Reverse Mortgages in Canada: How They Work and Who Qualifies

Canadians are increasingly turning to reverse mortgages — a borrowing option that allows homeowners to access up to 55% of their home’s appraised value without making regular payments until the loan becomes due. This trend is reshaping traditional attitudes about debt and retirement. Data from the Office of the Superintendent of Financial Institutions (OSFI), which oversees banks and financial institutions in Canada, shows reverse mortgage balances reached over $8.2 billion at the end of June 2024. That figure is 18.3% higher than the same month a year earlier and 39.3% higher than two years prior, underscoring notable growth in this market.

If you’re weighing a reverse mortgage as a way to top up retirement income, cover care or renovation costs, or consolidate debt, it’s important to understand how these products work and what trade-offs they entail. The following guide explains the key features, costs and implications of reverse mortgages in Canada so you can make an informed decision.

How does a reverse mortgage work?

A reverse mortgage converts the equity built up in a home you already own into cash. Unlike a conventional mortgage, which provides funds to buy a home and requires regular payments, a reverse mortgage lets qualified owners borrow against the value of their principal residence without making monthly principal or interest payments while they remain living in the home.

To qualify, borrowers must be at least 55 years old and use the property as their principal residence. The amount available depends on factors such as the home’s appraised value and condition, the property type, and the ages (and in some underwriting models, the genders) of the borrowers. Borrowers must keep the home insured, pay property taxes and maintain the property, but once funds are received there are no restrictions on how they are spent.

Reverse mortgage proceeds are received tax-free and can be taken as a lump sum or as scheduled monthly advances. Interest accrues on the outstanding balance over time. The loan becomes repayable when the last surviving owner dies, the property is sold, or the homeowner permanently moves out. Importantly, reverse mortgages typically include a non-recourse guarantee: if the home’s value falls, the lender absorbs the shortfall and the borrower or their estate will not owe more than the home’s market value when the loan is repaid.

In Canada today, three major providers offer reverse mortgages: HomeEquity Bank, Equitable Bank and Bloom Financial. A previous entrant, Seniors Money Canada, is no longer issuing new loans.

Terms are available from six months up to five years with different interest structures. As of late August 2024, sample five-year fixed rates were: Equitable Bank 6.59%, HomeEquity Bank (CHIP Reverse Mortgage) 7.29% and Bloom Financial 6.99%. Some lenders also offer variable or adjustable-rate options. These rates are generally higher than typical rates for conventional mortgages or HELOCs. Upfront set-up fees and closing costs may also apply, so factor total costs into any comparison.

Where are reverse mortgages offered in Canada?

Availability varies by provider. HomeEquity Bank offers reverse mortgages across all Canadian provinces. Equitable Bank serves cities and most larger towns in Ontario, Alberta, British Columbia and Quebec. Bloom Financial operates in Ontario, Alberta and British Columbia. None of the three currently offers reverse mortgages in the territories.

How a reverse mortgage impacts your home equity

Reverse mortgages, second mortgages and home equity lines of credit (HELOCs) are three common ways to tap housing equity, but they differ in qualification and repayment. Of the three, the reverse mortgage stands out because it typically does not require income-based qualifying or mandatory monthly payments while the borrower remains in the home.

When you take a reverse mortgage, the current equity in the home secures the loan. Going forward, any appreciation in home value accrues to the homeowner, while the lender bears the downside risk if the property declines in value, subject to the product’s guarantee. To evaluate the likely impact on your equity, consider the anticipated loan term, projected home value at that time, and interest costs accumulated on the borrowed funds.

Part of a bigger picture: aging, debt and housing wealth

The rise in reverse mortgages is tied to broader trends in aging, debt and housing wealth. Statistics Canada data show that levels of indebtedness among Canadians over 65 increased substantially between 1999 and 2016, with the share of seniors carrying debt rising by more than 50% during that period. On average, seniors’ debt grew by about $50,000, of which roughly two-thirds was mortgage-related. At the same time, assets held by seniors increased by more than $500,000 on average, with just over half of that gain tied to real estate. In other words, rising mortgage balances were often accompanied by increased housing wealth.

Lenders report typical reverse mortgage use cases that include paying down high-interest debt, supplementing retirement income, funding renovations that support aging in place, providing a financial bridge before taking government benefits, or covering long-term care expenses. HomeEquity Bank reports an average customer age of 72 and an average borrowing amount around $170,000. Because proceeds are received tax-free, reverse mortgage advances generally do not directly affect income-tested benefits such as Old Age Security (OAS) or the Guaranteed Income Supplement (GIS).

The future of reverse mortgages

Historically, many financial advisors treated housing wealth as a last-resort source of retirement funds and advised preserving the family home as an inheritance for heirs. Critics of reverse mortgages often point to higher interest rates compared with standard mortgages or HELOCs and worry about increasing indebtedness among retirees with limited alternatives. Some detractors have used blunt quips—such as the comment attributed to former Minister Garth Turner that reverse mortgages are “an ideal strategy, if you hate your children”—to underscore concerns about eroding inheritance.

Yet for many homeowners, the alternatives have drawbacks. Selling the primary residence to generate cash can reduce long-term tax-free compounding and remove the option of aging in place. For retirees who want to remain at home but need funds for renovations, care or to smooth income shortfalls, a reverse mortgage can be a pragmatic choice among limited options.

Rising reverse mortgage use reflects broader shifts: greater home equity accumulation, lower overall borrowing costs in recent decades, and declining income security from pensions. Looking ahead, with Canadians facing the prospect of longer retirements and increased long-term care needs, reverse mortgages are likely to remain part of the retirement landscape. They are not right for everyone, but for some homeowners they provide a flexible way to unlock housing wealth while retaining the right to live in their home.