How much of your net worth is tied up in your home? Statistics Canada reports that the median net worth for senior families in 2023 was $1,109,700, and the family home remains the most common asset, with a median value around $500,000. Given how much of Canadian wealth is held in residential real estate, it makes sense to think carefully about how best to use home equity during retirement.
This article looks at three common ways retirees access home equity: a home equity line of credit (HELOC), a reverse mortgage and selling the home. Each option has different costs, risks and practical considerations that can have a major impact on retirement finances and peace of mind.
HELOC rates and considerations in Canada
A HELOC is a flexible, secured line of credit that uses your home as collateral. You can borrow as needed up to a pre-approved limit and typically pay interest only on the outstanding balance. Because it is secured by the home, a HELOC generally offers lower interest rates than unsecured credit like personal loans or credit cards. Current HELOC rates in Canada typically sit around 5% to 6%.
Many people use lines of credit while working to smooth cash flow or fund major expenses, and some assume a HELOC will be equally available in retirement. There are two important caveats to consider.
First, lenders assess creditworthiness and borrowing capacity in much the same way as they do for a mortgage. Income is a major factor in that assessment. Because income often falls in retirement, a retiree may not qualify for the same borrowing limit they had while working. Although a HELOC limit can be as high as roughly 65% of the home value and lenders commonly allow combined mortgage and HELOC balances up to about 80% of appraised value, how close you can get to those limits often depends on your income and overall financial situation.
Second, HELOC limits and access can change. Lenders may reduce a credit limit or even close an inactive line for a range of business or risk reasons. Falling home values reduce the available collateral and can prompt lenders to cut limits. Some retired homeowners have experienced their lines being frozen or reduced when their banks asked for updated income documentation or reassessed the account. While you may not be required to immediately repay an outstanding balance beyond scheduled interest payments, the available credit could be significantly less than you expected.
How do reverse mortgages work in Canada?
A reverse mortgage is designed specifically for older homeowners. In Canada, borrowers aged 55 or older can access up to about 55% of the home’s value without meeting income requirements. They don’t have to make regular principal repayments during their lifetime; repayment is generally due when the home is sold or after the homeowner’s death (or, in the case of a couple, after the second spouse passes away).
The trade-off is cost. Reverse mortgages typically carry higher interest rates than conventional mortgages or HELOCs. As an example, conventional mortgage rates might be in the 4% to 5% range, HELOC rates typically around 5% to 6%, while reverse mortgages often command rates in the 6% to 8% range. Because interest compounds over time, the outstanding loan balance can grow significantly, which reduces the estate value left to heirs.
Despite the higher cost, a reverse mortgage can be a valuable option for homeowners who have limited income or other borrowing alternatives, and who want to remain in their home rather than sell and downsize. Borrowers can receive the funds as a lump sum or as regular advances to supplement retirement income.
Selling your home: downsizing and renting
Selling your home converts housing equity into cash that can be invested or used for living expenses. Downsizing by a large margin—typically 25% to 50% less in housing value—often makes the most financial sense because the transaction costs associated with selling and buying (real estate commissions, legal fees, moving expenses and potential land transfer taxes) can be substantial. In many cases, these costs can run close to 10% of the sale price, so small-scale downsizing may deliver little net benefit after fees.
Choosing to sell and rent instead of buying again removes the maintenance and capital risk of homeownership, but it introduces other risks. Long-term rental stability is a prime concern: a rented unit can be sold, converted, or reclaimed by an owner at any time, which could force a move. Moving can be physically and emotionally harder later in life, and repeated moves or a forced relocation can be disruptive.
To mitigate the risk, seniors can look for housing that offers secure, long-term tenancy, such as rental buildings with stable ownership, purpose-built retirement communities or senior-living residences that provide more predictable tenures. Advice from a trusted realtor, a financial planner or family members can help evaluate these options.
Weigh your options for home equity
In summary, the three primary ways to access home equity in retirement are:
- HELOCs: Flexible and relatively low-cost secured credit, but subject to lender approval and potential limit reductions, especially if income declines or the lender reassesses risk.
- Reverse mortgages: No income tests or required repayments during life, and suitable for homeowners who want to stay in their home, but generally more expensive over time due to higher interest rates.
- Downsizing or selling: Converts equity to cash and can improve liquidity, but transaction costs are significant and the best financial gains usually come from larger downsizes; renting introduces tenure risks that should be carefully evaluated.
The best choice depends on your financial situation, health, lifestyle goals and tolerance for risk. Start planning early so you can model outcomes, consider tax and estate implications, and avoid last-minute decisions that may force you into an option that doesn’t fit your long-term needs. Professional advice from a financial planner or trusted advisor can help you weigh the trade-offs and select the strategy that best supports a secure and comfortable retirement.
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