Who this is for: Homeowners aged 55 or older who live in the home, own it with substantial equity, and want cash without monthly payments, understanding that the debt grows and reduces what is left.
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For many older Canadians the home is the largest asset they own and the least liquid. Pensions and savings may not stretch as far as hoped, and a bank may not lend on retirement income. A reverse mortgage promises cash with no monthly payment, which is why it appeals. It also has features that do not show up in the first conversation, so this page lays out both sides in plain terms.
What a reverse mortgage is
It is a loan secured against your home for owners who are usually 55 or older. The Financial Consumer Agency of Canada says you can usually borrow up to 55% of the current value of your home, depending on your age, the home’s condition and type, its appraised value and the lender. You do not make regular payments. Interest is added to the balance, so the amount you owe grows over time.
The loan is repaid when you sell the home, move out, the last borrower dies, or you default. The agency also says the home must usually be your primary residence, where you live at least six months of the year.
When it makes sense
It makes sense when you want to stay in your home, you have a lot of equity and little other way to fund what you need, and you accept that the debt will grow. Typical needs include home repairs that keep the house safe, in-home care, paying off a debt with regular payments that strain your budget, or supporting a spouse after a partner’s death.
It can fit when monthly cash flow is the problem rather than the lack of assets. No required payments can relieve pressure in a way that a second mortgage or HELOC, which need monthly payments, cannot.
It is most reasonable when your family knows about it, understands it, and has had a chance to ask questions. The decision belongs to you, and surprises later are harder on everyone.
When it makes things worse
It makes things worse when the balance grows faster than you expected and you later want to move. A larger balance leaves less to buy another home, and the loan is due when you leave. The agency warns that your home equity may decrease as interest accumulates.
It also makes things worse when the money is not needed. Borrowing for luxuries that you can afford without the loan means paying interest on interest for years.
It is a poor fit when you plan to move soon, when the home needs repairs you cannot afford to keep up, or when the loan is meant to rescue a relative. The agency says that letting the home fall into disrepair can lead to default. Think carefully about any pressure from others to take the loan for their benefit.
What it really costs
The worked examples above use made-up numbers to show the pattern. At an assumed 8% compounded yearly, a $100,000 advance owes $146,933 after five years, $215,892 after ten and $317,217 after fifteen. The 8% is not a typical or current rate. Ask each lender for its rate, how often interest compounds and a projected balance over several years.
The agency says reverse mortgage rates are usually higher than rates for a mortgage or HELOC. It also lists possible costs: appraisal, set-up, prepayment penalties, legal and closing fees. Lenders may add them to the balance or ask you to pay up front. Get each in dollars, in writing, and use the calculator to see how a balance grows. If you repay early, there may be a fee, so ask what it would be after three years and after seven.
The risk to the home and to your estate
Your home is the security. The agency says that if you default, your home can be foreclosed. Default can happen when you misuse the funds, are dishonest on the application, let the home fall into disrepair, or break other contract conditions. You will still have to pay property taxes and keep the home insured.
The estate matters too. The agency says your estate may have to repay the loan and interest within a set time after death, and that settling an estate can take longer than that window. Less may be left for heirs. The second worked example shows how much equity could remain, and how that depends on assumptions nobody can promise.
This is the point where you should speak to your children, your executor and a lawyer. Surprises after a death are hard on families.
Options to try first
Consider whether you could meet the need another way. Downsizing to a smaller home can free equity with no loan. A bank HELOC or home equity loan may cost less, though it needs monthly payments and income to qualify. A family member’s help with a written agreement, a budget review, and advice from a financial planner or a not-for-profit credit counselling agency cost little or nothing.
Compare the monthly-payment products using the HELOC and second mortgage comparison, and read the home equity loan page. If the problem is debt you cannot repay, a Licensed Insolvency Trustee can explain your choices, and the trustee usually does not charge for the first meeting.
Ask also whether there are other benefits or programs that might apply. A government benefits office can tell you what is available and whether a lump sum from a loan changes anything for you.
How the exit works
A reverse mortgage ends when the home is sold, you move out, the last borrower dies or you default. The balance, with interest and any fees, comes out of the sale price. Anything left belongs to you or your estate. If the sale does not cover the balance, ask the lender in writing what happens to the shortfall in your province.
Plan the exit with your family. If you might move into care, ask how long the lender allows the home to be empty before the loan comes due. Keep the paperwork where your executor can find it.
What to ask before you sign
- The interest rate, how often it compounds, and a table showing the balance over five, ten and fifteen years.
- Every fee, in dollars, and whether it is added to the balance.
- The cost of repaying early, and when you can do it free of charge.
- How much time your estate has to repay after your death.
- What you must do to stay in good standing, such as taxes, insurance and upkeep.
- That you have received independent legal advice from a lawyer who does not work for the lender.
Do not sign on the day you first hear the offer. Take it home, show it to someone you trust, and sleep on it. If you want to speak with a licensed mortgage professional in your province, you can check your options. You are free to say no.
The most a $600,000 home might support, and how a balance could grow
Made-up figures only. The home is assumed to be worth $600,000 with no mortgage. Uses the general limit of 55% of value that the Financial Consumer Agency of Canada describes. An assumed 8% rate is used for illustration and is not a typical or current rate. Interest is assumed to compound once a year, with nothing repaid.
- 55% of the home's value
- $330,000
- A $100,000 advance after 5 years
- $146,933
- The same advance after 10 years
- $215,892
- The same advance after 15 years
- $317,217
$600,000 x 0.55
$100,000 x 1.08 for 5 years
$100,000 x 1.08 for 10 years
What is left in a $600,000 home after fifteen years of growth
Made-up figures. The same $317,217 balance from the example above, and a home assumed to still be worth $600,000. A home could be worth more or less, and fees are not included.
- Years since the loan began
- 15
- Assumed home value in fifteen years
- $600,000
- Reverse mortgage balance owing
- $317,217
- Equity remaining
- $282,783
Questions people ask
How old do I have to be for a reverse mortgage?
The Financial Consumer Agency of Canada says you usually need to be aged 55 or older, and the home normally has to be your primary residence, meaning you live in it at least six months a year. Each lender sets its own rules, so ask about theirs.
How much can I borrow with a reverse mortgage?
The agency says you can usually borrow up to 55% of your home's current value. The exact amount depends on your age, the type and condition of the home, its appraised value and the lender. Any existing mortgage must be paid out of the amount first.
Do I have to make monthly payments?
No regular payments are required. You can usually repay the principal and interest in full at any time, though an early repayment may carry a fee. Because nothing is paid along the way, interest is added to the balance and the amount owed grows.
Can I lose my home with a reverse mortgage?
Yes, if you default. The agency says defaults can result from things such as misusing the funds, being dishonest on the application, letting the home fall into disrepair or breaking the contract. Property taxes and insurance still have to be kept up.
What happens to the loan when I die?
Your estate may have to repay the loan and interest within a set time after death. The agency warns that settling an estate can take longer than that window, and that less may be left for heirs. Tell your family and your executor about the loan.
Do I need a lawyer before signing?
The agency says that in some provinces lenders may require independent legal advice, and that where it is not required you may still want it. A lawyer who works only for you can explain the contract, the fees and the effect on your estate.