Updated: April 2025 | bremo.io financial guides
Reverse Mortgages in Canada 2025 — How They Work
A reverse mortgage allows Canadian homeowners aged 55 and older to borrow against the equity in their home without making any monthly payments. The loan, plus accumulated interest, is repaid when the home is sold, you move out permanently, or you pass away. In Canada, the primary provider is HomeEquity Bank (CHIP Reverse Mortgage) and Equitable Bank.
How a Reverse Mortgage Works
You borrow a lump sum or receive regular monthly payments, using your home as collateral. Unlike a traditional mortgage, you make no payments while you live in the home. Interest accumulates and is added to the loan balance. The total (original loan + accumulated interest) is repaid when the property is sold.
The key promise: you will never owe more than the fair market value of your home at the time of repayment. If the home decreases in value, you (or your estate) are not responsible for the shortfall.
Eligibility Requirements
- Minimum age: 55 for all homeowners on title
- Must be your primary residence
- The property must be in Canada
- Maximum loan is approximately 55% of the home's appraised value (varies by age, location, property type)
- Any existing mortgage or home equity line of credit (HELOC) must be paid off using reverse mortgage proceeds
How Much Can You Borrow?
The amount depends on your age, the home's value, the lender's appraisal, and your location. Older applicants can borrow a higher percentage. Generally:
- Age 55: approximately 15-20% of home value
- Age 65: approximately 25-35% of home value
- Age 75+: approximately 40-55% of home value
How the Money Can Be Used
Reverse mortgage proceeds are tax-free (they are a loan, not income) and can be used for anything:
- Supplement retirement income
- Cover healthcare or home care costs
- Make home renovations
- Help adult children with down payments
- Pay off debt or existing mortgage
- Travel or lifestyle spending
Costs of a Reverse Mortgage
Reverse mortgages are not free money — they come with significant costs:
- Interest rate: Typically 1.5-3% higher than conventional mortgages (currently around 7-9%)
- Setup fees: Appraisal, legal, and administration fees of $1,500-$3,000
- Compound interest: Because no payments are made, interest compounds over time and significantly erodes remaining equity
- Prepayment penalties: If you want to pay off the mortgage early, significant penalties may apply depending on the timing
Example of compounding: A $100,000 reverse mortgage at 7.5% with no payments becomes approximately $206,000 after 10 years and $424,000 after 20 years — even though you received no additional money. This dramatically reduces the inheritance you leave to your estate.
Pros of Reverse Mortgages
- Access home equity without selling or moving
- No monthly payments required
- Tax-free proceeds (it is a loan)
- Stay in your home
- "No negative equity" guarantee
Cons of Reverse Mortgages
- High interest rates compound aggressively
- Reduces inheritance for heirs
- Complex with significant fees
- Alternatives may be better for most homeowners
Alternatives to a Reverse Mortgage
- HELOC: A home equity line of credit has much lower interest rates and more flexibility
- Downsizing: Selling your current home and buying something smaller frees up equity entirely
- Renting out a suite: Creates rental income without borrowing