Reverse Mortgage vs HELOC for Canadian Seniors — 2026
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For Canadian seniors who own their home and need additional retirement income without selling, two primary options exist: a reverse mortgage and a Home Equity Line of Credit (HELOC). Both tap your home equity, but they work very differently and suit different situations.
Quick comparison: Reverse mortgage = no monthly payments required, but high interest rates and fees. HELOC = lower rates, but you must qualify and make monthly payments.
What Is a Reverse Mortgage?
A reverse mortgage allows homeowners 55+ to borrow against their home equity without making monthly payments. The interest accumulates and is repaid when you sell the home, move to long-term care, or pass away. In Canada, the main provider is HomeEquity Bank's CHIP Reverse Mortgage.
Key features:
- Available to homeowners 55+ (both borrowers must be 55+)
- Borrow up to 55% of home value
- No income or credit qualification required
- No monthly payments — interest compounds
- Tax-free proceeds (not income)
- You never owe more than the home is worth (no negative equity guarantee)
- Interest rates: typically 7.5–9%+ (significantly higher than conventional mortgages)
What Is a HELOC?
A Home Equity Line of Credit is a revolving credit line secured against your home equity. It works like a credit card with your home as collateral. You draw what you need and pay interest only on what you use.
Key features:
- Available to any homeowner with sufficient income and credit
- Borrow up to 65% of home value (combined with any mortgage)
- Must qualify (income verification, credit check)
- Monthly interest payments required
- Rates: Prime + 0.5% (approximately 5.5–7% in 2026)
- Much lower interest cost than reverse mortgage
Side-by-Side Comparison
| Feature | Reverse Mortgage | HELOC |
|---|
| Minimum Age | 55+ | No age requirement |
| Monthly Payments | None required | Interest only (required) |
| Income Qualification | No | Yes |
| Max LTV | ~55% | 65% (total) |
| Typical Rate 2026 | 7.5–9% | 5.5–7% |
| Tax-Free Proceeds | Yes | Yes |
| Affects OAS/GIS | No (not income) | No (not income) |
| Risk | Equity erosion over time | Can't make payments |
When to Choose a Reverse Mortgage
- You have no pension or significant income and cannot qualify for a HELOC
- You cannot or don't want to make monthly payments
- You want to age in place and your home is your primary asset
- Your heirs understand and accept the reduced estate value
- You need a large lump sum (e.g., for home modifications or LTC entry)
When to Choose a HELOC
- You have pension income and can qualify and make monthly payments
- You want the lower interest rate and more flexibility
- You plan to repay the balance within 5–10 years
- You want to bridge income gaps between retirement and CPP/OAS starting
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