How reverse mortgages work
A reverse mortgage (also called a Home Equity Conversion Mortgage) allows seniors to borrow against their home equity. Unlike a traditional mortgage or HELOC, there are no monthly principal or interest payments required. The loan — plus accumulated interest — is repaid when the homeowner sells the property, moves out, or passes away. This structure means your monthly cash flow is not affected by the loan — you receive the funds tax-free and make no payments until the home is sold.
In Canada, the most common reverse mortgage product is the CHIP Reverse Mortgage from HomeEquity Bank. Other lenders like Equitable Bank also offer similar products with varying terms and features. The maximum amount you can borrow is determined by your age, home value, and location — not your income or credit score.
Eligibility requirements
- Age 55 or older (both spouses must meet this if jointly applying) — the minimum age was recently lowered from 60
- Primary residence located in Canada — the property must be your main home
- Minimum home equity — typically at least 50% equity in the property, meaning your mortgage cannot exceed roughly 50% of the home's value
- Property type: single-family homes, townhouses, condos, and some semi-detached homes are eligible
- No existing mortgage default insurance claims or bankruptcy in progress
- The property must be in reasonable condition — a home inspection is typically required
There are no income or credit score requirements for a reverse mortgage. This makes it accessible to seniors who may not qualify for a traditional mortgage or HELOC due to limited retirement income.
How much can you borrow?
The amount available depends on several factors, with age being the most significant:
- Age: Older borrowers can access more equity — the formula uses the age of the youngest borrower. At age 60, you can typically access 40-50% of home value. At age 75+, up to 55%.
- Home value: Higher property values mean higher potential borrowing, though the percentage decreases slightly at very high values
- Location: Urban properties in high-demand areas qualify for slightly more than rural properties
- Existing mortgage: Any outstanding mortgage balance is deducted from the available amount
Typical borrowing ranges: homeowners aged 55-60 can access 40-50% of home value; aged 65-70 can access 45-52%; aged 75+ can access up to 55%. On a $700,000 home with no existing mortgage, a 68-year-old borrower might access approximately $340,000-370,000.
Costs and trade-offs
Reverse mortgage rates are typically higher than conventional mortgage rates — usually in the 6-8% range in 2026. More importantly, interest compounds over the life of the loan, meaning you pay interest on the interest. A $100,000 withdrawal at 7% interest would grow to approximately $140,000 after 5 years and $197,000 after 10 years due to compounding.
Appraisal fee ($300-500), legal fees ($500-1,000), and a one-time set-up fee (typically 0.5-1% of the loan amount, capped at $1,000-1,500 by many lenders). These costs are typically added to the loan balance rather than paid upfront.
The loan plus accumulated interest reduces the equity available to heirs. Homeowners should discuss this with family before proceeding. If the loan balance exceeds the home value at sale, the lender absorbs the loss — the borrower's estate is never responsible for more than the home's value.
Reverse mortgage funds are tax-free and generally do not affect Old Age Security (OAS) or Guaranteed Income Supplement (GIS), but the impact on other means-tested benefits like the Ontario Trillium Benefit should be verified with a financial advisor.
The reverse mortgage process step by step
The process typically takes 2-4 weeks from application to funding. Step 1: meet with a broker or lender to discuss your needs and get a preliminary borrowing estimate. Step 2: submit an application with property details and proof of age. Step 3: the lender orders a property appraisal ($300-500). Step 4: you receive a formal commitment with confirmed borrowing amount and rate. Step 5: independent legal advice is required — your lawyer reviews the contract with you to ensure you understand the terms. Step 6: the mortgage is registered and funds are advanced — typically within 5 business days of signing.
Alternatives to consider before choosing a reverse mortgage
Before committing to a reverse mortgage, explore these alternatives that may better suit your situation:
- Home Equity Line of Credit (HELOC): Lower rates (6-8% vs 7-9%) but requires monthly payments. Good if you can afford the interest payments on the amount you need.
- Refinance: Take out a conventional mortgage with payments. Lower rates and preserves more equity for your estate, but requires monthly payment capacity.
- Downsizing: Sell your current home, buy a smaller property, and invest the difference. Eliminates your mortgage entirely and may free up significant cash.
- Rent out a portion: Generate income by renting a basement or room without borrowing against your equity.
- Family assistance: Family members buying into the property as co-owners or providing financial support through a formal arrangement.
Each alternative has different trade-offs. A broker who understands senior lending options can help you compare all available choices before committing to a reverse mortgage, which should typically be considered after other options have been evaluated.
