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| Reverse mortgage | Home equity loan | Bank mortgage | |
|---|---|---|---|
| Rate range | 4.09 - 34.99% 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 monthly payments. Interest accrues and the full balance is repaid when the home is sold, when you move out permanently, or from the estate. You keep title and continue living in the home.
Rates run above a conventional mortgage, and because nothing is repaid monthly, interest compounds on a growing balance. Over fifteen years the balance can approach a substantial share of the home's value. Set-up costs include appraisal, legal and administration fees. Model the balance at ten and twenty years before deciding.
It solves a real problem: needing income while asset-rich and cash-poor, without moving. It is expensive relative to alternatives, so compare it against downsizing, a HELOC if you can service payments, and any provincial seniors' benefits first. It is best suited to people who intend to stay in the home long term and who have discussed it with their heirs.
