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Reverse Mortgage vs HELOC

Reverse mortgage vs HELOC: the best way to tap equity in retirement?

Both let homeowners turn equity into cash, but they're built for different situations. A reverse mortgage requires no monthly payments — ideal when income is tight — but interest compounds and erodes your equity. A HELOC is far cheaper and more flexible, but you must qualify on income and make at least interest payments. The right choice hinges on cash flow and how long you'll stay.

Reverse = no payments, 55+HELOC = cheaper, needs incomeReverse erodes equity fasterHELOC can be frozen/calledPlan for the long term
5-star rated| FSRA #13737| 5-min pre-qualification

Written by the Mortgage Squad Advisors Editorial Team · Reviewed by the Principal Broker, FSRA #13737 · Updated June 2026

The short answer

Choose a reverse mortgage if you're 55+ with limited income, want to stay in your home long-term, and need cash without any monthly payments — you access up to ~55% of your home's value tax-free and repay only when you sell or pass on, though interest compounds and shrinks your estate over time. Choose a HELOC if you can qualify on income and comfortably make at least interest-only payments — it's much cheaper, flexible, and reusable, so it preserves more of your equity. The catch with a HELOC in retirement: it requires income qualifying (harder on a pension), and lenders can freeze or call it. For a homeowner with strong income, a HELOC usually wins on cost; for one who's house-rich but cash-poor, a reverse mortgage may be the only option that actually works.

At a glance

Which one is built for you?

A

Reverse mortgage

For homeowners 55+. Access up to ~55% of your home's value tax-free with NO monthly payments. Repaid when you sell, move out, or pass away.

Best for
  • You're 55+ and income is limited (house-rich, cash-poor)
  • You want cash with no monthly payment obligation
  • You plan to stay in your home long-term
  • You can't qualify for or service a HELOC
B

HELOC

A revolving line of credit at a much lower rate. Reusable and flexible, but you must qualify on income and make at least interest-only payments.

Best for
  • You have provable income to qualify and service it
  • You want the lowest cost and to preserve equity
  • You need flexible, reusable access (not a lump sum)
  • You're comfortable making at least interest payments
Side by side

The full comparison

FactorReverse mortgageHELOC
Minimum age55+ (both spouses on title)No age requirement
Monthly paymentsNone requiredAt least interest-only on the drawn balance
QualifyingMainly age + home equity (no income test)Income + credit + stress test
Interest rateHigher than a regular mortgageLower (prime + a small margin)
Effect on equityErodes faster (interest compounds, no payments)Preserved if you pay interest
Max you can accessUp to ~55% of home valueUp to 65% (80% combined with mortgage)
Can it be frozen/called?No — can't be called if you meet obligationsYes — lenders can freeze or call a HELOC
Best forNo-payment access, tight incomeLowest cost, income to qualify
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The defining difference: payments and qualifying

Both a reverse mortgage and a HELOC let you borrow against your home's equity, but they sit at opposite ends on the two things that matter most in retirement: payments and qualifying.

A reverse mortgage requires no monthly payments at all — interest simply accrues onto the balance, repaid when you eventually sell or pass on — and it qualifies you mainly on your age and home equity, not your income. That combination is exactly what makes it work for a homeowner who is house-rich but cash-poor. A HELOC is the opposite: it demands that you qualify on income (and pass the stress test) and that you make at least interest-only payments on whatever you draw. In exchange, it's far cheaper and lets you preserve your equity. So the first question isn't 'which is better' — it's 'can you comfortably qualify for and service a HELOC?' If yes, it's usually the cheaper tool; if no, the reverse mortgage may be your only realistic route.

Why a HELOC preserves more of your wealth

On pure cost, a HELOC wins decisively. Its rate is a fraction of a reverse mortgage's, and because you make at least interest payments, the balance doesn't snowball — your equity stays largely intact. A reverse mortgage, by contrast, charges a higher rate and takes no payments, so interest compounds on interest year after year. Over a long retirement, that compounding can consume a substantial share of your home's value, leaving less for your estate or a future move.

That's the honest case for trying a HELOC first if you can. The risk to weigh, though, is real: a HELOC isn't guaranteed. Lenders can freeze or call a HELOC — reduce your limit or demand repayment — particularly if your financial circumstances change, which is more likely on a fixed retirement income. And if you ever can't make the interest payments, you're in a difficult spot. So a HELOC's lower cost comes with conditions a reverse mortgage doesn't impose. Our home-equity guide covers the trade-offs.

