Reverse Mortgage in Canada: What Deferring Every Payment Actually Costs

Monday, October 12, 2026 — the bottom line: A reverse mortgage lets a Canadian homeowner aged 55 or older draw out up to 55% of their home's value with no monthly payment, and the absence of that payment is exactly what makes it expensive. At an illustrative 6.74% five-year fixed, a $150,000 advance grows to $208,947 in five years, $291,059 in ten and $564,770 in twenty. The Bank of Canada's policy rate is 2.25% and prime sits at 4.45%, so reverse mortgage pricing runs roughly 130 to 250 basis points above a home equity line of credit on the same house. The product is not a trick. The cost is just moved into the compounding, where it is easy not to look.

Bond markets were closed Monday for Thanksgiving, so the figures below are as of October 8 to 10. The five-year Government of Canada bond yield closed at 3.60% on October 8. The next Bank of Canada decision, with a Monetary Policy Report attached, lands October 28.

How a reverse mortgage works in Canada

A reverse mortgage is a first-position charge against your principal residence. You must be 55 or older, every registered owner must qualify, and any existing mortgage has to be paid off out of the proceeds. You receive a lump sum, a series of advances, or both. You make no principal or interest payment at all. Interest accrues on the balance and compounds, typically semi-annually, until the house is sold, the last borrower moves into care permanently, or the last borrower dies.

Four federally regulated lenders write this business in Canada: HomeEquity Bank (the CHIP Reverse Mortgage), Equitable Bank (Flex, Flex PLUS and Flex Lite), Bloom, and Home Trust (EquityAccess). All four carry a no-negative-equity guarantee: provided you keep the property insured, in good repair and current on property tax, your estate never owes more than the house sells for.

You keep title and you do not have to move. For a 78-year-old with $900,000 of equity and $2,100 a month of pension income, it can be the only product that solves the problem.

What the balance does when nobody makes a payment

This is the number most people never see modelled. The following table takes a single $150,000 advance at an illustrative 6.74% five-year fixed rate, compounded semi-annually, with no payments made and no further draws.

Years elapsed	Balance owing	Interest accrued	Interest as % of advance
5	$208,947	$58,947	39%
10	$291,059	$141,059	94%
15	$405,440	$255,440	170%
20	$564,770	$414,770	277%
25	$786,714	$636,714	425%

At 6.74% compounded semi-annually the balance doubles in 10.5 years. At 6.23% it takes 11.3 years; at 6.95%, 10.1 years. Those rates span roughly where five-year fixed reverse mortgage pricing has sat through 2026, so the doubling window is ten to eleven and a half years whichever lender you use.

Run that against a life expectancy. A borrower who draws $150,000 at 68 and lives to 88 leaves a $564,770 debt behind. That is not a pricing failure; it is twenty years of unpaid compound interest doing what compound interest does.

Reverse mortgage rates versus the alternatives

The honest comparison is not reverse mortgage versus nothing. It is reverse mortgage versus the other ways to convert equity into cash. Here is the same $150,000 over five years, four ways.

Option	Rate used	Monthly payment	5-year interest	Balance after 5 years
Reverse mortgage, no payments	6.74% illustrative	$0	$58,947	$208,947
HELOC, interest only	4.95% (prime + 0.50%)	$618.75	$37,125	$150,000
Refinance, 25-year amortization	4.34% five-year fixed	$816.92	$30,018	$130,993
Refinance, 20-year amortization	4.34% five-year fixed	$932.96	$29,333	$123,355

Payments are calculated on Canadian semi-annual compounding. The 4.34% five-year fixed and the 4.45% prime rate are market figures as of October 10, 2026. The 6.74% reverse mortgage rate and the prime-plus-0.50% HELOC spread are illustrative assumptions, not quotes we could verify today — reverse mortgage pricing is not published in real time the way insured mortgage rates are, and the posted figures we found ranged from 6.23% to roughly 6.95% on five-year fixed terms through 2026. Get a written quote before you rely on any of these numbers.

The spread tells the story. Over five years, deferring the payment costs about $22,000 more in interest than paying interest only on a HELOC, and about $29,000 more than amortizing on a refinance. What you buy for that is $618.75 to $932.96 a month of cash flow you do not have to find.

If your equity need is short-term and you can carry a payment, a line of credit is cheaper. We walk through that math in our comparison of a second mortgage versus a HELOC. If you cannot qualify for either because of income, a reverse mortgage may be the only door that opens — and it is still usually cheaper than private money, which we cost out in what a private mortgage actually costs.

