Reverse Mortgage Glossary
Plain-language definitions of every term you will encounter when researching or applying for a reverse mortgage in Canada.
A
- Amortization#
- The schedule showing how a loan balance grows when no payments are made. With a reverse mortgage, amortization is inverted versus a traditional mortgage — the balance increases over time as interest compounds. The amortization calculator models year-by-year balance, equity, and total cost.
- Appraisal#
- A professional assessment of your home's current market value, conducted by a certified appraiser. Every reverse mortgage requires an appraisal to determine how much you can borrow. The cost is typically $300–$500, and some lenders cover it.
B
- Borrower#
- The homeowner(s) who take out the reverse mortgage. All borrowers must be at least 55 years old (except Fraction, which requires age 18+) and must live in the home as their primary residence. If there are two borrowers on title, both must meet the age requirement.
- Bridge Loan#
- Short-term financing used when you need funds before a longer-term solution closes. CHIP Open (6-month term, no prepayment penalty if repaid in full) is Canada's reverse-mortgage bridge option — useful when downsizing, awaiting an estate settlement, or building a bridge to a sale.
C
- Commitment Letter#
- A formal document from the lender confirming the reverse mortgage terms — including the approved loan amount, interest rate, fees, and conditions. You receive this after your application is approved and the appraisal is complete. You must review it carefully before signing.
- Compound Interest#
- Interest calculated on both the original loan amount and any previously accumulated interest. Canadian reverse mortgage rates are disclosed as a yearly or semi-annual not-in-advance equivalent under the Interest Act. That disclosure rule does not require the loan balance to compound only twice a year. Because you make no required monthly payments, the balance grows over time as interest compounds on interest.
- CPP (Canada Pension Plan)#
- A government pension program that provides retirement income to eligible Canadians. Reverse mortgage funds are a loan advance, not income, and do not affect your CPP payments or eligibility.
D
- Discharge#
- The legal process of removing the reverse mortgage from your property's title after the loan is fully repaid. This occurs when you sell your home, repay the loan voluntarily, or the estate settles the debt after the borrower passes away.
E
- Equity#
- The difference between your home's current market value and any outstanding debts secured against it (mortgages, HELOCs, etc.). For example, if your home is worth $800,000 and you owe $100,000 on a mortgage, your equity is $700,000. A reverse mortgage allows you to access a portion of this equity.
- Estate Settlement#
- The process after the last borrower passes away or permanently moves out: the executor has 6–12 months to sell or refinance and repay the reverse mortgage from sale proceeds. If the balance is less than the sale price, the surplus goes to heirs; if it exceeds the sale price, the no-negative-equity guarantee caps repayment at fair market value.
F
- FSRA#
- The Financial Services Regulatory Authority of Ontario. FSRA regulates mortgage brokers and agents in Ontario. All licensed mortgage professionals who arrange reverse mortgages in Ontario must be registered with FSRA.
G
- GIS (Guaranteed Income Supplement)#
- A monthly non-taxable benefit paid to low-income OAS recipients. Because reverse mortgage funds are a loan advance and not income, they are not included in the income calculation used to determine GIS eligibility. This is a key advantage for lower-income retirees who depend on GIS.
H
- HELOC (Home Equity Line of Credit)#
- A revolving credit line secured against your home. Unlike a reverse mortgage, a HELOC requires income qualification and monthly interest payments. HELOCs can also be frozen or reduced by the lender at any time. Under OSFI guidelines, you can borrow up to 65% of your home's value through a HELOC.
- Home Equity#
- See Equity.
I
- ILA (Independent Legal Advice)#
- A mandatory requirement for Canadian reverse mortgages from CHIP, Equitable Bank, Bloom Finance, and Home Trust. You must meet privately with a lawyer (or notary in Quebec) who is not connected to the lender. The lawyer ensures you fully understand the loan terms, your obligations, and the impact on your estate. The cost is typically $300–$700 and is paid by the borrower. ILA is optional for Fraction.
- Independent Legal Advice Certificate#
- The signed certificate your lawyer provides after the mandatory ILA meeting, confirming you understand the reverse mortgage terms, repayment triggers, compounding, and the 95% rule / NNEG. The lender requires this certificate before funding.
- Interest Rate#
- The annual percentage charged on your reverse mortgage balance. Canadian reverse mortgage rates are typically 1% to 3% higher than conventional mortgage rates due to the deferred repayment structure and no-negative-equity guarantee. Most lenders offer fixed rates for terms of 1 to 5 years. Bloom Finance also offers a unique lifetime fixed rate.
