Canadian Reverse Mortgages

How Reverse Mortgages Work in Canada

A reverse mortgage is mechanically simple. You borrow against the equity in your home. The lender gives you money. You make no monthly payments. Interest accumulates on the balance. The loan is repaid when you sell, move out permanently, or pass away. That is the entire concept.

The details — how you receive the money, how interest compounds, what protections exist, and what happens at repayment — are where most people have questions. This guide walks through each step.

Step 1: Borrowing Against Your Equity

Your home equity is the difference between your home's current market value and any outstanding debt against it (such as an existing mortgage or HELOC). If your home is worth $600,000 and you owe $100,000 on your mortgage, your equity is $500,000.

A reverse mortgage lets you access a portion of that equity — typically between 15% and 55% of your home's appraised value, depending on your age and the lender. The older you are, the more you can borrow. At 55, you might access 15-20%. At 80, you might access 45-50%.

If you have an existing mortgage, it must be paid off from the reverse mortgage proceeds first. Using the example above: if you qualify for $200,000 and owe $100,000 on your current mortgage, the first $100,000 goes to pay off that mortgage. You receive the remaining $100,000. The result is that you eliminate your monthly mortgage payment and receive a lump sum — a double benefit.

Step 2: Choosing How to Receive Your Money

You have several options depending on which lender and product you choose:

Lump Sum

Receive the full approved amount (or a portion of it) as a single payment. This is the most common option. It works well if you need to pay off an existing mortgage, fund a large renovation, or cover a significant expense.

Scheduled Advances (Monthly or Quarterly)

HomeEquity Bank's Income Advantage product delivers a minimum of $1,000 per month or $3,000 per quarter directly to your bank account. This functions like a regular income stream and is popular among retirees who want to supplement their pension, OAS, or CPP without depleting a lump sum.

Equitable Bank's Flex product also supports scheduled advances combined with an initial lump sum. You can structure it to meet your specific cash flow needs.

On-Demand Draws (Bloom Prepaid Mastercard)

Bloom Finance offers a unique option: a Prepaid Mastercard loaded with your approved equity. You draw against it as needed — groceries, travel, home repairs — without requesting a separate disbursement each time. Interest only accrues on the amount you have actually drawn, not the full approved amount.

Combination

Most products allow you to take an initial lump sum and then set up scheduled advances for the remainder. For example, you might take $50,000 upfront to pay off your mortgage and renovate the bathroom, then receive $1,500 per month as ongoing income.

Step 3: No Monthly Payments

This is the defining feature of a reverse mortgage and the reason most Canadians choose the product. You are not required to make any monthly mortgage payments — not principal, not interest, nothing.

The interest that accrues on your loan is simply added to the loan balance. Over time, the balance grows. This is called "negative amortization" — the opposite of a traditional mortgage, where your balance shrinks with each payment.

You can make voluntary payments if you wish. Some borrowers choose to pay the interest each month or quarter to keep the balance from growing. This is entirely optional and not required by any lender. However, prepayment penalties may apply depending on the product and term, so check the specifics before making voluntary payments.

Step 4: How Interest Compounds

Under the Canadian Interest Act, residential mortgage interest can compound no more frequently than semi-annually — that is, twice per year. This applies to all four reverse mortgage lenders.

Here is what this means in practice. If you borrow $150,000 at a 7.00% annual interest rate:

  • After 1 year: The balance grows to approximately $160,725
  • After 5 years: Approximately $211,370
  • After 10 years: Approximately $297,800
  • After 15 years: Approximately $419,500
  • After 20 years: Approximately $590,700

These numbers illustrate why reverse mortgages are best understood as long-term financial instruments. The interest compounds on the full balance, including previously accumulated interest. Over 20 years, the balance can nearly quadruple.

However, these numbers must be considered alongside home appreciation. If your $600,000 home appreciates at 3% annually, it would be worth approximately $1,083,000 in 20 years — meaning significant equity remains even after repaying a $590,700 loan balance.

Step 5: Your Name Stays on the Title

One of the most persistent misconceptions about reverse mortgages is that the bank "takes your home." This is false.

