Should You Get a Reverse Mortgage or Sell Your Home? Read This First
Reverse mortgages sound like the perfect solution: no monthly payments, easy approval, and you get to stay in your home. That’s at least what the ads say on TV with the happy grandparents frolicking in fields with their smiling grandkids.
But here’s the reality nobody tells you - they’re one of the most expensive ways to borrow against your home’s equity, and they can quietly drain the value you’ve spent decades building.
If you’re debating whether to get a reverse mortgage or sell your home, you need to see all your options first.
Here’s the step-by-step decision path I walk my clients through - starting with the cheapest, most flexible options, and only ending with a reverse mortgage if nothing else fits.
Reverse Mortgage companies love these kinds of photos!
Step 1 - Still Working? Max Out Your HELOC While You Can
The best time to get a Home Equity Line of Credit (HELOC) is before you retire, while your income is still at its peak. Kudos to you if you’re starting here and planning in advance!
Why is this the case? Because you’ll qualify for more and get a much better rate - often Prime + 0.5% - compared to the far higher rates of reverse mortgages.
Benefits of a HELOC:
Only pay interest on the amount you actually use.
Lock in portions at today’s fixed rates if you make a big purchase like an RV, vehicle, or home renovations - which brings down your interest payment and allows you to pay it off and free up more space on your HELOC as it’s paid down - like a mortgage.
Full control over how and when you borrow.
No need for a re-approval - all done, forever!
If you can set this up while you’re still working, you can sidestep reverse mortgages altogether later.
Step 2 - Already Retired? Try a Traditional HELOC Using Retirement Income
Even if you’ve retired, you may still qualify for a traditional HELOC using income from:
CPP (Canada Pension Plan)
OAS (Old Age Security)
RRSP or RRIF withdrawals
Pension income
Other income (say dividends, or other investment income)
Looking for samples of what these documents look like? Click here for samples!
You may not get as large an approval as you would while working, but it’s still a solid, low-cost option compared to a reverse mortgage. You may be pleasantly surprised by how much you would be able to qualify for.
Step 3 - Not Enough? Look at Equity-Based HELOCs
If the traditional HELOC isn’t enough, some lenders offer HELOCs based on total equity and assets, not just income.
Example:
You own your home and a cottage outright, plus you have substantial investments. Even with limited income, your total assets can help you qualify for a much larger credit line.
These programs can cost more than a traditional HELOC - but they’re still generally cheaper than reverse mortgages.
⚠️ Beware of Brokers Who Push Reverse Mortgages First
Not all mortgage advice is given with your best interest at heart. Reverse mortgages often pay brokers significantly higher commissions than HELOCs - and that can influence the advice you get if your broker isn’t truly client-focused.
I am all for transparency - and want you to know how brokers are paid for these products.- Reverse mortgage commission: Around 2% of the full amount advanced ($2,000 for every $100,000 you borrow).
- HELOC commission: Around 0.4% of your limit, and an additional 0.3% on the amount borrowed in the first 90 days.
This means a broker can make far more money steering you into a reverse mortgage, even if a HELOC would save you thousands in interest.
Telltale signs your broker may not be working in your best interest:
- They suggest a reverse mortgage immediately, without exploring HELOC options first.
- They can’t clearly explain the cost differences between a HELOC and a reverse mortgage.
- They avoid discussing how they’re compensated.
A good broker will start with the cheapest, most flexible options - and only recommend a reverse mortgage if it’s truly your best fit.
Step 4 - Reverse Mortgages as the Last Step
If you’ve exhausted the HELOC options and still need access to a significant amount of your home’s equity, a reverse mortgage might be the next step.
How they work:
No monthly payments - interest is added to your balance.
The interest rate is higher than most HELOCs.
Over time, interest compounds and eats away at your equity.
If you need to draw more funds, you need to re-apply, provide new documentation
The old problem:
Traditional reverse mortgages required you to take out a large lump sum up front and start paying interest on the full amount immediately - even if you weren’t using most of the funds.
The new twist:
Some lenders now offer more flexible reverse mortgage programs, like a monthly allowance or a Mastercard-style draw. This lets you only borrow what you actually need, so you pay interest on a smaller balance.
While this makes them less punishing, reverse mortgages are still more expensive than HELOCs, so they should remain a last resort.
Step 5 - Before You Sign, Ask Yourself:
How long am I planning to live in this home?
How is my health? Will I need in-home care or renovations to make my home more accessible?
Is the cost of in-home care more or less than moving into a retirement community?
Will property maintenance be realistic in the next 5–10 years?
If you’re healthy, safe, and stable in your home for the foreseeable future, a reverse mortgage might make sense. But if major life changes are coming and higher costs for living in your home eats up your equity, you might be better off selling and moving somewhere that meets your needs - without draining your home’s equity.
The Bottom Line
Reverse mortgages aren’t always bad - but they’re seldom the best first option.
Planning with a HELOC while you still qualify can save you thousands in interest and give you more control over your equity.
If you’re weighing a reverse mortgage, a HELOC, or selling, I can walk you through your options side-by-side so you can make the smartest choice for your financial future.
I’m in your corner, and want to ensure you have the best option tailor-made for your financial future.
Let’s chat and plan for your future!
Jeff Dinsmore
Mortgage Broker
FSRA # 10315
VeloMortgage.ca
TMG - The Mortgage Group