Glossary
Reverse Mortgage
A loan for homeowners typically 55 and older that converts home equity into cash without requiring regular monthly payments..
A reverse mortgage is a loan that lets Canadian homeowners who are typically 55 or older convert part of their home equity into cash without making regular payments. The balance, plus accrued interest, is normally repaid only when the home is sold, the borrower moves out permanently, or the last borrower passes away.
How a reverse mortgage works in Canada
Instead of collecting a monthly payment from you, the lender advances money and lets interest accumulate. Because no payments are made, interest is added to the loan balance and then itself accrues interest, so the debt compounds over time. The longer the loan stays outstanding, the larger the balance grows and the smaller the remaining equity becomes.
Proceeds are usually taken as a lump sum, though some lenders allow scheduled advances or a combination. The money is borrowed rather than earned, and lenders generally describe it that way; confirm the tax treatment of any specific situation with a qualified professional. The debt stays registered against the property and is paid out of the sale proceeds, with any equity left over going to the homeowner or the estate.
Qualification, costs, and limits
Eligibility turns mainly on age and the property rather than income. The home must generally be the borrower's principal residence, and any existing mortgage is normally paid off from the advance. Lenders set the maximum advance as a share of appraised value, and that share usually rises with the borrower's age, so an older applicant can typically access more. Rates are set by the lender and are often higher than on a standard first mortgage. Typical costs include an appraisal, an administration or setup fee, and independent legal advice.
Because there is no scheduled repayment, GDS and TDS ratios are not applied the way they are on a regular mortgage, but lenders still verify title, property condition, and credit history.
How it compares with other options
- HELOC — reusable credit, but it requires interest payments, income qualification, and the lender can demand repayment or freeze the limit.
- Refinance — replaces the mortgage with a larger one; usually requires ongoing payments and passing the federal mortgage stress test.
- Selling or downsizing — unlocks equity with no debt, but means leaving the home.
The central trade-off is timing: a reverse mortgage preserves cash flow today at the cost of future equity. Read the full guide to reverse mortgages in Canada before deciding.
Frequently asked questions
Do you have to make payments on a reverse mortgage?
Not on a regular schedule. Interest accrues and is added to the balance instead of being paid monthly. The loan is typically repaid in full when the home is sold, the borrower moves out permanently, or the last borrower dies. Some lenders allow voluntary partial or full repayment, but the terms vary, so check the loan agreement.
How much can you borrow with a reverse mortgage in Canada?
There is no single figure. Each lender sets a maximum as a percentage of appraised value, and that percentage usually increases with the borrower's age. Property type, location, and condition also matter. Because the numbers change, confirm current limits and eligibility directly with the lender or check the FCAC's consumer information.
What happens to a reverse mortgage when the homeowner dies?
The loan normally becomes repayable from the estate. The home is usually sold and the balance, including accrued interest, is paid out of the proceeds, with any remaining equity going to the estate. Timing and process depend on the lender and the will, so the executor should contact the lender promptly.
Sources
Related terms
- Home Equity Line of Credit (HELOC) — A revolving credit line secured by your home, usually capped at 65% loan-to-value and typically priced off the lender's prime rate.
- Mortgage Refinance — Replacing an existing mortgage with a new one, often to change the rate, term, or amortization, or to access home equity.
- Home Equity — Home equity is the portion of your home you actually own: the property's current market value minus everything still owed against it.
- Home Equity Loan — A lump-sum loan secured by the equity in your home, repaid on a fixed schedule with set payments.
- Second Mortgage — A second mortgage is an additional loan registered behind an existing first mortgage, usually at a higher interest rate because it ranks second on title.