When you take a reverse mortgage, the lender registers a mortgage (a legal charge or lien) against your property — exactly the same as a traditional mortgage. Your name remains on the title. You own the home. You can renovate it, rent out a room, have family move in, or do anything else a homeowner can do.

The lender's mortgage gives them a secured interest in the property, which means they get repaid when the property is eventually sold. But they do not own the property. They cannot force you to sell. They cannot evict you. As long as you meet the basic conditions of the mortgage — keep the property maintained, pay your property taxes, and maintain home insurance — you can live in your home indefinitely.

Step 6: Independent Legal Advice (ILA)

Before any Canadian reverse mortgage closes, you are required to receive Independent Legal Advice (ILA). This means sitting down with a lawyer who is not connected to the lender, the broker, or anyone else involved in the transaction.

The lawyer's job is to:

  • Explain the terms of the reverse mortgage in plain language
  • Ensure you understand how interest compounds and how the loan balance will grow
  • Confirm that you are entering the agreement voluntarily
  • Answer any questions you or your family members have
  • Sign an ILA certificate that the lender requires before funding

ILA typically costs between $300 and $700, depending on the lawyer and your province. In Quebec, you will work with a notary rather than a lawyer, consistent with that province's civil law system.

This requirement exists to protect you. It ensures that no one can pressure a senior into a reverse mortgage without an independent professional confirming they understand the commitment.

Step 7: Living with a Reverse Mortgage

Once the reverse mortgage is in place, your day-to-day life does not change. You live in your home. You pay your property taxes and home insurance as you always have. You maintain the property. That is the full extent of your obligations.

You do not receive bills from the lender. You do not make monthly payments. You do not need to requalify. If you chose a fixed-rate product, your rate stays the same for the term (or for life, with Bloom's lifetime fixed-rate product). If you chose a variable rate, your rate will adjust with market conditions.

At the end of a fixed-rate term (typically 5 years for CHIP and Equitable), the mortgage renews at the prevailing rate. You do not need to requalify or reapply — the renewal is automatic. However, the new rate may be higher or lower than your original rate.

Step 8: Repayment

The loan becomes due in full when any of the following occurs:

  • You sell the home: The reverse mortgage is repaid from the sale proceeds. Any remaining equity is yours.
  • You move out permanently: If the home is no longer your primary residence, the loan becomes due. You typically have a grace period (often 6-12 months) to sell the property.
  • The last surviving borrower passes away: Your estate (typically your heirs) sells the home and repays the loan from the proceeds. Remaining equity goes to the estate.
  • Default: If you fail to pay property taxes, let your home insurance lapse, or cause significant damage to the property, the lender can call the loan. This is rare.

In all cases, the no-negative-equity guarantee applies: you or your estate will never owe more than the fair market value of the home. If the loan balance exceeds the sale price, the lender absorbs the loss.

A Realistic Example

Consider a couple, both aged 70, with a home worth $700,000 and no existing mortgage. They qualify for approximately 35% of their home's value — about $245,000.

They take $100,000 as a lump sum to renovate their home for aging in place, and set up $1,500 per month in scheduled advances for supplemental income.

  • Year 1: They have received $100,000 + $18,000 = $118,000. With interest, the balance is approximately $126,500.
  • Year 5: Total advances received: $100,000 + $90,000 = $190,000. With compounding interest, the balance is approximately $265,000.
  • Year 10: Total advances: $100,000 + $180,000 = $280,000. With compounding, the balance is approximately $450,000.

Meanwhile, if their $700,000 home appreciates at 4% annually:

  • Year 5: Home worth ~$851,000. Remaining equity: ~$586,000.
  • Year 10: Home worth ~$1,036,000. Remaining equity: ~$586,000.

Even after 10 years of borrowing and interest accumulation, more than half of the home's value remains as equity for the homeowners or their estate. The exact outcome depends on interest rates and home appreciation, which is why running the numbers for your specific situation is important.

Next Steps

Now that you understand the mechanics, you may want to explore:

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