8 Myths vs. Facts About Reverse Mortgages in Canada

Most of what people "know" about reverse mortgages comes from American media, outdated articles, or well-meaning family members who have never actually read a Canadian reverse mortgage contract. The Canadian product is different from the American product, and most of the fears people carry are either outdated or simply wrong.

Here are the eight most common myths — and the facts that debunk them.

Myth 1: "The Bank Will Take My Home"

This is the most persistent and damaging myth about reverse mortgages, and it is completely false. When you take a reverse mortgage, the lender places a charge on your property, just like any mortgage. You retain full ownership. You can renovate, have family move in, or rent out a room. The lender cannot evict you.

As long as you meet the basic conditions — maintain the property in reasonable condition, pay your property taxes, and keep your home insurance current — you can live in your home for the rest of your life. This is a contractual guarantee, not a suggestion.

Myth 2: "My Heirs Will Inherit My Debt"

This guarantee is written into every Canadian reverse mortgage contract. It is not optional, not an add-on, and not conditional on purchasing extra insurance. HomeEquity Bank (CHIP), Equitable Bank, and Bloom Finance all include it as a standard feature.

In practice, this scenario is rare anyway. Canadian home values have historically appreciated over time. A $700,000 home with a $200,000 reverse mortgage would need to lose significant value — while the loan balance grows — for the guarantee to be triggered. But even in a worst-case scenario, your heirs are protected.

Your children or beneficiaries are never personally liable for a reverse mortgage. The loan is secured by the property, not by any individual. When the home is sold, the reverse mortgage is repaid from the proceeds. Remaining equity goes to the estate. If there is a shortfall, the lender bears the loss.

Myth 3: "It Will Affect My Government Benefits"

Under Canadian tax law, borrowed money is not income. A reverse mortgage is a loan secured by your property. When you receive $150,000 from a reverse mortgage, the Canada Revenue Agency (CRA) treats it exactly the same as if you took out a personal loan or a HELOC draw — it is debt, not earnings.

This means reverse mortgage proceeds:

• Are not subject to income tax
• Do not appear on your T1 tax return as income
• Do not count toward the OAS clawback threshold ($90,997 in net income for 2025-2026)
• Do not affect GIS eligibility or amount (which is based on income, not assets)
• Do not affect CPP payments

This is one of the most important advantages of a reverse mortgage for retirees on fixed income. We cover this in much greater detail on our Taxes, OAS, GIS & CPP page.

Myth 4: "I'll Run Out of Equity"

This fear comes from looking at the loan balance in isolation. Yes, a $150,000 reverse mortgage at 7% will grow to approximately $590,000 over 20 years. That sounds alarming — until you consider the other side of the equation.

A $700,000 home appreciating at just 3% per year will be worth approximately $1,264,000 in 20 years. Even after repaying the $590,000 loan balance, there is $674,000 in remaining equity. The homeowner accessed $150,000 in tax-free funds, made no payments for 20 years, and still preserved most of their equity.

The math is not always this favourable — a sustained period of flat or declining home values combined with high interest rates would reduce the remaining equity. But the historical trend in Canadian real estate strongly favours the homeowner.

Myth 5: "The Interest Rates Are Too High"

Current reverse mortgage rates range from approximately 6.44% (Equitable Bank Flex Lite) to 7.29% (CHIP Income Advantage). Yes, this is higher than a conventional 5-year fixed mortgage rate. But the two products are fundamentally different.

A conventional mortgage at 4.5% on a $200,000 balance requires approximately $1,100 per month in payments. Over 5 years, that is $66,000 out of your pocket. A reverse mortgage at 7.0% on the same balance requires $0 per month. The interest accumulates, but you keep $66,000 in cash that you would otherwise have paid to the bank.

For a retiree on fixed income, the relevant question is not "what is the interest rate?" but "can I afford the monthly payment?" With a reverse mortgage, the answer is always yes — because there is no payment.

Furthermore, for retirees comparing a reverse mortgage to a HELOC: HELOC rates are currently in the 6.45-7.20% range, require monthly interest payments, and can be called by the lender at any time. A reverse mortgage at a similar rate with no payments and no call risk is arguably the better product for someone in retirement.

Myth 6: "I Should Just Go to My Bank"

TD, RBC, BMO, Scotiabank, CIBC, and National Bank do not offer reverse mortgages. If you walk into a branch and ask, they will either tell you they don't offer the product or try to sell you a HELOC instead (which requires income qualification and monthly payments).

The four companies that actually offer reverse mortgages in Canada are HomeEquity Bank, Equitable Bank, Bloom Finance, and Home Trust. HomeEquity Bank and Bloom accept direct applications, but Equitable Bank is entirely broker-exclusive — the only way to access their products is through a licensed mortgage broker.

Since Equitable Bank consistently offers the lowest rates in the Canadian reverse mortgage market (currently 6.44% for Flex Lite vs. 7.24% for CHIP standard), going directly to a lender instead of using a broker means you may miss the cheapest option entirely.

A mortgage broker can compare all four lenders simultaneously, identify which product and rate best fits your situation, and handle the application process. There is no cost to you — the broker is compensated by the lender.

Myth 7: "I Can't Get One Because I Still Have a Mortgage"

This is actually one of the most common reasons people get a reverse mortgage. You are 68 years old, still carrying a $120,000 mortgage with a $900 monthly payment, and your retirement income is stretched thin. A reverse mortgage pays off the $120,000, eliminates the $900 payment, and gives you whatever equity remains.

If your home is worth $550,000 and you qualify for $180,000, the first $120,000 goes to pay off the existing mortgage. You receive $60,000 in cash and your monthly payment drops to $0. You have just given yourself a $900 per month raise, plus a $60,000 lump sum — all without selling your home.

Myth 8: "My Family Won't Approve"

Family dynamics around money are complicated, and there is often an unspoken tension: your children may be concerned about their inheritance, while you are trying to maintain your quality of life in retirement. Both perspectives are valid.

Here is what helps. First, address the myths directly. Share this page with your family. Most objections dissolve when people learn that you keep your home, that the no-negative-equity guarantee protects heirs, and that government benefits are unaffected.

Second, involve your family in the Independent Legal Advice (ILA) session. All four lenders require you to meet with an independent lawyer before closing. Family members are welcome to attend. The lawyer will explain the terms in plain language and answer questions from everyone.

Third, reframe the conversation. A reverse mortgage is not "spending the inheritance." It is using your own equity — money you earned and built over decades — to live comfortably in your own home. Most adult children, when they truly understand the situation, would rather see their parents live well than inherit a larger estate at the cost of their parents' quality of life.

Fourth, show the math. Use our equity projection calculator to show exactly how much equity remains after 10, 15, or 20 years under different appreciation scenarios. In most cases, significant inheritance remains even with a reverse mortgage in place.

The Bottom Line

A reverse mortgage is not perfect for everyone, and we cover the genuine pros and cons honestly. But most of the fear surrounding reverse mortgages is based on myths — many imported from the American market, where the product works differently.

In Canada, you keep your home, your heirs are protected, your government benefits are unaffected, and the product is designed specifically for homeowners 55+ who need access to their equity without monthly payments. The facts speak for themselves.