A reverse mortgage allows Canadian homeowners aged 55 and older to borrow against their home equity without making monthly payments. Interest accrues and compounds on the outstanding balance, which is repaid when the home is sold, the borrower moves out permanently, or the estate settles. The two primary Canadian providers are HomeEquity Bank (CHIP Reverse Mortgage) and Equitable Bank (PATH Home Plan).
Borrowing Limit by Age
HomeEquity Bank’s maximum borrowing as a percentage of home value increases with borrower age. General ranges (subject to lender underwriting and property specifics):
| Youngest Borrower Age | Maximum % of Home Value |
|---|---|
| 55 to 59 | 15% to 25% |
| 60 to 64 | 25% to 35% |
| 65 to 69 | 35% to 45% |
| 70 to 74 | 40% to 50% |
| 75+ | Up to 55% |
Actual limits depend on property type (single-family, condo, rural), property condition, and location. Urban properties in major markets typically qualify for higher percentages.
Balance Growth Through Compounding
The fundamental mathematical risk of a reverse mortgage is compound interest growth with no payment to offset it. Using the compound interest formula: FV = PV × (1 + r)n. At 8% annual rate:
| Initial Draw | Balance at Year 5 | Balance at Year 10 | Balance at Year 15 |
|---|---|---|---|
| $100,000 | $147,000 | $216,000 | $317,000 |
| $200,000 | $294,000 | $432,000 | $634,000 |
| $300,000 | $440,000 | $647,000 | $951,000 |
This growth reduces the estate’s remaining equity over time. Whether home price appreciation offsets the compounding depends on local real estate market conditions, which cannot be predicted with certainty.
No Negative Equity Guarantee
HomeEquity Bank’s CHIP Reverse Mortgage includes a contractual No Negative Equity Guarantee. If the outstanding loan balance exceeds the property’s net sale proceeds at the time of repayment, HomeEquity Bank absorbs the difference. This guarantee requires the borrower to maintain the property in good condition, keep property taxes and insurance current, and not allow the property to deteriorate. Violation of these conditions may void the guarantee.
Tax and Benefit Implications
Reverse mortgage proceeds are a loan and are not taxable income. They do not increase net income for purposes of OAS clawback (the OAS recovery tax threshold), GIS means testing, provincial income-tested benefits, or provincial drug plan premiums. This is a significant advantage over RRSP or RRIF withdrawals, which increase taxable income and can trigger benefit clawbacks.
Alternatives to a Reverse Mortgage
HELOC access requires income qualification and monthly interest payments but costs significantly less in interest (current HELOC rates are 4% to 6% below reverse mortgage rates). Downsizing (selling the home and moving to a smaller property) releases equity without any interest cost. A secured home equity loan requires regular payments. Each alternative has different income, health, and lifestyle implications that affect suitability for a specific borrower.
Source
HomeEquity Bank CHIP Reverse Mortgage product information; Equitable Bank PATH Home Plan; FCAC Reverse Mortgage information at canada.ca; ITA provisions on loan characterisation vs. income.
Frequently asked questions
- What is a reverse mortgage in Canada?
- A reverse mortgage is a loan secured against a Canadian home that allows homeowners aged 55 and older to borrow up to 55% of the home's appraised value without making monthly payments. The loan balance (principal plus compounding interest) is repaid when the home is sold, the last borrower moves out, or the estate settles after death. The two main providers in Canada are HomeEquity Bank (CHIP Reverse Mortgage) and Equitable Bank (PATH Home Plan).
- How much can I borrow with a reverse mortgage in Canada?
- The maximum borrowing limit depends on the age of the youngest borrower, the property value, the property location, and the property type. HomeEquity Bank's CHIP Reverse Mortgage allows borrowing up to 55% of the appraised value. Older borrowers and higher-value properties qualify for higher percentages. A 75-year-old homeowner may access a larger fraction than a 55-year-old for the same property value.
- What is the interest rate on a Canadian reverse mortgage?
- Reverse mortgage rates in Canada are typically 1.5% to 3% higher than conventional mortgage rates because the lender bears the risk of the loan balance exceeding the property value. As of 2025, HomeEquity Bank reverse mortgage rates range from approximately 7% to 9% for fixed terms, higher than comparable conventional mortgage rates. Rates are fixed for terms of 6 months to 5 years and reset at renewal.
- Does a reverse mortgage need to be repaid in Canada?
- No regular payments are required. The full balance (principal plus compounded interest) is repaid in one lump sum when: the last borrower or co-borrower permanently moves out of the home (including to long-term care); the home is sold; the last borrower dies and the estate settles; or the borrower defaults on obligations (property taxes, insurance, maintenance). Borrowers may make voluntary partial repayments subject to prepayment terms.
- Is a reverse mortgage income taxable in Canada?
- No. Reverse mortgage proceeds are a loan, not income, and are not taxable regardless of whether received as a lump sum or in installments. The proceeds do not affect eligibility for income-tested federal benefits such as OAS and GIS (Guaranteed Income Supplement) or provincial income-tested benefits, because they do not increase net income as defined under the ITA.
- Can I lose my home with a Canadian reverse mortgage?
- HomeEquity Bank's CHIP Reverse Mortgage includes a No Negative Equity Guarantee: the lender guarantees that borrowers will never owe more than the fair market value of the home at the time of sale, provided obligations (property taxes, insurance, maintenance) have been met. This means if the home's value at sale is less than the outstanding loan balance, HomeEquity Bank absorbs the shortfall.
- What are the upfront costs of a Canadian reverse mortgage?
- Costs to obtain a reverse mortgage include a home appraisal ($300 to $600), legal/notarial fees ($500 to $1,500), and a lender administration or setup fee ($1,500 to $1,995 for HomeEquity Bank's CHIP). Some costs can be rolled into the loan balance. There are no ongoing insurance premiums (unlike U.S. reverse mortgages under the HECM program, which require FHA mortgage insurance premiums).
- How does compounding interest affect a reverse mortgage balance?
- Because no payments are required, interest compounds on the outstanding balance. At 8% annual interest, a $100,000 initial draw doubles to approximately $200,000 in about 9 years (rule of 72: 72/8 = 9 years). A $300,000 balance at 8% grows to $432,000 after 5 years, $647,000 after 10 years, and over $1 million after 15 years. Compound growth substantially reduces the remaining equity available to heirs.
- What is the difference between a HELOC and a reverse mortgage in Canada?
- A HELOC requires monthly interest payments and the borrower must qualify with sufficient income and meet OSFI's 65% LTV cap on the HELOC portion. A reverse mortgage requires no monthly payments, has no income qualification requirement, and allows borrowing up to 55% of home value regardless of income. HELOCs have lower interest rates but are not available to borrowers without income or who cannot service monthly payments.
- Can I use a reverse mortgage to fund a RRSP or TFSA?
- Reverse mortgage proceeds can be deposited into a TFSA (if contribution room exists) to earn investment returns on a tax-sheltered basis. The proceeds cannot generate an RRSP deduction because earned income is required for RRSP contribution room; reverse mortgage draws are not employment or business income. Placing proceeds in a non-registered account and investing in income-producing assets would generate investment income but no deduction for the reverse mortgage interest.