Reverse Mortgage in Canada: How It Works, Eligibility, Costs and Repayment
A reverse mortgage lets eligible Canadian homeowners borrow against their home without making regular mortgage payments. You keep ownership of the property, but interest increases the amount you owe if you do not pay it.
For a homeowner whose retirement income does not cover a needed expense, this can provide money without an immediate sale. The trade-off is a growing loan balance that must eventually be repaid.
Before applying, it helps to understand four things: whether you qualify, how much cash you would receive, what the loan would cost and how you would repay it.
In this guide
What is a reverse mortgage?
A reverse mortgage is a loan secured against your home. It allows you to borrow part of the equity you have built up without selling the property. Home equity is your home’s value minus the debts secured against it.
With a regular mortgage, scheduled payments usually reduce the loan over time. With a reverse mortgage, regular mortgage payments are generally not required. Interest is charged and added to the debt when it is left unpaid.
The money can be useful for a large expense or an ongoing income gap. However, it is borrowed money that will need to be repaid. It also reduces the equity available for a future move or other plans, unless changes in the property’s value offset that reduction.
How do you receive the money?
Depending on the product, you may receive a lump sum, scheduled payments or an initial amount followed by later advances. HomeEquity Bank’s CHIP product comparison shows how these arrangements differ. Later withdrawals may have minimum amounts, fees or other conditions.
Do you have to borrow the full amount offered?
The amount offered is a limit to consider, rather than a spending target. If you need money gradually, compare a smaller first advance with taking everything at closing. Review the minimum advance and later-withdrawal terms before choosing.
Who can get a reverse mortgage in Canada?
Reverse mortgages are generally available to homeowners aged 55 or older. Age alone does not guarantee approval. The lender must also accept the property and assess how much it is willing to lend.
The homeowners
The lender needs to know who owns the home and each owner’s age. If you own it with a spouse or another person, confirm how the age and borrower requirements apply to both of you.
The property
Lenders set rules for property location, type, value and occupancy. The home normally needs to be your primary residence. An appraisal helps establish the value the lender will use.
For example, HomeEquity Bank’s CHIP products have their own age and minimum property-value requirements. Its eligibility FAQ explains the criteria. These are lender-specific requirements, so check the product being offered rather than assuming every reverse mortgage has the same rules.
Tell the lender if you expect to spend long periods away, rent out the home or move soon. Those plans can affect whether the product is suitable and whether you can meet its occupancy conditions.
How much can you borrow?
The Financial Consumer Agency of Canada says reverse mortgages usually allow borrowing of up to 55% of the home’s current value. That is general guidance, not a guaranteed amount for every applicant. The FCAC reverse-mortgage overview identifies age, property details and the lender as factors.
The approved loan and the cash you can spend may be different. If you still have a mortgage or HELOC, the lender may require that debt to be paid off and the account closed. Fees deducted at closing can reduce the cash you receive further.
Before committing to an expense, obtain a written breakdown showing the initial advance, debt repayments, deducted fees and money paid to you. Check separately whether you must pay any costs before the loan is funded.
This matters if you want both to replace an existing mortgage payment and to pay for another expense. A proposal might cover the old mortgage but leave too little for the project you had in mind.
What does a reverse mortgage cost?
The cost includes more than the advertised interest rate. Appraisal, legal, setup and closing fees may apply. There may also be a charge if you repay early. Some costs are paid separately, while others are deducted from the funds or added to the mortgage.
When interest is added to the loan, later interest can be calculated on a larger balance under the agreement’s compounding terms. This is why the debt can grow even when you make no further withdrawals.
A fixed rate applies for a stated term; it does not necessarily stay fixed for the entire time you have the loan. A variable rate can change. Ask for an explanation of when the rate can change and how that would affect the amount owed.
HomeEquity Bank’s closing-cost and repayment guide describes several charges associated with CHIP. Use a current quote for your own application rather than treating a published fee range as your final cost.
For a useful comparison, give each lender the same borrowing amount, withdrawal dates and expected repayment date. Compare the cash received, fees paid separately and projected amount owed at repayment.
When must a reverse mortgage be repaid?
Repayment is generally required when you sell, move out, the last borrower dies or you default on the agreement. The contract determines the details and the deadline.
You still need to meet the conditions of the mortgage while living in the home. These commonly include paying property taxes and insurance and keeping the property in good repair. Missing these obligations can have serious consequences, including a demand for repayment.
If one borrower dies or moves into care while another stays in the home, confirm how the agreement applies. A spouse living in the property should not assume that being married to the borrower gives them the same rights as being named on the loan.
HomeEquity Bank’s repayment guidance discusses selling the home or arranging other funds to settle CHIP. Keeping the property may be possible, but a new mortgage would need its own approval. The estate should confirm its deadline directly with the lender.
What does a no-negative-equity guarantee mean?
Some lenders offer protection against owing more than the home’s value, subject to conditions. Read the actual guarantee with your lawyer, including any excluded fees or interest after the repayment deadline. This protection does not guarantee that a particular inheritance will remain.
What should you compare before deciding?
A reverse mortgage is worth considering alongside other ways to fund the expense. The right comparison depends on whether you can afford regular payments, how long you expect to stay and how much equity you want to preserve.
A home equity line of credit
A HELOC lets you borrow, repay and borrow again within an approved limit. Regular payments are required, and a variable rate can change the payment. Paying only interest leaves the borrowed principal unpaid. Read the FCAC guide to HELOC payments and risks or review Powerhaus’s HELOC information.
Refinancing your mortgage
Refinancing may allow you to borrow against the home with scheduled repayments. Qualification, the new payment and the cost of replacing your current mortgage all matter. Powerhaus’s refinancing page explains this option.
Selling and moving
Selling may release equity without taking a new loan, but the next home and the move have costs. Compare what would remain after selling expenses, debt repayment and the cost of your next property or rental.
For your own decision, start with a short list: the expense, when you need the money, the payment you can afford and your likely moving date. This gives a broker something concrete to compare, instead of choosing from rates alone.
Reverse-mortgage FAQs
Can I apply if I still have a mortgage?
Yes, an existing mortgage does not automatically prevent an application. The proposed reverse mortgage must meet the lender’s requirements, including any required payout of existing secured debt. Check how much cash would remain after those repayments and fees.
Will I still own my home?
Yes. A reverse mortgage is a loan secured against the property, rather than a sale to the lender. You must still meet the mortgage conditions. Unpaid property taxes, missing insurance or other breaches can put the home at risk.
Will reverse-mortgage proceeds affect OAS or GIS?
FCAC says the borrowed funds do not affect Old Age Security or the Guaranteed Income Supplement. If you invest the money, ask a tax or benefits adviser about any income it generates. That income is different from receiving the loan itself.
What happens to the mortgage when the last borrower dies?
The loan becomes repayable under the agreement. The estate needs to arrange repayment by the lender’s deadline, using a sale or another available source of funds. Beneficiaries receive any remaining estate value after applicable debts and expenses are settled.
Is a reverse mortgage suitable if I expect to move soon?
It may be costly for a short borrowing period because closing fees and early-repayment charges can apply. Compare the total cost through your expected moving date with other available options before deciding.
Compare your options before borrowing against your home
Bring your mortgage statement, property details and the amount you need to a conversation with Powerhaus. Review the available loans, what you would receive after closing and what each option could cost over the time you expect to borrow.
General information for Canadian homeowners. Eligibility, rates, fees and repayment conditions vary by lender and product. Review your agreement with an independent lawyer and obtain financial or tax advice where needed.