A reverse mortgage is a unique loan option in Canada that allows homeowners aged 55 and older to convert a portion of their home equity into tax-free cash without needing to sell their property. Instead of making monthly payments, the loan is repaid when the homeowner sells the house, moves out, or passes away.
Canadian lenders typically allow borrowers to access up to 55% of their home’s appraised value, depending on their age, home value, and property condition. These funds do not affect government benefits like Old Age Security. However, since no regular payments are required, interest compounds over time and increases the total repayment amount.
Understanding Reverse Mortgage Interest Rates Further:
Now that we’ve covered the basics, let’s take a closer look at what really drives reverse mortgage interest rates. From rate types to market shifts and lender differences, several elements combine to determine how much you’ll pay over time. Whether you’re already considering a reverse mortgage or just starting to explore your options, understanding these details will help you make smarter financial decisions.
Fixed vs. Variable Rate Options:
Reverse mortgages in Canada can come with either fixed or variable rates. Fixed-rate terms (typically 1, 3, or 5 years) provide stability, while variable rates fluctuate with the prime rate set by lenders. For instance, if the prime rate is 4.95% and the margin is 2.65%, the total variable rate would be 7.6%.
HomeEquity Bank and Equitable Bank are two major providers. HomeEquity Bank’s CHIP reverse mortgage and Equitable Bank’s reverse mortgage products may vary slightly in rates and structure. Fixed rates tend to range from 6.5% to 8%, while variable rates can climb above 9%, depending on the lender’s margin and prime rate. These rates are higher than standard mortgage rates due to the unique no-payment feature of reverse mortgages.
Factors That Impact Reverse Mortgage Rates:
Several variables influence the interest rate offered to borrowers:
- Age and Equity: Older borrowers generally qualify for better rates and more funds. The closer you are to 75+, the more equity you can tap into.
- Home Value and Location: A higher appraised value often leads to larger loan amounts. Properties in urban or high-demand areas may receive more favourable terms.
- Lender and Product Type: Rates vary between institutions. For example, Equitable Bank may offer a 5-year fixed rate at 6.59%, while HomeEquity Bank may publish slightly higher or lower rates based on the term.
- Economic Conditions: Changes in the Bank of Canada’s policy rate affect variable rates directly. Fixed rates are influenced by market competition and bond yields.
- Loan Structure: Whether you take the full amount upfront or opt for smaller advances over time also affects the total interest paid. Lump-sum withdrawals often come with higher rates.
Current Rates and Market Trends (2025):
As of 2025, reverse mortgage rates remain higher than pre-pandemic levels. Average fixed rates range between 6.5% and 7.5%, depending on the lender and product term. Variable rates typically sit around prime +2% to 3%, meaning current variable reverse mortgage rates can hover near 9% to 10%.
Most experts suggest that a fixed rate in the mid-6% range is considered competitive in the current climate. With the Bank of Canada recently beginning to cut rates, there is hope that variable rates will ease in the coming months.
Is It Worth the Cost?
Reverse mortgages offer flexibility and peace of mind, especially for retirees seeking to supplement income. However, it’s important to understand that compounded interest can quickly reduce remaining home equity. For instance, borrowing $50,000 at 7% would result in over $3,500 interest in the first year alone.
The good news is Canadian reverse mortgages come with a negative equity guarantee, ensuring borrowers or their heirs never owe more than the home’s sale value. According to HomeEquity Bank, 99% of clients still retain equity after repayment.
Still, potential borrowers are encouraged to consider alternatives such as downsizing, traditional refinancing, or home equity loans. Always read the fine print and consult with a professional.
Final Thoughts:
A reverse mortgage can be a helpful financial tool if used wisely. However, understanding how the interest rate is calculated and how it grows is crucial for long-term planning.
Need expert help exploring reverse mortgage solutions? Contact Mortgage Squad today. Our mortgage advisors can walk you through the latest rates, help you compare lenders, and tailor a strategy that protects your home equity and meets your cash flow needs.