Pros and Cons — The Honest Canadian Picture

A reverse mortgage is a financial tool. Like any tool, it works well for certain situations and poorly for others. This page gives you the honest picture — genuine advantages and genuine disadvantages — so you can decide whether it makes sense for your circumstances.

We are not going to tell you a reverse mortgage is the right choice for everyone. It is not. But for the right person in the right situation, it solves a real problem that no other financial product can solve as effectively.

The Pros

1. No Monthly Mortgage Payments

This is the core advantage and the reason most Canadians choose a reverse mortgage. You receive money from the lender and you make no monthly payments in return — not principal, not interest, not anything.

For a retiree whose income consists of OAS, CPP, and perhaps a modest pension, eliminating a $1,000-$2,000 monthly mortgage payment can be life-changing. It is the difference between choosing between groceries and medication, and living comfortably.

Even if you do not currently have a mortgage, the reverse mortgage gives you access to cash without creating a new monthly obligation. No other lending product can do this.

2. Stay in Your Home

The alternative to a reverse mortgage is often selling your home and either downsizing or renting. For many seniors, their home is not just a financial asset — it is where they raised their children, where they know their neighbours, where they feel safe and comfortable.

A reverse mortgage lets you access your equity without moving. You can age in place, on your terms, in the home you know. Your name stays on the title. The lender cannot force you to sell or move.

3. Tax-Free Proceeds

Reverse mortgage proceeds are a loan, not income. They are not taxable. The CRA does not consider them income, and they do not appear on your tax return. You can receive $200,000 and owe zero additional tax.

Compare this to other ways of accessing cash in retirement:

• RRSP withdrawals: Fully taxable as income
• RRIF withdrawals beyond the minimum: Taxable as income
• Selling investments: May trigger capital gains tax
• Selling your home: Tax-free (principal residence exemption), but you lose your home
• Reverse mortgage: Tax-free, and you keep your home

4. No Impact on Government Benefits

Because reverse mortgage proceeds are not income, they do not affect your OAS, GIS, or CPP. This is critically important for low-income retirees who depend on GIS (the Guaranteed Income Supplement), which is clawed back as income rises.

A retiree receiving GIS can take a $150,000 reverse mortgage and their GIS payment will not be reduced by a single dollar. Try that with an RRSP withdrawal. Read our detailed Taxes, OAS, GIS & CPP guide for the full explanation.

5. No Income or Credit Requirements

Reverse mortgages do not require income verification, credit checks, or the federal stress test. This makes them accessible to retirees who cannot qualify for any other lending product.

If you are 72, living on $24,000 per year of OAS and CPP, with a credit score of 580, no bank will give you a conventional mortgage or HELOC. But you can qualify for a reverse mortgage if your home meets the requirements.

6. Access to Equitable Bank Through a Broker

Equitable Bank offers the lowest reverse mortgage rates in Canada (currently starting at 6.44%) and the lowest setup fee ($995). However, Equitable Bank is broker-exclusive — you cannot access it directly. Working with a mortgage broker gives you access to all four reverse mortgage lenders, including the one with the best rates.

7. No-Negative-Equity Guarantee

All four Canadian reverse mortgage lenders guarantee that you or your estate will never owe more than the fair market value of your home. This is a meaningful protection: in a worst-case scenario where your home declines in value while your loan balance grows, the lender absorbs the loss. Your heirs are never personally liable.

8. Flexible Payout Options

You can receive your money as a lump sum, as scheduled monthly or quarterly payments, or as a combination of both. Bloom even offers a Prepaid Mastercard for on-demand draws. This flexibility lets you match the product to your specific cash flow needs.

The Cons

1. Higher Interest Rates Than Conventional Mortgages

This is the most frequently cited disadvantage, and it is real. Current reverse mortgage rates range from 6.44% to 7.29%, compared to conventional 5-year fixed rates in the 4-5% range.

The premium exists because the lender takes on more risk: there are no monthly payments, the loan term is uncertain (it ends when you sell, move, or pass away), and the no-negative-equity guarantee means the lender may absorb a loss.

