Many Canadians reach retirement with much of their wealth tied up in their home. A reverse mortgage is one way to turn some of that equity into cash without selling or taking on a monthly payment.
We are Lisa Reynolds and Kelly Foote of Fusion Mortgage Group, and we are both Certified Canadian Reverse Mortgage Consultants (CCRMC). Below we cover how it works, what it costs, how it compares to a home equity line of credit (HELOC), and how to tell whether it fits your plans.
What is a reverse mortgage in Canada?
A reverse mortgage is a loan secured against your home that is designed for homeowners aged 55 and older. Instead of you paying the lender each month, the lender advances money to you. You keep ownership of your home and stay on title.
Who qualifies
- You, and your spouse or partner if they are on title, are usually 55 or older.
- The home is your principal residence, which generally means you live there at least six months of the year.
- You have enough equity in the home. Any existing mortgage or debt registered on the property is typically paid off from the first advance.
How much you can borrow
According to the Financial Consumer Agency of Canada (FCAC), you can borrow up to 55% of your home’s current value. The actual amount you are offered is usually lower and depends on your age (older borrowers can typically access more), the appraised value, the property type, and where the home is located.
How you receive the money
Depending on the product, you can take the funds as:
- a single lump sum,
- an initial lump sum followed by planned advances, or
- regular advances, such as monthly or quarterly amounts, after a minimum initial advance.
How a reverse mortgage is repaid
With a reverse mortgage, there are no required payments while you live in the home. You can usually choose to pay some or all of the interest along the way, but you do not have to.
The full balance, including accumulated interest, becomes due when:
- you sell the home,
- you move out, for example into long-term care,
- the last borrower on the loan passes away, or
- the loan goes into default.
If the last borrower passes away, the estate repays the loan, most often from the sale of the home, within the timeline set by the lender. Whatever equity remains after repayment belongs to you or your estate.
How interest accrues on a reverse mortgage
On a regular mortgage, your payments reduce the balance over time. On a reverse mortgage, if you make no payments, the interest is added to the balance. The next period’s interest is then charged on that larger balance. This is compound interest, and over a long period it can grow the loan meaningfully.
Illustrative example only. Assume you take a $200,000 lump sum, make no payments, and the interest rate is 7% compounded annually for the full period. After 10 years, the balance would be roughly $393,000. This example uses an assumed rate for illustration and is not a quote or an offer of any rate.
A few practical points follow from this:
- Taking money in smaller advances over time, rather than all at once, means interest only accrues on what you have actually received.
- Paying some interest when it is comfortable can slow the growth of the balance.
- Reverse mortgage rates are generally higher than rates on a regular mortgage or a HELOC, which is the trade-off for not having a required payment.
What does a reverse mortgage cost?
Beyond interest, expect some or all of the following:
- a home appraisal,
- a setup or administration fee,
- legal fees for independent legal advice and registration,
- prepayment charges if you repay the loan early, within the lender’s prepayment period.
Some costs can be added to the loan; others are paid up front.
Pros and cons: is a reverse mortgage a good idea?
Potential advantages
- No required payments while you live in the home, which can free up monthly cash flow.
- You stay in your home and keep ownership.
- Qualification is not based on employment income, which suits many retirees.
- Tax treatment: the money is a loan, not income, so it is generally not taxable and generally does not count as income for benefits like Old Age Security (OAS) or the Guaranteed Income Supplement (GIS). We recommend confirming your own situation with a tax professional.
Potential drawbacks
- Higher interest rates than a regular mortgage or a HELOC.
- The balance grows over time when interest is not paid, which reduces the equity left for you or your estate.
- Upfront costs such as appraisal, setup, and legal fees.
- Prepayment charges if you sell or repay within the early years.
- Ongoing obligations remain: you still pay property taxes, keep the home insured, and maintain it. Falling behind on these can put the loan in default.
Reverse mortgages in Ontario
Reverse mortgages are available across Ontario, including here in Niagara, for houses, townhomes, and many condominiums. A few things to know locally:
- Independent legal advice: some provinces require independent legal advice before a reverse mortgage closes, and the FCAC recommends it in every case. Expect to meet privately with your own lawyer to review the terms before signing.
- Licensed advice: in Ontario, mortgage brokers and agents are licensed by the Financial Services Regulatory Authority of Ontario (FSRA).
- Location matters: the amount available can vary by community, so a home in one part of the province may qualify for a different percentage than a similar home elsewhere.
Reverse mortgage vs HELOC
Both let you borrow against your home, but they are built for different situations.
| Reverse mortgage | HELOC | |
|---|---|---|
| Age requirement | Usually 55+ | None |
| Maximum borrowing | Up to 55% of home value | Up to 65% of home value, or 80% combined with a mortgage |
| Required payments | None while you live in the home | At least interest each month |
| Qualification | Age, home value, location | Income, credit, and a stress test at federally regulated lenders |
| Interest rate | Generally higher | Generally lower, usually variable |
A HELOC may fit better if you have steady income, are comfortable with monthly payments, and want the lowest borrowing cost.
A reverse mortgage may fit better if you want to remove monthly payments, have limited income for qualification, and plan to stay in your home for the long term.
How we help you decide
A bank offers its own products. As mortgage brokers, we can compare options across many lenders, and banks are among the lenders we work with. Our starting point is fit, not rate. We look at:
- how long you plan to stay in the home,
- what the money is for and when you need it,
- how important leaving equity to your family is to you,
- whether alternatives such as downsizing, a HELOC, or a refinance would serve you better.
Frequently asked questions
What is the minimum age for a reverse mortgage in Canada?
Reverse mortgages in Canada are usually available to homeowners aged 55 or older. If there are two owners on title, both generally need to meet the minimum age. The older you are, the more you can typically borrow.
Do I have to make monthly payments on a reverse mortgage?
No. There are no required payments while you live in the home. You can usually choose to pay interest along the way, which slows the growth of the balance, but it is optional.
Can I lose my home with a reverse mortgage?
You keep ownership of your home. However, you must keep paying property taxes, keep the home insured, and maintain it. If those obligations are not met, the loan can go into default, which is why we review them carefully with every client.
What happens to a reverse mortgage when I die?
The loan becomes due when the last borrower passes away. The estate repays the balance, usually by selling the home, within the lender’s timeline. Any remaining equity goes to your estate.
Is a reverse mortgage better than a HELOC?
It depends on your situation. A HELOC usually costs less in interest but requires income to qualify and monthly payments. A reverse mortgage costs more but has no required payments and does not rely on employment income to qualify.
Is reverse mortgage money taxable?
Generally no. The funds are a loan, not income, so they are generally not taxed and generally do not affect income-tested benefits like OAS and GIS. Confirm your own situation with a tax professional.
Talk to Fusion Mortgage Group
If you are weighing a reverse mortgage, a HELOC, or another way to use your home equity, we are happy to walk through the options with you and your family. Lisa brings 30+ years in the industry, and we reply to every inquiry within 24 business hours.
Fusion Mortgage Group, Lisa Reynolds and Kelly Foote, licensed under BRX Mortgage Inc. (FSRA #13463).
This article is general information only and is not financial, legal, or tax advice for your specific situation. Speak with a licensed professional before making decisions about your home or finances.