Reverse Mortgage Rates And Penalties

Reverse mortgage rates and ‘what are your rates’ are very common questions that we get.

The problem is that rates are particular to an individual.

This is actually also the case for a traditional mortgage – just that most people don’t know this and many sites play a ‘bait and switch‘ type game by advertising really low rates for you only then to find out that you ‘don’t qualify’ for that rate.

However, I would like to put some information out there regarding reverse mortgage rates.

I will also try to keep this regularly updated, so that the rates you see on this page are relatively accurate.

But First – What Is A CHIP Reverse Mortgage In Canada?

If you are new to the concept of a reverse mortgage, the best place to start – if you haven’t already got your copy – is to download our free guidebook – at https://www.reversemortgagepros.ca/reverse-mortgage/. This explains the basic things you need to know about this type of home loan. With that out of the way…

What Are Current Reverse Mortgage Rates

Currently rates are around 5.99-6.59% .  As I mentioned above, the exact rate you get – as well as the amount you are eligible to borrow – will depend on several things:

  • Your age
  • The loan amount
  • The property location

So there is no exact rate that can be quoted here.  However, they will not be too far off 5-6% and have been in this range for a while.

How Do These Rates Compare To Other Products?

Again, the rates of other mortgage products and loans are both constantly changing and depend on what an individual qualifies for (if you qualify for anything at all).

Just now you are looking at around 3.59-4.19% for a standard 5 year fixed rate mortgage (this is likely to go up soon though and will likely be in the 4-5% range by the end of next year), 4.2-4.9% (variable) for a Home Equity Line Of Credit, 8-12% (variable) for a Line Of Credit (unsecured), between 10-20% for a personal loan and often higher than this for most credit cards.

Rather than focusing on the specific number, this simple chart shows how rates compare to the other options out there:

Comparison Graphic

How Does This Impact Your Home Equity And Your Net Worth?

The first thing to note – which is something that a lot of people miss or don’t understand – is that both a mortgage and Home Equity Line Of Credit also reduce your net worth.

Many people ignore this fact because they don’t ‘see’ the reduction of their net worth – because the interest is buried into the monthly payment and is paid every month.  Because the interest doesn’t accumulate, they don’t ‘see’ the interest adding up and it is easy to think it isn’t there.

Here is an example – purely for illustrative purposes only and approximations – of what the differences would be on a $100,000 loan for 5 years:

 
Cost Of $100k
(Approx. Interest
Over 5 Years)
Credit Card
$111,667
Personal Loan
$64,531
Line of Credit (Unsecured)
$41,763
Second Mortgage
$41,763
Reverse Mortgage
$27,946
Home Equity Line Of Credit (HELOC)
$22,139
Traditional Mortgage
$13,882

What About Compounding Interest?

It is important to note that every single mortgage in Canada compounds semi-annually.  A HELOC, on the other hand, compounds monthly.

So the impact of a HELOC interest will be more as it is compounded more regularly.  This is very important to be aware of.

Of course, your home equity growth can offset this interest cost – I’ll examine this further below.

In the meantime, as you can see, the cost of a reverse mortgage is higher than a ‘top’ mortgage or HELOC – but much lower than other options out there.

The best way to think about this is that this additional interest is a price you pay to get access to all the features this product has than a HELOC or top mortgage do not – you don’t need to make any payments, you are guaranteed to live in your home for life and can never lose it and you don’t need income or a top credit score to qualify for it.

So the question you have to ask yourself is: are these features all worth it?

 

What About Your Home Equity?

Another huge misconception is that a reverse mortgage will eat away your home equity.  This is only true if your home does not grow in value at all.

Almost every home in Canada is growing in value just now and close to 100% have been growing in value in the past 5 years.

How much does it need to grow to offset the reverse mortgage cost?  A neat trick is that the approximate amount your home needs to grow is at half of the interest rate.

This is because a reverse mortgage is taken out on up to 55% of your home.  Your home equity growth still compounds on 100% of your home.  So, because the mortgage balance is roughly half the size, your home equity growth only needs to be around half of the interest rate.

If you took out less than 55% of your home value, then your home equity growth can be less than half of the rate and you will still see your home equity growing over time.

To continue our example from above, let’s say your home was worth $250,000 and you took out the $100,000 loan mentioned above. Here is what your home equity growth would be under various scenarios:

 
$250,000 Home Equity Growth
Over 5 Years
Home equity growth at 1%
$12,818
Home equity growth at 2%
$26,292
Home equity growth at 3%
$40,457
Home equity growth at 4%
$55,347
Home equity growth at 5%
$71,001
Home equity growth at 6%
$87,456

As you can see for this example – a $250,000 property and $100,000 reverse mortgage – your home would only need to grow a little more than 2% to offset all of the interest (see the table above for the interest calculation).

And if your home were to grow above 2%, then you would actually gain home equity while having a reverse mortgage in this situation.

This might sound too good to be true, but many Canadians are in this position just now.  In fact, in the hottest areas of Canada, some owners have seen double digit home equity growth over the past 5 years!

