liability) and is significantly more expensive than standard homeowner's insurance — often 2 to 3 times the cost.
4. Cost added to loan balance. The cost of force-placed insurance is added to your reverse mortgage balance.

According to the Insurance Bureau of Canada, homeowner's insurance costs in Ontario have risen an average of 5–8% per year since 2020, driven by increasing claims from severe weather events. Seniors on fixed incomes should budget for annual increases when planning their insurance obligations.

Tips for Managing Insurance Costs

• Bundle policies. Combining home and auto insurance with the same provider often yields discounts of 10–15%.
• Increase your deductible. Raising your deductible from $500 to $1,000 or $2,000 can reduce premiums by 15–25%. Only do this if you can afford the higher deductible in the event of a claim.
• Install security and safety devices. Burglar alarms, smoke detectors, water leak sensors, and monitored security systems can qualify you for premium discounts.
• Review your coverage annually. Ensure you are not over-insured or paying for coverages you do not need.
• Shop around. Premiums vary significantly between insurers. Obtain quotes from at least three companies every 2–3 years.

Property Maintenance Obligations

Your mortgage agreement requires you to keep your home in reasonable condition. This does not mean you need to renovate or upgrade the property, but you must prevent deterioration that would significantly reduce the home's value.

What "Reasonable Condition" Means

Acceptable	Not Acceptable
Normal wear and age-related cosmetic issues	Roof leaks left unrepaired for extended periods
Dated kitchen or bathroom finishes	Water damage causing mould or structural deterioration
Older but functional HVAC system	Non-functional heating in winter
Minor cosmetic cracks in drywall	Foundation damage left unaddressed
Aging landscaping	Property becoming a municipal bylaw concern

Lenders do not conduct regular inspections of reverse mortgage properties. However, if they become aware of significant property deterioration — through appraisal updates, insurance claims, or municipal complaints — they may request an inspection or require remediation.

If you are struggling with home maintenance due to physical limitations, a reverse mortgage can actually help fund accessibility modifications and essential repairs. See reverse mortgage for home renovations and accessibility.

Tax Deferral Programs That Can Help

Several Ontario municipalities and the province of Ontario offer property tax deferral or relief programs specifically for seniors. These can complement a reverse mortgage by reducing the cash flow burden of property taxes.

Ontario Senior Homeowners' Property Tax Grant

The province of Ontario offers the Senior Homeowners' Property Tax Grant — up to $500 per year for seniors with low to moderate incomes. You must be 64 or older by December 31 of the tax year and have paid property taxes or rent on your principal residence.

• Claimed through your annual income tax return (CRA)
• Based on household net income
• Maximum grant: $500
• Automatically calculated by the CRA when you file

Municipal Tax Deferral Programs

Some Ontario municipalities offer property tax deferral programs for seniors, low-income homeowners, or those facing financial hardship:

Municipality	Program	Eligibility	Deferral Terms
Toronto	Property Tax Increase Deferral	Seniors 65+, low income	Defers annual increase portion; lien registered
Ottawa	Tax Deferral Program for Seniors	Seniors 65+, household income under threshold	Defers portion of taxes; simple interest charged
Hamilton	Tax Deferral for Low-Income Seniors	Seniors 65+, income-tested	Defers taxes; repayable on sale
Various municipalities	Financial hardship provisions	Case-by-case	Must apply to municipal council

Important: If you participate in a municipal tax deferral program, the deferred taxes typically create a lien on your property. You must inform your reverse mortgage lender, as this affects the title. Rick Sekhon can advise on how tax deferral programs interact with your reverse mortgage.

Ontario Trillium Benefit

The Ontario Trillium Benefit (OTB) combines three credits: the Ontario Energy and Property Tax Credit, the Northern Ontario Energy Credit, and the Ontario Sales Tax Credit. The property tax component provides up to $1,194 per year for seniors (2025 rates) based on property taxes paid or rent.

This benefit is claimed through your CRA income tax return and paid monthly. It can offset a meaningful portion of property tax costs for lower-income seniors.

For a comprehensive guide to combining government programs with a reverse mortgage, see Ontario seniors' programs combined with a reverse mortgage.

Setting Up a Tax and Insurance Reserve

One of the most effective strategies for ensuring you never fall behind on property taxes or insurance is to set up a reserve account — either voluntarily or at the lender's request.

