Reverse mortgages in Canada, explained plainly
If you're 55 or older and own your home, a reverse mortgage lets you access home equity without selling or making monthly payments. It isn't the right fit for everyone - here's how it actually works, what it costs, and what to compare it against.
Talk to a broker →How does a reverse mortgage work?
A reverse mortgage is a loan secured against your home that pays you instead of the other way around. You keep ownership and can stay in your home, interest accrues on what you borrow, and the loan plus interest is repaid from the eventual sale proceeds. Because interest compounds over time with no payments, the amount owed - and the equity left for you or your estate - changes significantly the longer the loan is outstanding.
- Available to homeowners aged 55+ in Canada, through lenders such as CHIP (HomeEquity Bank) and Equitable Bank.
- You can typically access up to about 55% of your home's appraised value, depending on age and property.
- No regular payments are required; interest accrues on the balance until the loan is repaid.
- The loan is repaid when you sell, move out permanently, or pass away - you'll never owe more than the home's fair market value.
~55%
Typical max of home value
$0
Required monthly payments
55+
Minimum age requirement
Tax-free
Funds you receive
Eligibility and how much you can access
To qualify, you (and your spouse, if applicable) must be at least 55 years old and own the home outright or have a small remaining mortgage that gets paid off from the reverse mortgage advance. Lenders assess the property's location, type, condition, and appraised value - detached homes in major markets typically qualify for a higher percentage than condos or rural properties.
The two main providers in Canada are HomeEquity Bank (CHIP Reverse Mortgage) and Equitable Bank (PATH Home Plan). Both let you take funds as a lump sum, in planned advances, or a combination. If you're under 55, you won't qualify for a reverse mortgage - consider an equity takeout or HELOC instead.
Worked example: interest accrual over time
Margaret, 68, owns a $700,000 home mortgage-free in Markham, ON, and takes a $200,000 lump-sum advance:
Initial advance
$200,000
Illustrative rate
~7.5%/yr
Monthly payments
$0
With no payments, interest compounds on the growing balance. At roughly 7.5% compounded annually, a $200,000 advance grows to about $287,000 after 5 years and about $412,000 after 10 years - reducing the equity left in the home. This is illustrative only; actual rates, fees, and home appreciation will change the real numbers, and rising home values can offset some of this growth. Always ask a lender for a personalized amortization example before deciding.
Who tends to benefit from a reverse mortgage
Retirees on a fixed income
Supplement CPP/OAS income without monthly repayment obligations. Because it's structured as a loan, the funds you receive aren't taxable income and don't reduce income-tested benefits like OAS or GIS.
Homeowners who want to stay put
If moving isn't appealing or realistic, a reverse mortgage can free up equity while you remain in your home.
Those weighing the cost of moving
Selling and moving costs - real estate commissions, land transfer tax, legal fees, movers - can be substantial. Compare those costs against reverse mortgage interest before deciding.
Homeowners with significant, unused equity
If most of your net worth is tied up in your home and you have no plans to leave an untouched estate, accessing some of that equity now may make sense.
Pros and cons to weigh
Potential advantages
- • No monthly payments required
- • You keep title and can stay in your home
- • Tax-free access to home equity
- • No-negative-equity guarantee protects your estate
- • Qualification is based on age and home equity, not income
Trade-offs to consider
- • Interest rates are higher than a conventional mortgage or HELOC
- • Compounding interest reduces equity over time
- • Setup fees, appraisal, and independent legal advice are required
- • Less equity remains for your estate or heirs
- • Early repayment (e.g., a move within a few years) can trigger prepayment charges
Alternatives worth comparing
Before choosing a reverse mortgage, compare it against a HELOC, which usually carries a lower rate but requires you to qualify based on income and make at least interest payments; a conventional equity takeout refinance; downsizing to a smaller home or renting; or a combination, such as a HELOC now with a reverse mortgage later once income-based qualification becomes harder. A mortgage broker can model the total cost of each option side by side.
Frequently asked questions
Straight answers to the questions Canadians ask before considering a reverse mortgage.
How does a reverse mortgage work in Canada?
A reverse mortgage lets homeowners aged 55 and older borrow against their home equity without making regular payments. The lender advances funds as a lump sum, scheduled payments, or a combination, and interest accrues on the balance over time. The loan, plus accrued interest, is repaid when you sell the home, move out permanently, or pass away.
How much can I borrow with a reverse mortgage?
Most Canadian reverse mortgage lenders let you access up to roughly 55% of your home's appraised value, though the exact amount depends on your age, home value, location, and property type. Older borrowers and higher-value homes generally qualify for a larger percentage.
Who is eligible for a reverse mortgage?
You (and your spouse, if you have one) must be at least 55 years old and own your home. Lenders also consider the property's value, type, condition, and location, and there may be restrictions on condos, rural properties, or homes that need significant repairs.
Are reverse mortgage rates higher than a regular mortgage?
Yes. Reverse mortgage interest rates are typically higher than rates on a conventional mortgage or HELOC, reflecting the lender's added risk of not receiving payments until the loan is eventually repaid. It's worth comparing the total cost against alternatives like a HELOC or downsizing before deciding.
What happens to a reverse mortgage when the homeowner dies?
When the last borrower passes away or moves out permanently, the estate or heirs typically have a set period (often up to a year) to repay the loan in full, usually by selling the home or refinancing. Any remaining equity after the loan and interest are repaid goes to the estate. Canadian reverse mortgages carry a no-negative-equity guarantee, so heirs will never owe more than the home's fair market value at the time of sale.
Do I need to make monthly payments on a reverse mortgage?
No. Reverse mortgages don't require regular principal or interest payments while you live in the home. Interest simply accrues and compounds on the outstanding balance, which reduces the equity remaining for you or your estate over time. You can choose to make voluntary payments to slow the growth of the balance if you want to.
What are the alternatives to a reverse mortgage?
Common alternatives include a home equity line of credit (HELOC), a conventional refinance or equity takeout, downsizing to a smaller home, or a personal loan. Each has different qualification rules, costs, and payment obligations, so it's worth comparing all of them against your income and long-term plans.
How much does a reverse mortgage cost to set up?
Expect to pay an appraisal fee, an administration or setup fee, and independent legal advice fees (required by lenders to confirm you understand the terms) - together often in the range of $1,500 to $2,500. These costs are usually deducted from your advance or added to the loan balance.
Compare your options with a broker
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