A reverse mortgage lets Canadian homeowners aged 55 and older convert part of their home equity into tax-free cash without selling their home or making monthly mortgage payments. For retirees who are house-rich but cash-poor, it can be a practical way to fund retirement — but the costs are significant and worth understanding thoroughly.
What is a reverse mortgage?
A reverse mortgage is a loan secured against your home that does not require monthly payments. Instead of paying down the balance over time (like a regular mortgage), the balance grows as interest compounds on the outstanding amount. The full loan is repaid when you sell the home, move out permanently, or pass away.
Key features:
- You must be 55 years or older (both spouses if joint)
- You retain full ownership and title of your home
- No monthly mortgage payments required
- You must maintain the property, pay property taxes, and keep home insurance
- The loan is repaid from the eventual sale of the home
How much can you borrow?
The maximum is 55% of your home’s appraised value, but the actual amount depends on several factors. Age is the biggest driver — older borrowers qualify for a higher percentage because the expected loan duration is shorter.
Approximate borrowing amounts by age
| Age | Approximate % of Home Value | Amount on $600,000 Home |
|---|---|---|
| 55 | 15%–20% | $90,000–$120,000 |
| 60 | 20%–25% | $120,000–$150,000 |
| 65 | 25%–35% | $150,000–$210,000 |
| 70 | 30%–40% | $180,000–$240,000 |
| 75 | 40%–50% | $240,000–$300,000 |
| 80 | 45%–52% | $270,000–$312,000 |
| 85+ | 50%–55% | $300,000–$330,000 |
If both spouses are on the mortgage, the amount is based on the younger spouse’s age. Location also matters — properties in major urban centres typically qualify for higher amounts than rural properties.
Reverse mortgage providers in Canada
HomeEquity Bank — CHIP Reverse Mortgage
HomeEquity Bank has offered the CHIP Reverse Mortgage since 1986 and is the dominant provider in Canada. CHIP stands for Canadian Home Income Plan.
- Available across all Canadian provinces
- Fixed-rate terms: 1-year, 3-year, and 5-year
- Variable-rate option available
- Borrow as a lump sum, scheduled advances, or a combination
- No-negative-equity guarantee — you will never owe more than your home is worth
Equitable Bank
Equitable Bank entered the reverse mortgage market as a competitor to HomeEquity Bank, offering similar products with competitive rates.
- Available in select provinces
- Fixed-rate terms available
- Growing product range and geographic availability
- Worth comparing against CHIP for rate and terms
Current reverse mortgage rates
Reverse mortgage rates are higher than conventional mortgage rates because the lender does not receive any payments during the life of the loan. As of early 2026, typical rates are:
| Term | Approximate Rate Range |
|---|---|
| 1-year fixed | 6.50%–7.50% |
| 3-year fixed | 6.25%–7.00% |
| 5-year fixed | 6.00%–6.75% |
| Variable | 6.25%–7.00% |
These rates are roughly 1%–2% above conventional mortgage rates. The exact rate depends on your age, loan-to-value ratio, property location, and the specific lender.
Costs of a reverse mortgage
While there are no monthly payments, there are upfront and ongoing costs to understand.
| Cost | Typical Amount |
|---|---|
| Home appraisal | $300–$600 |
| Independent legal advice | $300–$500 |
| Closing legal fees | $1,000–$2,000 |
| Setup / administration fee | $0–$1,795 (varies by lender) |
| Title insurance | $200–$400 |
| Prepayment penalty (if repaid early) | Varies by lender and term |
| Ongoing interest | Compounds on balance — this is the major cost |
There are no monthly out-of-pocket costs, but the compounding interest is substantial over time.
How interest compounds — worked example
This is the most important thing to understand about reverse mortgages. Because you make no payments, interest is added to your balance, and then you pay interest on that interest. The growth is exponential.
$200,000 reverse mortgage at 6.50%
| Year | Balance Owing | Interest Added That Year |
|---|---|---|
| 0 | $200,000 | — |
| 5 | $274,082 | $16,646 |
| 10 | $375,568 | $22,808 |
| 15 | $514,606 | $31,247 |
| 20 | $705,110 | $42,814 |
After 10 years, you owe $375,568 on a $200,000 loan — nearly double. After 20 years, the balance has more than tripled to over $705,000. This is why reverse mortgages work best as a shorter-term solution or for homeowners with substantial equity.
