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| Reverse mortgage | Home equity loan | Bank mortgage | |
|---|---|---|---|
| Rate range | 4 - 17.99% APR | 4.04 - 16% APR | |
| Interest charged on | The advanced amount, compounding until the home sells | The full amount from day one | The full amount, amortized |
| Repayment | None required while you live in the home | Fixed instalments, registered against the home | Fixed or variable payments over the amortization |
| Re-borrow without reapplying | Draws up to your approved limit | No | No |
| Best when | You are 55+ with equity and want no monthly payments | A large cost and meaningful equity in your home | You qualify on income and credit at a bank or monoline |
| Watch out for | Interest compounds against your equity over time | Setup and legal costs; your home secures the debt | Qualification is strictest here |
Homeowners aged 55 and over borrow against home equity with no required monthly payments. Interest accrues and compounds. The balance is repaid when the home is sold, the last borrower moves out permanently, or on death.
You retain title and continue living in the home. That is the appeal and it is genuine.
With no payments, interest is added to the balance and interest is then charged on that. The balance grows every year and the growth accelerates.
Rates on reverse mortgages sit above conventional mortgage rates. Across ten or fifteen years, compounding at that level consumes a substantial share of the home's value, and possibly more than the property appreciates.
Anyone considering this should see a projection of the balance at five, ten and fifteen years, alongside a realistic appreciation estimate. Any lender unwilling to provide that is not the right lender.
A home equity line of credit. Materially cheaper if income supports payments. The obstacle is qualifying on income, which is exactly what a reverse mortgage removes.
Downsizing. Releases equity without borrowing at all. It carries moving and transaction costs, and a real emotional cost, but the arithmetic is frequently much better.
Provincial deferral programs. Several provinces allow property tax deferral for older homeowners at low or no interest. Where the need is property tax, this is far cheaper.
Family arrangements. Sometimes structured privately at lower cost, though it should be documented properly.
Homeowners aged 55 and over, on a qualifying property, with the amount available based on age, property and location.
Not through the borrowing itself, provided you maintain the property, pay taxes and insurance and keep it as your principal residence.
No, under the no negative equity guarantee, provided obligations were met.
Almost always, if you can qualify on income. That is the trade a reverse mortgage makes.
