Reverse Mortgages in Canada: The Real Cost of Tax-Free Cash at 55+
By Jordan Ellis · Published · Reviewed
Quick Answer
A reverse mortgage lets Canadians aged 55+ borrow up to 55% of their home's appraised value as tax-free cash with no monthly payments — the balance, including compounding interest at rates typically 2-3 percentage points above a HELOC, is repaid when the home is sold or the last borrower dies. On a $200,000 advance at 6.5%, the debt roughly doubles every 11 years. It fits house-rich, cash-poor seniors who cannot service a HELOC payment; for anyone who can pass the stress test, a HELOC or downsizing is almost always cheaper.
The pitch is seductive: tax-free cash from your home, no monthly payments, stay as long as you live. The math deserves a slower look before anyone over 55 signs.
How it actually works
- Borrow up to 55% of appraised value; must be 55+ (both spouses, on title)
- No monthly payments — interest compounds onto the balance
- Repaid when you sell, move out, or die (the last borrower on title)
- No-negative-equity guarantee: the estate never owes more than the home sells for
- Rates roughly 2–3 points above a HELOC
The compounding is the product
A $200,000 advance at 6.5%, compounding untouched:
| Years held | Balance owed | On a $900,000 home (flat value) |
|---|---|---|
| 0 | $200,000 | $700,000 equity |
| 5 | ~$275,000 | $625,000 equity |
| 10 | ~$379,000 | $521,000 equity |
| 15 | ~$522,000 | $378,000 equity |
| 20 | ~$719,000 | $181,000 equity |
Rising home values offset some of this; flat markets expose it. Either way, the lender’s return is your estate’s cost. Run your own home-equity scenario with the HELOC calculator for comparison.
The cheaper alternatives to exhaust first
- HELOC. Roughly half the rate, and you keep the equity. The catch: monthly interest payments and the stress test — many retirees can’t qualify on pension income. See our HELOC guide.
- Downsizing. Sell the $900,000 home, buy the $550,000 condo, bank $350,000 minus costs. More cash than most reverse mortgages advance, at zero interest. The rent vs buy math applies to the replacement home too.
- RRIF/investment drawdowns with tax planning. Spreading withdrawals to stay under the OAS clawback threshold often beats paying 6.5% to avoid paying 30% tax.
- A secured line co-signed by adult children, when family is willing — but read what co-signing commits them to first.
Who it genuinely fits
The honest profile: 75+, house-rich, income-poor, no HELOC qualification, determined to age in place, heirs informed and on board. For that person, the product does exactly what it promises, and the GIS/OAS neutrality is a real advantage. For the 62-year-old funding a renovation or a lifestyle gap, it’s a very expensive way to avoid a budget conversation — the retirement calculator is the cheaper first stop.
Official sources
Rules and dollar limits change. Confirm current amounts with the official pages below before you act · Last reviewed .
- Mortgage prepayment penalties (Financial Consumer Agency of Canada)