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. If you have heard negative things, many are likely common myths worth examining. But for the right person in the right situation, it solves a real problem that no other financial product can solve as effectively.
Advantages
1. No Monthly Mortgage Payments
Receive money from the lender with zero required monthly payments. For retirees on fixed income, eliminating a $1,000–$2,000 monthly payment can be life-changing. See how the mechanics work.
2. Stay in Your Home
Access your equity without moving. 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 and do not appear on your tax return. You can receive $200,000 and owe zero additional tax. Full details on our taxes, OAS, GIS & CPP page.
4. No Impact on Government Benefits
Because proceeds are not income, they do not affect your OAS, GIS, or CPP. A retiree receiving GIS can take $150,000 without losing a single dollar of benefits.
5. No Income or Credit Requirements
No income verification, no credit checks, no stress test. Accessible to retirees who cannot qualify for any other lending product. See the full eligibility requirements.
6. Access to Equitable Bank Through a Broker
Equitable Bank offers the lowest rates (from 6.44%) and lowest setup fee ($995). It is broker-exclusive — working with a broker gives you access.
7. No-Negative-Equity Guarantee
All five Canadian lenders guarantee you or your estate will never owe more than the fair market value of your home. Heirs are never personally liable.
8. Flexible Payout Options
Lump sum, scheduled monthly/quarterly advances, or a combination. Bloom even offers a Prepaid Mastercard for on-demand draws.
Disadvantages
1. Higher Interest Rates
Current rates range from 6.44% to 7.29%, compared to conventional 5-year fixed rates in the 4–5% range. The premium exists because there are no monthly payments and the term is uncertain.
2. Interest Compounds Over Time
A $150,000 loan at 7% will grow to approximately $297,800 in 10 years and $590,700 in 20 years due to compounding. The longer you hold it, the more interest accumulates.
3. Setup Fees
Upfront costs: lender fee ($995–$2,995), appraisal ($300–$500), Independent Legal Advice ($300–$700). Total typically $1,800–$4,500. Can usually be deducted from loan proceeds.
4. Reduced Equity and Inheritance
A reverse mortgage reduces the equity in your home, meaning a smaller inheritance for your heirs. This is a genuine trade-off that should be discussed with your family. See our estate impact projections.
5. Prepayment Penalties
Most products carry penalties for early repayment. Exceptions: CHIP Open (6-month term, no penalty) and Bloom (no penalty for downsizing, assisted living, or death).
6. Limited Province Availability
In Manitoba, Saskatchewan, New Brunswick, PEI, and Newfoundland, only CHIP is available. Nova Scotia now has two lenders: CHIP and Home Trust. No reverse mortgage lenders operate in the territories.
7. Property Maintenance Obligations
You must maintain the property, pay property taxes, and keep home insurance. These are conditions of the mortgage. Failure to meet them can trigger the loan being called.
A Closer Look at Fees and Costs
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.
All fees shown below are approximate and can typically be rolled into the mortgage
Notes:
- - Setup fee ranges from $1,795 to $2,995 depending on loan size
- - Appraisal arranged and paid by CHIP, then charged to borrower
- - ILA (Independent Legal Advice) is mandatory
Notes:
- - Lowest setup fee in the market ($995)
- - Broker-exclusive — must go through a mortgage broker
- - ILA (Independent Legal Advice) is mandatory
Notes:
- - All-in processing fee of approximately $2,300
- - Bloom pays for the appraisal (included in processing fee)
- - ILA (Independent Legal Advice) is mandatory
Important notes about fees
- - All setup fees can typically be rolled into the reverse mortgage, meaning no out-of-pocket cost at closing
- - Independent Legal Advice (ILA) is required by all lenders to ensure you understand the terms
- - Legal/notary fees for the mortgage registration are additional (typically $800-$1,500)
- - Some lenders may waive or reduce fees for larger loan amounts
Comparing Tax Treatment: Reverse Mortgage vs. Alternatives
- 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
- HELOC draw: Tax-free loan, but requires income qualification and monthly payments
- Reverse mortgage: Tax-free, and you keep your home
For GIS recipients: a reverse mortgage is one of the only ways to access a large sum of cash without reducing your GIS payments. RRSP or RRIF withdrawals would count as income and could eliminate your GIS entirely. Read the full explanation on our Taxes, OAS, GIS & CPP page.
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 fall into the categories below. Explore alternatives to a reverse mortgage for a detailed comparison:
- 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. When you are ready, review the step-by-step application process to understand what to expect. Compare all 5 lenders or take our lender quiz to find your best match. Check which lenders serve your province. The math will tell you more than any list of pros and cons.