 

What About Reverse Mortgage Penalties?

A few people ask us questions about this.  It is rare – because most people are taking this out because they want to live in their home for life and never leave.

However, for some, this can be a short term solution.

The golden rule for reverse mortgage penalties is that if you are paying it off after 5 years, the penalties are very small; in addition to this, the closer you are to 5 years, the lower the penalty will be.

This is actually very similar to the penalty structure of a ‘normal’ mortgage.  And, like with a ‘normal’ mortgage, you can also make what are called ‘prepayments‘.  However, again – like a ‘normal’ mortgage – you only get a certain allowance of these each year – in the case of a reverse mortgage that amount is 10% – meaning you can repay 10% of the balance without penalty every year.

Beyond this, here is how penalties work:

 Penalty Calculation
Year 15% interest
Year 24% interest
Year 33 % interest
Year 4-5+3 months interest or IRD

Compared to ‘normal’ mortgages these are pretty similar.    In fact, I have seen some IRD calculations of the ‘big 5 banks’ come out with penalties more than 5% – and that’s in year 3 too.  For more on the penalty rates of ‘normal’ mortgages, I suggest you read this guide.

It is also worth noting that there is absolutely no penalty in the event of the owners passing away and if the reason why you are moving is to move to a nursing home, the penalty is reduced by 50%.

I would say that the first year penalty is on the high end – as far as mortgage penalties go – but beyond that, these penalties are in line with most mortgage products and actually on the lower end compared to the IRD of the big 5 banks fixed rate mortgage products.

 

What About Other Costs?

Yes, rates are just one part of the costs of a reverse mortgage. For the other fees involved, I suggest you check out our article on reverse mortgage costs and fees.

 

Rates And Penalties – Summary

I have outlined how reverse mortgage rates and penalties work, including comparing them to the alternative options out there.

When it comes to interest rate, they are a better option than loans, line of credits (unsecured) and credit cards.  However, Home Equity Line Of Credits (HELOCs) and ‘normal’ mortgages generally have better rates.

So the key question you must ask: is it worth my paying a higher rate to have access to these 3 benefits that a HELOC or ‘normal’ mortgage do not have?  Namely:

  • No monthly payments
  • You can’t lose your home – ever – for not making payments (since there aren’t any)
  • You don’t need income and a great credit score to qualify

The answer to that question will vary from person to person – it is up to you.

Finally, I looked at reverse mortgage penalties and outlined how these work.  I would say that, in my opinion, these penalties are very reasonable and the fact that there is no penalty upon death or after 5 years – as well as a reduced penalty if you have to move to a nursing home – then these are definitely a positive feature of the product, compared to others out there. For more on this check out our article top 8 misconceptions about reverse mortgages.

Got any questions or anything I missed?  Leave a comment below and I’ll answer any queries you have regarding reverse mortgage rates and penalties.

 

Comments 55

  • Yes, please confirm given the figures above. questions:
    1. for 100k reverse mortgage, but only used 50k over the 5 years
    how much will the payout be if i sell my property
    2. does it allow partial withdrawals
    3. is interest rate on RMLOC more than regular reverse mortgage

    • Hi Ellie

      To answer your questions:

      1. The payout would be $50k + any interest accrued once you sell. The interest (and payout) only reflect the $50k you used, not the $100k.
      2. Yes, you can make partial withdrawals. You can do monthly payments into your account. Or lump sum + monthly payments. There are minimum amounts for both though – just so you are aware of this – make sure and find out what they are.
      3. No, interest rates are very similar on a RMLOC to a reverse mortgage. They do change over time, so always check what the latest rates are.

      Thanks,
      Mich

  • Can i get whole sum (55%of house value) at once and pay set up interest at selling home and nothing in between?

    • Hi Vladimir

      First of all, you should know that the amount you qualify is up to 55%. That first part is very important – not everyone can even get the full 55%.

      Whatever amount you qualify for, you can choose to pay the interest or pay nothing – it’s totally up to you.

      Hope this helps,

      Thanks,
      Mich

  • can I receive whole sum at once?

    • Hi Vladimir

      Yes, you can choose to either take the amount as a lump sum or as regular monthly payments – its up to you.

      Thanks,
      Mich

  • Besides Appraisal, conveyance and ILA, what other costs, eg., lender fees, etc, are involved?
    Thx..

  • Should anyone consider a reverse mortgage if they already have a conventional mortgage, secured LOC which total approx. 25% of a conservative market valuation of home assuming there are no immediate cash needs and you have a prime quality rating? I presume this would change if you do have a cash need so you want to stop making payments or generate additional income. Another important factor to consider is if the cash need is expected to be temporary (short-term and less than 5 years) or a sustained and longer-term cash need and the loan interest rate relative to the expected equity growth rate of the property. Is that correct?

