What is a Reverse Mortgage?
The Basics
A reverse mortgage is a loan available to Canadian homeowners aged 55 or older. Instead of you paying the lender each month, the lender advances you money. And repayment only happens when you sell your home, move out, or pass away.
Eligibility: Age 55+, must own your home.
How much you can borrow: Up to 55% of your home’s value (depending on age, location, and appraisal).
Payment structure: No monthly payments. Interest is added to your loan balance.
Repayment: When the home is sold, when you move permanently, or from your estate.
It’s called a “reverse” mortgage because it flows in the opposite direction of a regular mortgage.
How You Receive the Money
Lump sum: Get it all up front.
Installments or allowance: Receive a set amount monthly.
Line of credit style: Draw as needed (newer programs now offer this flexibility).
All of it is tax-free because you’re accessing your own equity, not income.
Why People Consider Reverse Mortgages
Supplementing retirement income when savings or pensions fall short.
Covering in-home care or medical expenses.
Paying off existing debts.
Helping children or grandchildren with education or housing.
Staying in the family home instead of downsizing.
The Trade-Offs
Reverse mortgages come with drawbacks that don’t show up in the glossy TV ads:
Interest compounds over time. Because no payments are made, your balance grows every year. And your interest that you pay with equity is off of the whole amount every year - which is what compounding means.
Equity erosion. The longer you stay in the home, the less equity is left for heirs.
Higher cost. Rates are higher than regular mortgages or HELOCs.
Limited providers. In Canada, only a few lenders offer them (HomeEquity Bank, Bloom Financial, Equitable Bank, Fraction).
Example: How Equity Shrinks With a Reverse Mortgage (Even If Your Home Appreciates)
Let’s say you’re 65, your home is worth $600,000, and you take out a reverse mortgage for $200,000 at a rate of 7%, with no payments made.
Let’s be clear - you receive 200k at the beginning and nothing else. Interest accruing only.
Now let’s give the reverse mortgage the benefit of the doubt - assume your home also appreciates at 3% per year.
| Year | Balance Owing | Home Value | Remaining Equity | Loan-to-Value % |
|---|---|---|---|---|
| Start | $200,000 | $600,000 | $400,000 | 33% |
| 5 Years | $280,510 | $695,564 | $415,054 | 40% |
| 10 Years | $393,430 | $806,350 | $412,920 | 49% |
| 15 Years | $551,806 | $934,780 | $382,974 | 59% |
Even with steady appreciation, the loan balance grows faster than the home value. By year 15, the reverse mortgage has climbed to nearly 60% loan-to-value, which is above the 55% cap most lenders will allow. At that point, no additional funds can be advanced.
👉 Want to know what we recommend before reverse mortgages?
Check out my post: Should You Get a Reverse Mortgage or Sell Your Home? , where I share the step-by-step framework we use with clients. And if you’d like to talk through your own situation, let’s chat.
Alternative Reverse Mortgage Programs
Not every reverse mortgage is structured the same way. While the traditional model is a lump sum advance (and interest starts compounding on the full amount right away), some lenders offer more flexible variations:
Reverse Mortgage + Credit Card Access
One lender pairs the reverse mortgage with a credit card feature:
Any balance you use on the card gets added to your reverse mortgage balance in chunks.
If you don’t use the card, nothing gets added.
You only pay interest on what you actually use.
This makes the product behave more like a line of credit, though it’s usually only offered in tandem with a reverse mortgage, not as a standalone product.
Monthly Allowance / Income Stream
Some lenders will set up your reverse mortgage as a monthly allowance instead of a lump sum.
It works like a tax-free income supplement.
Since you’re drawing funds gradually, the loan balance grows slower than if you’d borrowed everything up front.
Draw-on-Demand Program
Other lenders offer a Mastercard-style draw option: you can pull funds when needed, so you’re only charged interest on the portion you’ve actually used.
📌 These programs can make reverse mortgages less punishing, but they still come at higher costs than HELOCs, and interest continues to compound over time.
Thinking About a Reverse Mortgage?
A reverse mortgage isn’t always the wrong move — but it should never be your first stop. Before you commit, let’s walk through all your options together and make sure it’s the smartest fit for your future.
Bottom Line
A reverse mortgage can be a lifeline for the right homeowner, but it’s rarely the best first option.
If you’re thinking about one, don’t stop at the definition. Explore every option side-by-side, and make sure the math supports your future.
At VeloMortgage.ca, we’ll show you the full picture (from HELOCs to reverse mortgages) so you can choose with confidence.
Jeff Dinsmore
Mortgage Broker
FSRA # 10315
VeloMortgage.ca
TMG - The Mortgage Group