What Is a Reverse Mortgage in Canada?

If you're a Canadian homeowner aged 55 or older, a reverse mortgage lets you borrow against your home equity and receive tax-free cash — without selling your home or making monthly payments. It can be a lifeline for cash-strapped retirees, but it's also one of the most misunderstood products in Canadian lending. Here's exactly how it works, what it costs, and when it makes sense.

Key takeaways

• A reverse mortgage lets homeowners 55+ convert home equity into tax-free cash while staying in the home.
• You make no regular payments — interest is added to the loan and repaid when you sell, move, or pass away.
• Because interest compounds and you make no payments, the balance grows over time and erodes your equity.
• You keep ownership of your home, but reverse-mortgage interest rates are typically higher than a regular mortgage or HELOC.
• It's a major decision — compare it against a HELOC, downsizing, or selling before you commit.

How a reverse mortgage works

A reverse mortgage is a loan secured against your principal residence. Instead of you paying the lender each month, the lender advances money to you — as a lump sum, regular payments, or a combination. You keep the title and continue living in the home. The catch is that interest accrues on the balance you owe, and because you make no payments, that interest is added to the loan and compounds over time.

The loan only becomes due when a 'maturity event' happens: you sell the home, move out permanently, or pass away. At that point the home is typically sold and the loan plus accrued interest is repaid from the proceeds. Whatever equity is left over belongs to you or your estate. To understand the foundation underneath this, start with our guide to how mortgages work in Canada.

Who qualifies

Reverse mortgages in Canada are aimed at older homeowners. The general eligibility rules are straightforward, though the maximum amount you can borrow depends on your age, your home's value and location, and the lender's formula.

• Age: the youngest homeowner on title is usually 55 or older.
• Home type: the property is your principal residence.
• Equity: you typically need substantial equity — the older you are, the more you can usually access.
• No income test like a traditional mortgage: because there are no monthly payments, qualifying is less about income and more about age and equity.

It's still a mortgage

A reverse mortgage is registered against your home just like any other mortgage. If you already have a mortgage or a HELOC, those usually have to be paid off first — often using the reverse-mortgage funds themselves.

Why the balance grows over time

This is the most important thing to understand. With a normal mortgage, your balance shrinks as you pay it down (see our explainer on how mortgage amortization works). A reverse mortgage does the opposite: you borrow money, make no payments, and interest compounds — so the amount you owe climbs every year, while your remaining equity shrinks.

Whether this is a problem depends on your goals. If your aim is to stay in your home and you aren't counting on leaving the property to heirs, the growing balance may be acceptable. If preserving an inheritance matters, the math deserves careful thought.

Costs and trade-offs

Convenience comes at a price. Reverse-mortgage interest rates are generally higher than those on a regular mortgage or HELOC, and there are setup costs to budget for.

Compare the alternatives first

Before committing, weigh a reverse mortgage against a HELOC, a second mortgage, or downsizing your home — each frees up cash differently and may cost far less in interest.

How HOMEH can help

Sometimes the better move isn't borrowing against your home at all — it's selling, unlocking your full equity, and buying something that fits your next chapter. If you go that route, HOMEH gives eligible buyers the industry's highest Cashback Rebate, plus a 1% listing fee, so more of your equity stays in your pocket. Sellers who also buy with HOMEH within 6 months list for free, or pay $395 + HST for a Mere Posting.

Keep more of your home equity

Thinking of selling instead of borrowing? Estimate what you'd keep with the HOMEH cashback calculator, and learn how it works in how HOMEH cashback works.