How It Works

A portion of your reverse mortgage proceeds (or your scheduled advances) is set aside in a designated account specifically for property taxes and insurance payments. When the bills come due, the payments are made from this reserve.

Example:

Annual Expense	Amount
Property taxes	$5,500
Homeowner's insurance	$2,200
Total annual obligations	$7,700
Monthly reserve contribution (if using scheduled advances)	$642

This approach mimics the escrow or tax account system used in traditional mortgages, but since reverse mortgages do not have monthly payments, the reserve is funded from your reverse mortgage proceeds rather than from your income.

The Office of the Superintendent of Financial Institutions (OSFI) allows lenders to require a reserve holdback if they have concerns about a borrower's ability to maintain tax and insurance payments. If the lender establishes a mandatory reserve, the holdback amount is deducted from your available funds.

What Rick Sekhon Recommends

Rick Sekhon advises every reverse mortgage client to:

1. Set up pre-authorized property tax payments. Most Ontario municipalities offer monthly or quarterly pre-authorized payment plans at no extra cost. This spreads the tax burden evenly and eliminates the risk of missing a due date.
2. Set up automatic insurance premium payments. Most insurers offer monthly pre-authorized payment plans, often at no additional cost or with a small administrative fee.
3. Budget for annual increases. Property taxes and insurance premiums both tend to increase each year. Budget for 3–5% annual increases in both.
4. Keep records. Maintain copies of all property tax receipts and insurance declaration pages. Your lender may request proof of payment at any time.
5. Communicate early if you are struggling. If you are having difficulty paying property taxes or insurance, contact Rick Sekhon immediately. Solutions may include adjusting your scheduled advances, accessing additional reverse mortgage funds, or connecting you with municipal relief programs.

The Connection Between Obligations and the No-Negative-Equity Guarantee

Canadian reverse mortgages include a no-negative-equity guarantee — the assurance that you will never owe more than the fair market value of your home when it is sold. However, this guarantee is contingent on you meeting your obligations.

If the loan is placed in default due to unpaid property taxes, lapsed insurance, or serious property neglect, the lender's standard remedies apply — and the no-negative-equity guarantee may not cover penalties, forced-payment costs, or legal fees incurred by the lender to protect its security.

Meeting your obligations is not just about compliance — it is about ensuring the full protections of the reverse mortgage contract remain in force.

FAQ

Can my reverse mortgage lender take my home if I miss a property tax payment? Not for a single missed payment. Lenders follow a graduated response starting with a written notice and a grace period. The lender's goal is to help you get back on track, not to force a sale. However, chronic non-payment over an extended period — combined with refusal to resolve the issue — can lead to the lender declaring the loan in default.

Does the reverse mortgage lender pay my property taxes for me? Not automatically. You are responsible for paying your own property taxes. However, if you fall into arrears, the lender may pay the taxes on your behalf to protect their security interest. The payment amount is added to your loan balance and accrues interest. Some lenders can also set up a voluntary reserve from your proceeds to cover future taxes.

What happens to my insurance if I switch providers? You are free to switch insurance providers at any time, but the new policy must name the reverse mortgage lender as a loss payee (mortgagee). Ensure there is no gap in coverage during the transition. Notify your lender of the new policy details as soon as the switch is made.

Are condo fees considered an obligation under my reverse mortgage? Yes. If you own a condominium, maintaining current condo fee payments is an obligation under your reverse mortgage agreement. Unpaid condo fees in Ontario can create a lien with priority over the mortgage — similar to unpaid property taxes. The FSRAO and the Ontario Condominium Act protect condo corporations' right to collect fees.

Can I defer all my property taxes through a municipal program and satisfy my reverse mortgage obligations? This depends on the specific deferral program and your lender's policies. Some lenders accept participation in municipal tax deferral programs, while others may not. The key issue is that most deferral programs register a lien on your property, which affects the lender's security. Consult Rick Sekhon before enrolling in any tax deferral program.

What if I can no longer maintain my home due to health issues? If health issues prevent you from maintaining your home, this may signal that it is time to consider other living arrangements. However, before that point, a reverse mortgage can fund in-home care services, accessibility modifications, or professional property maintenance. See reverse mortgage and healthcare costs in Ontario for options.

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Speak to a licensed mortgage professional. Independent legal advice is required before closing a reverse mortgage in Ontario.

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This content is for illustrative purposes only. Rates may vary. Call Rick Sekhon for the best rates and more information.