Reverse Mortgage Calculator (Canada, 55+)

A reverse mortgage converts home equity into tax-free cash with no required monthly payments. Interest accrues and is added to the balance, which grows over time while your equity shrinks. The loan is repaid when the last borrower sells, moves out permanently, or passes away.

In Canada the products come from HomeEquity Bank (CHIP) and Equitable Bank. Both carry a no-negative-equity guarantee: as long as you meet the basic obligations of keeping the property in good repair and taxes and insurance current, your estate will never owe more than the home is worth.

Because interest compounds, the balance roughly doubles every twelve years at a 6% rate. A $200,000 advance at 55 could stand near $400,000 by 67 and $800,000 by 79. Whether that matters depends entirely on whether the home appreciates at a similar pace and what role the property plays in your estate plan.

Set-up costs include an appraisal of $300 to $600, legal fees of $1,500 to $2,000, and an administration fee that is typically $995. Independent legal advice is mandatory, which is a protection rather than an inconvenience.

A reverse mortgage is the right answer for some households and an expensive one for others. Before committing, it is worth pricing the alternatives.

• A HELOC — much cheaper, but requires income qualification and monthly interest payments
• A conventional mortgage or refinance, if pension and investment income can carry a payment
• Downsizing — releases the most equity and eliminates the interest entirely
• BC's Property Tax Deferment Program, which defers property tax at a very low interest rate for those 55 and over
• A family loan documented as a private mortgage, keeping the interest within the family

Heirs generally have six months after the last borrower leaves the home to repay the balance, usually by selling or refinancing. Whatever equity remains after the payout belongs to the estate, and the no-negative-equity guarantee means the estate is never pursued for a shortfall.

The proceeds are not taxable income and do not affect Old Age Security or the Guaranteed Income Supplement, which is a meaningful advantage over drawing down an RRIF. That said, family conversations before signing avoid most of the friction that arises later.

You keep title to your home and continue living in it. The lender advances a lump sum, scheduled payments, or a combination, secured against the property. Because there are no required payments, the interest is added to the balance each period and compounds.

The loan becomes due when the last borrower sells, moves out permanently, or passes away. At that point the home is sold, the balance and interest are repaid, and any remaining equity goes to you or your estate.

Reverse mortgage rates are higher than conventional mortgage rates — typically two to three percentage points above. On top of that, expect a setup fee of roughly $1,500 to $2,000, an appraisal, and independent legal advice, which is mandatory.

The compounding is the part to understand clearly. At around 8%, a balance doubles in roughly nine years. A $250,000 advance at 55 could be close to $1,000,000 by age 85. Whether that matters depends on the home's appreciation over the same period and how much of the estate you intend to leave.

A reverse mortgage suits homeowners who are equity rich and cash poor, want to stay in their home, and cannot service a conventional payment on retirement income. It also works as a bridge for a large one-time need.

The alternatives are usually cheaper if you can carry a payment: a HELOC, a conventional refinance, or downsizing. A HELOC in particular costs far less in interest, but it requires income qualification and interest-only payments — which is precisely the barrier a reverse mortgage removes.