Reverse Mortgage Costs in Canada: Interest, Fees and How the Balance Grows
A reverse mortgage has interest and fees even though regular mortgage payments are generally not required. To understand its cost, you need to know what is charged at closing, how unpaid interest increases the balance and what you may owe when you repay.
Deferring payments can help a retirement budget, but it does not stop the loan from costing money. Interest that is not paid becomes part of a growing debt secured against your home.
This blog explains the main charges, shows a simple balance-growth example and sets out what to compare before accepting an offer.
In this guide
What fees can apply when you take out the loan?
Possible costs include an appraisal, independent legal advice, lender setup fees and other closing charges. The services included in each fee vary, so ask for an itemised quote.
Property appraisal
An appraisal helps establish the home value the lender will use. Confirm who arranges it, how much it costs and when you must pay. An appraisal charge may be payable before you receive any loan funds.
Legal work and independent advice
Legal work is needed to register the mortgage and deal with existing secured loans. Independent legal advice is a separate service that helps you understand the agreement. Confirm which charges are included and which lawyer or notary bills you directly.
Lender setup and closing fees
A lender may charge for setting up and closing the mortgage. That charge may cover some legal or administrative work without covering every expense. Ask for the included services to be listed.
HomeEquity Bank’s CHIP closing-cost guide explains its main charges. Published examples are useful background, but your own quote should show the amounts that apply to your property and application.
Also check how each fee is paid. A fee paid separately uses your existing cash. A fee deducted from the advance reduces the cash you receive. A fee added to the mortgage increases the debt.
What is the difference between the interest rate and APR?
The interest rate is used to calculate interest on the loan. Compounding describes how unpaid interest becomes part of the balance used to calculate later interest. Both affect how quickly the debt grows.
The annual percentage rate, or APR, expresses an estimated borrowing cost as a yearly percentage. It includes specified fees and uses assumptions about the loan amount and borrowing period. It is not necessarily the same as the advertised interest rate.
HomeEquity Bank publishes APR information with its reverse-mortgage rates. When comparing quotes, check which fees are included and whether the figures assume the same amount and repayment date.
A fixed rate applies for a stated term. It does not necessarily stay fixed for every year you hold the reverse mortgage. A variable rate can change. Ask how a rate change or a new term would affect your borrowing cost.
Why does the balance grow without new withdrawals?
If you do not pay the interest, it is added to the amount owed. Once it is compounded under the agreement, future interest can be charged on a balance that includes earlier interest. The debt can therefore rise even if you borrow nothing more.
Illustration onlySuppose you borrow $100,000 at a constant nominal annual rate of 6%, compounded twice a year. With no fees, additional advances or payments, the balance would be $106,090 after one year and approximately $134,392 after five years. The rate is hypothetical and is not a current lender quote.
In this simplified example, the five-year balance is calculated as $100,000 × (1 + 0.06 ÷ 2)10. There are ten six-month compounding periods over five years.
Your actual balance may differ because of the lender’s calculation method, rate changes, financed fees, later advances or voluntary payments. Request a projection based on the agreement being offered rather than treating this example as a forecast.
A home’s value is separate from the mortgage debt. If the property rises in value, that may help preserve equity, but it does not cancel the interest owed. If its value stays flat or falls, less may remain after repayment.
Does taking the money later reduce the cost?
Borrowing money earlier generally means paying interest on it for longer. If you do not need the full amount immediately, compare taking it all at closing with receiving a smaller first advance and more later.
Later advances can have their own conditions. Minimum withdrawals, fees or rate changes may apply. The FCAC reverse-mortgage guidance explains why the way you receive the money can affect the cost.
Give the lender your likely spending dates. A renovation with staged contractor payments may need a different arrangement from a regular monthly income supplement.
Compare both advance schedules over the same period. A smaller first advance may reduce early interest, but any later fees or different rates still need to be included. Check whether future advances are available under the agreement and what you must do to receive them.
What could it cost to repay early?
A reverse mortgage may have a prepayment charge if you repay before the agreement allows a full penalty-free payout. The amount and any exceptions depend on the product and circumstances.
Some agreements permit voluntary payments up to stated limits. That does not mean every payment is free of charges. Confirm the amount allowed, the payment dates, notice requirements and whether a payment reduces interest, principal or both.
If you expect to sell, request a payout quote for the proposed closing date. A statement balance may not include all accrued interest, fees or an early-repayment charge.
Also ask whether the reason for repayment changes the charge. HomeEquity Bank’s CHIP repayment guide describes its payout process. Use the actual product terms to check what applies to a sale, move into care or estate repayment.
Keep property taxes, insurance, maintenance and any condominium fees in your budget too. These are separate from interest and loan fees, but they remain costs of owning the home.
How can you compare the full cost fairly?
Give each lender the same cash requirement, withdrawal dates and expected repayment date. Otherwise, a difference in the quote may reflect a different borrowing plan rather than a cheaper product.
Request a written breakdown of:
- The cash you would receive after required deductions.
- Fees paid separately and fees added to the loan.
- The interest rate, term and compounding method.
- The projected balance at your expected repayment date.
- Any charge for repayment at that date or sooner.
Ask to see what changes if rates rise, you take another advance or you stay in the home longer. A projection is more useful when the assumptions and the effect of changes are clear.
Then compare the loan with other available options. Refinancing or a HELOC has different payment requirements, so the lowest current payment is not enough to identify the lowest overall cost.
Powerhaus can help you review available reverse-mortgage options. For background on eligibility and repayment, see its reverse-mortgage guide.
Reverse-mortgage cost FAQs
Can I pay the interest to slow the balance growth?
Some agreements allow voluntary interest or principal payments. Check the permitted amounts, timing and any charges with the lender. Paying interest reduces the amount left to accumulate, but the exact result depends on the agreement and how the payment is applied.
Are appraisal and legal fees included in the setup fee?
Not necessarily. Ask for an itemised quote showing what the lender’s fee covers, which services are billed separately and when each payment is due. Independent legal advice may be a separate charge from other legal work at closing.
Can I replace a reverse mortgage with another loan?
It may be possible, but the new loan needs approval and the existing mortgage must be settled. Compare any early-repayment charge, legal costs and new loan fees before assuming that a lower rate would save money.
Will rising home prices pay for the interest?
A higher property value may leave more equity after repayment, but interest is still owed. Property values can also stay flat or fall. Review the loan without relying on a particular increase in the home’s value.
Does a no-negative-equity guarantee cover every charge?
Do not assume it does. Guarantees have conditions and may exclude certain fees or interest after repayment is due. Have your lawyer explain the specific protection and exclusions. It does not guarantee an amount of inheritance.
Understand the cost before choosing a reverse mortgage
Have the amount you need, the spending dates and your expected moving or repayment date ready. Ask Powerhaus to compare available offers and explain the fees and projected debt for your borrowing plan.
General information for Canadian readers. The calculation is illustrative and excludes fees and rate changes. Confirm current lender terms and obtain independent legal advice and appropriate financial or tax advice before committing.