Reverse Mortgages

Things to remember about reverse mortgage rates

Reverse mortgages always cost more than conventional mortgages because the lender’s funding costs are higher.

The reason for that is two-fold:

1. You are not required to make payments. This means the lender must wait years to get its money back (7-12 years on average)
2. The lender can never recover more money from you than your home is worth, so the risk on their part is higher (especially if you live longer than the average Canadian)

At the moment, there are only two mainstream reverse mortgage lenders in Canada. This duopoly doesn’t result in much competition, meaning rates are arguably higher than they otherwise might be.

Having said that, both Equitable Bank and HomeEquity Bank have become more aggressive in their reverse mortgage pricing since 2020. That was a year reverse mortgage rate sank to historic lows.

Despite reverse mortgage rates being materially higher versus standard mortgage rates, when cash is key and leaving your home is not an option, and you don’t qualify elsewhere, the rate on a reverse mortgage can seem like a bargain compared to the alternatives.

Reverse mortgages are often a "plan C" for those approaching retirement with little or no additional savings aside from their home equity.

2016 Census showed that 45% of Ontario homeowners were already at or near retirement at that time, and that 88% of this demographic has less than $200K in savings, according to HomeEquity Bank. "Most of their wealth is in real estate and two-thirds earn only CPP and OAS."

Here's three other things to keep in mind about reverse mortgage rates:

1. Rates vary by location, financing type and other factors.
2. HomeEquity Bank’s “CHIP Max” product allows for higher loan amounts in select cities. It entails a rate surcharge for that privilege.
3. Equitable Bank has the lowest reverse mortgage rates on most terms. But its rates are somewhat higher if you choose to borrow over time instead of taking a lump-sum on closing. If you prefer the flexibility of withdrawals over time, it’s sometimes worth the extra price because you can borrow (and pay interest) as needed.
   
   

Reverse mortgage rate terms

The contract for all reverse mortgages is typically five years, even if you choose a short term like a 1-year fixed. If you do choose a shorter term, your rate resets to the current rates at the end of that period.

After five years, however, you can choose a new rate or pay off the reverse mortgage without penalty. Of course, all rates you see here are subject to change and are based on an approved application.