How much you can actually draw

Maximum loan-to-value is driven by age, property type, location and lender. The older you are, the more you can take, because the lender's expected holding period is shorter. On a $900,000 home:

Loan-to-value band	Typical borrower profile	Maximum advance on $900,000
15%	Age 55, conservative product tier	$135,000
25%	Age 60 to 65	$225,000
35%	Age 70 to 75	$315,000
45%	Age 75 to 80, or an age-70+ product tier	$405,000
55%	Age 80+, strong urban property	$495,000

Published maximums run to 55% across the main lenders and to 59% on the age-70-and-over tiers at Equitable Bank and Home Trust. Minimum home values start around $250,000 to $300,000, and minimum initial advances around $20,000 to $25,000. The bands above are a planning guide, not an approval — nobody can tell you your number without an appraisal.

Closing costs come off the top: roughly $995 plus disbursements at Equitable Bank, $1,795 at HomeEquity Bank on the standard CHIP product, about $2,300 all-in at Bloom. Open-term versions cost more, and you also pay for an appraisal, independent legal advice and registration.

The equity question: what's left for the estate

The pitch you often hear is that home price growth outruns the interest. Sometimes it does. The table below holds the $150,000 advance at 6.74% and varies what the $900,000 house does.

Home price growth	Equity after 10 years	Equity after 15 years	Equity after 20 years
0% a year	$608,941	$494,560	$335,230
2% a year	$806,036	$805,841	$772,582
4% a year	$1,041,160	$1,215,409	$1,407,240

At 2% annual appreciation the dollar value of the remaining equity is roughly flat for two decades — the house grows about as fast as the debt. At 0% it erodes by $273,711 over twenty years. At 4% the estate comes out well ahead. No one can tell you which column you are in, and any projection of future home prices is a market expectation that can change. Plan on the flat row and treat the 4% row as upside.

Six things to do before you sign

• Get a written quote from at least two of the four lenders, with the term, rate, compounding frequency and closing cost itemized. The spread between them on a five-year fixed has been as wide as 70 basis points this year.
• Ask for the balance projected at 5, 10, 15 and 20 years in writing. If the lender or broker will not produce it, that is your answer.
• Price a HELOC and a refinance first. If you can carry $618.75 a month on $150,000, you are probably better off on a line of credit.
• Draw in instalments rather than one lump sum if you do not need the full amount now. Interest accrues only on what you have taken.
• Check the prepayment terms. Most of these mortgages carry a penalty if you pay out in the first three to five years, waived or reduced on death or a move into long-term care. Read the specific wording.
• Bring your adult children in before closing, not after. The 0% row above is the part families argue about later.

When a reverse mortgage is the wrong tool

Three situations where the math usually says no. First, if you intend to sell within five years — closing costs and the penalty window make a short hold expensive. Second, if the goal is to invest the proceeds; borrowing at an illustrative 6.74% compounding to chase a return you do not control is a leveraged bet. Third, if the real problem is a renewal payment shock you could solve by shopping the renewal properly — our breakdown of renewal shock in 2026 shows what that gap is worth.

Rates may not stay where they are. The September Labour Force Survey showed employment down 68,000 and unemployment at 6.5%, while headline inflation sits at 3.0% against core measures of 1.9% and 2.0%, and the market's read on the October 28 decision has moved around a great deal — we track it in our note on the October 28 rate decision odds. A variable-rate reverse mortgage exposes you to that; a five-year fixed does not, for five years.

Common questions

Can I lose my house with a reverse mortgage?

Not for missing a payment, because there is no payment. You can default by failing to keep the home as your principal residence, letting the property insurance lapse, falling behind on property tax, or letting the house fall into disrepair. The no-negative-equity guarantee means that if the balance exceeds the sale price when the home is finally sold, the lender absorbs the shortfall rather than pursuing your estate — provided those conditions were met.

Is a reverse mortgage better than a B-lender or private second mortgage?

On rate, usually yes. An illustrative 6.74% reverse mortgage is well below typical private second-mortgage pricing, and it carries no renewal risk and no monthly payment. On total cost at the end, often no, because a private second gets paid off in a year or two while reverse mortgage interest compounds for decades. The deciding question is how long the money will be outstanding.

Does a reverse mortgage affect OAS or GIS?

The advances are loan proceeds, not income, so they are not taxable and do not themselves reduce Old Age Security or the Guaranteed Income Supplement. What can affect income-tested benefits is what you do with the money — investment income generated from the proceeds does count. Confirm your own situation with a tax professional; we are not tax advisors.

A reverse mortgage is a legitimate product solving a real problem for house-rich, cash-poor Canadians over 55. It is also the most expensive way to carry equity debt over a long horizon, and the cost stays invisible until you model it. Model it first.