L
- Loan-to-Value Ratio (LTV)#
- The percentage of your home's appraised value that you can borrow. For reverse mortgages, typical LTV ranges from approximately 15% to 55%. Select products go up to 59%, and CHIP Max / the preferred-broker path can go up to 65%. Your age is the primary factor — the older you are, the higher the LTV available.
- Lump Sum#
- Receiving the full reverse mortgage amount as a single payment at closing. This is the most common payout option and is available from CHIP, Equitable, Bloom, Home Trust, and Fraction. The alternative is scheduled advances (available from CHIP) or a Prepaid Mastercard (available from Bloom).
N
- No-Negative-Equity Guarantee#
- A contractual guarantee included in Canadian reverse mortgages from CHIP, Equitable Bank, Bloom Finance, and Home Trust that ensures the borrower (or their estate) will never owe more than the fair market value of the home at the time of repayment. If the loan balance exceeds the home's value — for example, due to a severe market downturn — the lender absorbs the loss. Fraction does not include this guarantee.
O
- OAS (Old Age Security)#
- A monthly government pension available to Canadians aged 65 and older who meet residency requirements. OAS is subject to a clawback (recovery tax) if your net income exceeds a certain threshold. Because reverse mortgage funds are not income, they do not trigger OAS clawbacks — unlike RRSP/RRIF withdrawals.
- OSFI#
- The Office of the Superintendent of Financial Institutions. OSFI regulates federally regulated financial institutions in Canada, including banks that offer reverse mortgages (such as HomeEquity Bank and Equitable Bank). OSFI sets rules around lending practices, including the mortgage stress test for conventional mortgages.
P
- Prepayment Penalty#
- A fee charged by the lender if you repay the reverse mortgage before the end of the term. Penalties vary by lender and product. CHIP Open has no prepayment penalty within the first 6 months. Other products use an Interest Rate Differential (IRD) calculation similar to conventional mortgages.
- Primary Residence#
- The home where you live for the majority of the year. Every Canadian reverse mortgage requires the property to be your primary residence. Rental properties, vacation homes, and investment properties do not qualify.
R
- Reverse Mortgage#
- A loan secured against a Canadian residential property that allows homeowners aged 55+ to access typically 15–55% of their home equity (select products up to 59%; CHIP Max / preferred-broker path up to 65%) without required monthly payments until sale, a permanent move, or estate settlement. The loan (plus accrued interest) is repaid when the borrower sells, moves out permanently, or passes away. Canada has four regulated reverse mortgage lenders: CHIP (HomeEquity Bank), Equitable Bank (Flex), Bloom Finance, and Home Trust (EquityAccess). Fraction is a shared-appreciation alternative, not a reverse mortgage.
S
- Scheduled Advances#
- Regular payments from a reverse mortgage deposited into your bank account on a set schedule (monthly, quarterly, etc.) rather than as a single lump sum. CHIP's Income Advantage product is the primary Canadian option for scheduled advances.
- Semi-Annual Compounding#
- The Interest Act requires Canadian mortgage lenders to disclose a yearly or semi-annual not-in-advance equivalent rate. That disclosure convention is how reverse mortgage rates are quoted on this site. It does not require the loan balance to compound only twice a year.
- Setup Fee#
- A one-time fee charged by the lender to process and administer the reverse mortgage. Also called an administration fee, origination fee, or closing fee. Ranges from $995 (Equitable Bank, Home Trust) to approximately $2,995 (CHIP) depending on the lender and product.
- Stress Test#
- A federal regulation (administered by OSFI) that requires borrowers to qualify for a conventional mortgage at a rate higher than the actual contract rate — typically the contract rate plus 2% or the Bank of Canada's qualifying rate, whichever is higher. Reverse mortgages do not require a stress test, which is why they are accessible to retirees who cannot qualify for conventional financing.
T
- Title#
- The legal ownership record of a property. A reverse mortgage is registered as a charge (lien) against your property title — similar to a conventional mortgage. You retain full ownership of the property throughout the life of the reverse mortgage.
#
- 95% Rule#
- Shorthand for Canada's implementation of No Negative Equity Guarantee: at repayment, the estate repays at most 95–100% of the home's fair market value — even if the compounded balance is higher — and the lender absorbs the shortfall. The 95% label reflects the historic ILA attestation threshold; in practice all four regulated lenders cap at fair market value.
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