The no-negative-equity guarantee means you will never owe more than the home’s fair market value at the time of sale. But the compounding can significantly erode the equity you or your heirs would otherwise receive.
Pros and cons
| Pros | Cons |
|---|---|
| Access home equity without selling | Interest compounds rapidly — balance grows fast |
| No monthly mortgage payments | Higher rates than conventional mortgages |
| Stay in your home | Reduces inheritance for heirs |
| Tax-free proceeds | Upfront setup costs ($1,500–$4,000+) |
| Does not affect OAS or GIS | Limited to 55% of home value |
| No-negative-equity guarantee | Prepayment penalties if repaid early |
| Receive funds as lump sum or over time | Fewer providers means less competition on rates |
Alternatives to a reverse mortgage
Before committing to a reverse mortgage, compare these alternatives:
| Option | Monthly Payment? | Access to Equity | Interest Rate | Key Trade-Off |
|---|---|---|---|---|
| Reverse mortgage | No | Up to 55% LTV | 6.00%–7.50% | Balance grows, less inheritance |
| HELOC | Yes (interest-only minimum) | Up to 65% LTV | Prime + 0.50% (~5.45%) | Must make monthly payments |
| Home equity loan | Yes (P+I) | Up to 80% LTV | 5.50%–7.00% | Fixed payments required |
| Downsize | No | 100% (sell home) | N/A | Must move |
| Rent out a portion | No | Partial (rental income) | N/A | Loss of privacy |
| Sell and rent back | No | 100% (sell home) | N/A | No longer a homeowner |
A HELOC offers a lower interest rate but requires monthly interest payments. Downsizing frees up the most capital but means leaving your home. The right choice depends on your cash flow needs, attachment to your home, and overall financial plan.
When a reverse mortgage makes sense
A reverse mortgage can be a good fit in these situations:
- Supplementing retirement income. If your pension, CPP, OAS, and investment income are not enough, a reverse mortgage provides tax-free cash to cover expenses.
- Paying for home renovations or accessibility modifications. Aging in place often requires changes to the home — wider doorways, stairlifts, bathroom modifications — and a reverse mortgage can fund these without monthly payments.
- Paying off existing debt. Using a reverse mortgage to eliminate a regular mortgage, credit card debt, or line of credit removes monthly payment obligations from your budget.
- Avoiding or delaying the sale of your home. If you want to stay in a home with sentimental value or in a community you love, a reverse mortgage lets you stay while accessing the equity.
- Bridge to other income. If you plan to start CPP or OAS at a later age for higher benefits, a reverse mortgage can cover the gap years.
Tax implications
Reverse mortgage proceeds are not taxable income. The money you receive is a loan, not earnings, so it does not appear on your tax return. This means:
- No increase to your marginal tax rate
- No clawback of OAS benefits
- No reduction in GIS eligibility
- No impact on the age credit, GST/HST credit, or other income-tested benefits
This is one of the key advantages over withdrawing from RRSPs, RRIFs, or other registered accounts — those withdrawals count as income and can trigger OAS clawbacks and higher tax rates. Learn more about RRSP/RRIF tax implications on death.
Impact on government benefits
Because reverse mortgage payments are classified as a loan (not income), they do not affect:
- Old Age Security (OAS) — No clawback triggered
- Guaranteed Income Supplement (GIS) — No reduction in benefits
- Provincial income-tested benefits — No impact on drug plans, property tax deferrals, or other programs tied to net income
This makes reverse mortgages particularly attractive for GIS recipients, where every additional dollar of income can reduce benefits by 50 cents or more.
The Bottom Line
A reverse mortgage is a legitimate financial tool for Canadian homeowners aged 55+ who want to access their home equity without selling or making monthly payments. The trade-off is clear: you get tax-free cash now, but compounding interest steadily erodes your equity over time.
The key is to go in with realistic expectations. Borrow only what you need, understand how quickly the balance grows, and compare alternatives like a HELOC or downsizing before committing. If staying in your home is a priority and you have substantial equity, a reverse mortgage can provide meaningful financial relief in retirement.