However, comparing a reverse mortgage rate to a conventional mortgage rate is misleading. A conventional mortgage requires $1,000+ per month in payments. A reverse mortgage requires $0. The higher rate must be weighed against the total elimination of your payment obligation.

2. Interest Compounds Over Time

Because you make no payments, the interest on your reverse mortgage is added to the loan balance. Over time, this compounds — you pay interest on the interest. A $150,000 loan at 7% will grow to approximately $297,800 in 10 years and $590,700 in 20 years.

This is the mathematical reality of the product. The longer you hold the reverse mortgage, the more interest accumulates. If you live in your home for 25+ years with a reverse mortgage, the loan balance will be substantially larger than the original advance.

That said, this must be viewed alongside home appreciation. The question is not "how much will the loan balance grow?" but "how much equity will remain when the home is sold?" In most Canadian markets, the answer is "a significant amount."

3. Setup Fees

Reverse mortgages have upfront costs:

• Lender setup/administration fee: $995 (Equitable) to $2,995 (CHIP, depending on product)
• Home appraisal: $300-$500 (Bloom pays this cost)
• Independent Legal Advice: $300-$700
• Title search and registration: Varies by province, typically $200-$500

Total setup costs typically range from $1,800 to $4,500. These can usually be deducted from the loan proceeds so you do not need to pay them out of pocket, but they reduce the net amount you receive.

4. Reduced Equity and Inheritance

A reverse mortgage reduces the equity in your home, which means a smaller inheritance for your heirs. This is a genuine trade-off that should be discussed with your family.

The key question is: do you prioritize your quality of life today, or the size of the inheritance you leave? There is no wrong answer, but it is a conversation worth having. Our estate impact page shows detailed projections of remaining equity under different scenarios.

5. Prepayment Penalties

Most reverse mortgage products carry prepayment penalties if you repay the loan before the term ends. If your circumstances change and you want to pay off the reverse mortgage early (for example, if you decide to sell sooner than planned), you may face a penalty.

Exceptions exist: CHIP Open has no prepayment penalty (it is a 6-month bridge product). Bloom charges no penalty for downsizing, moving to assisted living, or death. Equitable Bank generally offers more favourable penalty terms in the first 3 years compared to CHIP.

6. Limited Province Availability

If you live in Manitoba, Saskatchewan, Nova Scotia, New Brunswick, PEI, or Newfoundland, your only option is HomeEquity Bank (CHIP). You cannot shop between lenders for better rates or terms. And if you live in the territories, no reverse mortgage is available at all.

7. Property Maintenance Obligations

You must keep your home in reasonable condition, pay property taxes, and maintain home insurance. These are conditions of the mortgage. If you fail to meet them, the lender can call the loan.

For most homeowners, this is not a burden — you would do these things anyway. But for someone who is struggling to maintain their property (perhaps due to mobility issues or financial constraints), it is an obligation to be aware of.

Who a Reverse Mortgage Is Right For

A reverse mortgage tends to work well for people who match most of these criteria:

• Age 55+ (and the older you are, the more sense it tends to make)
• Significant home equity but limited liquid cash or income
• Strong desire to stay in your current home
• Not planning to move within the next 5 years
• Monthly mortgage payment or HELOC payment is a strain
• Receiving GIS or near the OAS clawback threshold
• Cannot qualify for a traditional mortgage or HELOC due to income

Who Should Consider Alternatives

A reverse mortgage may not be the best fit if:

• You plan to move within 1-3 years (selling may be simpler and avoids setup costs)
• You have significant income and can qualify for a HELOC (which has lower rates, though requires monthly payments)
• You want to maximize the inheritance you leave
• You are under 60 and expect to need the reverse mortgage for 30+ years (the compounding becomes very significant)
• You live in a territory where no reverse mortgage is available

If you are unsure, the best place to start is with the numbers. See how much you could access, then project how much equity remains over time. The math will tell you more than any list of pros and cons.