Why a reverse mortgage exists — and its real protections

A reverse mortgage solves the precise problem a HELOC can't: accessing equity when you don't have the income to qualify or to make payments. For many retirees whose wealth is locked in their home, that's the whole ballgame. The funds are tax-free and don't affect income-tested benefits like OAS or GIS, and you can take them as a lump sum or steady monthly income.

It also carries protections worth understanding. It can't be called as long as you keep up property taxes, insurance, and maintenance and continue living there — so you can't be forced out the way a HELOC can be frozen. And the major Canadian programs include a No-Negative-Equity Guarantee: your estate will never owe more than the home's fair market value when sold. The cost is the higher rate and the equity erosion from compounding interest — which is why it's best suited to those who genuinely need no-payment access and plan to stay long-term, not as a default for anyone who could service a HELOC.

How to choose — and the third option

Frame the decision around two questions. One: can you comfortably qualify for a HELOC and make the interest payments on a retirement income? If yes, the HELOC's far lower cost and equity preservation usually make it the better choice. If no, the reverse mortgage may be the only tool that fits. Two: how long will you stay in the home? The longer the horizon, the more a reverse mortgage's compounding interest erodes — which can argue for a HELOC if you can service it, or for downsizing if the home no longer suits you.

Don't overlook that third option: sometimes the right answer isn't borrowing at all but downsizing, which frees equity outright with no accruing interest. There are also hybrid approaches and, for some, a conventional refinance if income allows. Because this is a major, long-term financial and estate decision, it deserves careful, unbiased advice. As an FSRA-licensed brokerage (#13737) we can model all the paths — reverse mortgage, HELOC, refinance, downsize — in plain language and in 50+ languages, with no pressure. See our reverse mortgage pros and cons.

Your situation

Which is right for you?

Retired, limited income, want to stay put

Usually: Reverse mortgage

No income test and no payments make it work when a HELOC won't. Access tax-free cash and stay in your home long-term.

Strong pension/income, want lowest cost

Usually: HELOC

If you can qualify and service interest payments, a HELOC preserves far more of your equity at a much lower rate.

You want occasional access, not a lump sum

Usually: HELOC (if you qualify)

Its reusable, draw-as-needed structure suits intermittent needs — provided your income supports qualifying and payments.

The home no longer suits you

Usually: Consider downsizing

Sometimes selling frees more equity with no accruing interest. Worth weighing against borrowing against the home you'd keep.

FAQ

Common questions, answered.

Don’t see yours? Ask Maya — instant answer, any time.

Is a reverse mortgage or HELOC better in Canada?
It depends on your income and cash flow. A HELOC is much cheaper and preserves more equity, but you must qualify on income and make at least interest-only payments — harder on a fixed retirement income, and the lender can freeze or call it. A reverse mortgage requires no payments and qualifies you mainly on age and equity, so it works when a HELOC won't, but its higher rate and compounding interest erode your equity faster. If you can comfortably service a HELOC, it usually wins on cost; if not, a reverse mortgage may be your only option.
Do you make payments on a reverse mortgage?
No — that's its defining feature. With a reverse mortgage you make no monthly payments; interest accrues onto the balance and the loan is repaid only when you sell, permanently move out, or pass away (usually from the home's sale). You must still keep up property taxes, insurance, and maintenance and live in the home. A HELOC, by contrast, requires at least interest payments on whatever you've drawn.
Can a HELOC be a better choice for seniors?
Often, yes — if you qualify. A HELOC's rate is far lower than a reverse mortgage's, and making interest payments keeps your balance from snowballing, preserving your equity. The hurdles in retirement are that you must qualify on income and pass the stress test, and lenders can freeze or reduce a HELOC if circumstances change. For a retiree with solid income, a HELOC usually preserves more wealth; for one without, a reverse mortgage may be necessary.
Will either one affect my OAS or GIS?
No. Both reverse mortgage proceeds and HELOC draws are loan funds, not income, so they don't show up on your tax return or count against income-tested benefits like Old Age Security or the Guaranteed Income Supplement. This is a key advantage over drawing down an RRSP or RRIF, which adds to taxable income and can claw back those benefits. Confirm specifics with your accountant, but the principle is well established.
How much can I borrow with each?
A reverse mortgage typically lets you access up to about 55% of your home's value (generally more the older you are). A HELOC's revolving portion can go up to 65% of the home's value, or up to 80% combined with your existing mortgage. So a HELOC can offer more room — but only if your income qualifies you for it. A reverse mortgage's limit is based on age and equity rather than income.

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