Real Mortgage Associates Inc | License # 10464
Real Retirement, Real Freedom
Reverse Mortgage Rates
Why structure matters more than the headline rate
Reverse mortgage interest rates in Canada are often higher than traditional mortgage or HELOC rates. However, comparing rates alone can be misleading without understanding how interest is applied, when repayment occurs, and how long the mortgage is expected to be held.
Rates should always be evaluated in context, not in isolation.
How a Reverse Mortgage Interest Works
Reverse mortgage interest differs from traditional mortgages in several important ways:
Interest accrues over time
Interest is not required to be paid monthly
Interest is typically compounded semi-annually (standard in Canada)
Interest applies only to the funds actually withdrawn
Because repayment is deferred, the effect of interest depends on factors such as:
Length of time the mortgage is held
Amount and timing of funds accessed
Changes in home value over time
Fixed vs Variable Rate Options
Depending on the lender and mortgage structure, reverse mortgages may offer different rate options:
Fixed Rate
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Interest rate is locked for a specific term (commonly 1–5 years)
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Often used for lump-sum advances
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Provides certainty over the term
Variable Rate
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Rate may change with market conditions
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Often associated with monthly or staged advances
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Can offer flexibility depending on interest-rate environments
Some reverse mortgage structures allow a combination of fixed and variable components, depending on how funds are accessed.
Term Structure and Renewals
Reverse mortgages in Canada are typically set up with renewable terms, similar to traditional mortgages.
Common term lengths range from one to five years
At renewal, the mortgage generally renews at current market rates
Renewal options vary by lender and product
At renewal, homeowners may review available options depending on their circumstances and lender policies.
Prepayment Flexibility
Most Canadian reverse mortgages provide some degree of prepayment flexibility, which may include:
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The ability to repay a portion of the outstanding balance annually without penalty (often up to a set percentage)
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The option to make voluntary interest payments at any time
These features can help homeowners manage long-term balance growth if their circumstances change.
Penalties — When Do They Apply?
Penalties generally apply only if the mortgage is repaid early, often within the initial term or first several years.
Key points to understand:
Penalties usually decline the longer the mortgage is held
No penalty typically applies upon death of the homeowner
Certain life events, such as moving into long-term care, may be treated differently depending on the lender
Penalty structures vary by lender and product and should always be reviewed carefully before proceeding.
A Practical Perspective on Rates
Rather than focusing solely on the interest rate, many homeowners consider:
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Cash-flow benefits
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Long-term housing plans
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Access to equity without monthly payments
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Overall retirement income strategy