    • Hi NL

      Pretty much correct. If there is no cash need (either to get the money or increase cash flow by getting rid of the mortgage payments) then a reverse mortgage is not the ideal solution. Similarly, if the cash need is just temporary, and you are easily able to make the monthly payments, a HELOC is a better solution. A reverse mortgage would only be a good solution for temporary cash flow where you wouldn’t be able to make the payments required for a HELOC or mortgage.

      Thanks,
      Gavin

      • This is confusing…are you saying that, IF a person decides to go with a CHIP reverse mortgage because they have a cash flow problem….it is NOT the route to go??

        • Hi Mary

          No, the exact opposite:
          – If you don’t need cash = CHIP reverse mortgage may not be the best option
          – If you do need cash = CHIP reverse mortgage is a great option

          Thanks.
          Gav

  • What is the average length of a reverse mortgage? Let’s say the reverse mortgage is a five-year term how easy is it to get that renewed? Does the interest rate change? If the interest rate goes up is it harder to get it renewed has a renewal ever been denied?

    • Hi Stephen

      Great questions. Let me answer them:

      • I don’t actually know what the average term length is. I would say that – similarly to normal mortgages – most people pick a 5 year fixed term for a reverse mortgage. That would just be an estimate, based on my own experience.
      • The interest rate can change at the point of renewal. It can also change if you chose a variable product and the prime rate went up. This is a normal function of long-term lending – the interest rate can change on any loan – be it a traditional mortgage, Home Equity Line of Credit (HELOC) or even credit cards. And usually if interest rates do go up, it is a sign that the economy is doing well and it likely that your home equity growth is strong and your home equity is going up too. It is very important to remember that house price growth rate vs the interest rate on the reverse mortgage is one of the key considerations to think about at all times.
      • Finally, renewal is not any harder and nobody has ever been denied renewal – that is providing they have kept up property tax payments and they didn’t lie during the initial application. For example, if they lied that their residence was their principal residence when it wasn’t really. With regards to property taxes, I believe that both at the point of creation or renewal, the lender has the right to withhold part of the reverse mortgage funds to ensure that property tax payments are made. They usually only do this though where there is a history of the client failing to make property tax payments.

      Hope this helps.

      Thanks
      Mich

  • Mich, this really helps. thanks for all the information. I can stop listening to all the cons and start focusing on the pros and how it affects my personal situation. now I can reply to some of my more negative friends that, yes, there are pros and state them with more background knowledge

    • Hi Jackie

      Thanks for that – I am glad we were able to help out and that all the effort I put into this site and these articles is helping people.

      Thanks,
      Mich

  • This reflects the way I feel and I hope you pass it on to others!

  • What is the difference between CHIP and DOMINION LENDING CENTER ? Are you one of the same or competitors ?

    I have filled your 90 second test and Chips’ 90 second test… ! There is a 13,000 $ difference in appraisal. Same questions, same answers; can you explain?

    Your articles are very educative. Thank you.

    • Hi Lucie

      Thanks for the feedback. So there are a few things to explain here:

      – Dominion Lending Centres are a mortgage brokerage. Our mortgage team arranges mortgages with over 30 lenders and not just reverse mortgages. So we are mortgage professionals whose job it is to represent you – our client – and come up with the right mortgage solution.
      – CHIP stands for ‘Canadian Home Income Plan’. This is a product name. In fact, it is what a reverse mortgage used to be called before they changed the name to reverse mortgage.
      – The other party is HomEquity Bank. They are the only lender who provides a reverse mortgage (previously CHIP) in Canada. As Dominion Lending Centres, we have strong relationships with them – like all our lenders. We can submit your reverse mortgage enquiry directly to them on your behalf – if we feel that a reverse mortgage is the right mortgage option for you. Also, some people can be rejected by HomEquity Bank because they do not know how to correctly ‘structure’ their application to give it the best chance of being successful – we can also do this. I literally just this week had a client who was rejected by HomEquity Bank because they had worded a few things incorrectly in the application – I fixed it up, submitted it for them and now the deal has closed and they will be getting the reverse mortgage funds they wanted.

      With regards to your second question, there shouldn’t be any difference between our and HomeEquity Bank (CHIP) test. A different number must have been used somewhere – for age or property valuation estimate. Sometimes we pull an automated property valuation report and use this amount rather than your estimate – so that could be what happened here.

      Hope this helps!
      Thanks,
      Mich

  • Can more equity be taken out at renewal time if the property has increased in value and 55 % of the property’s current value hasn’t exceeded?

    • Hi Vince

      Yes, you can take out more equity at renewal time. It would require another appraisal though – to support the idea that the property has increased in value.

      You can also not take the initial amount available to you and withdraw that at any time too. For example, if you qualify for $200,000 and only take $100,000 then you can take the remaining $100,000 at any point as well.

      Hope this helps.

      Thanks,
      Mich

  • Thank you for sharing valuable information. Nice post.

  • Hi
    Just a few questions.
    1. At the end of the 5yr term will interest cost be less if taking monthly payments instead of a one lump sum payment in the beginning?
    2. If due to age only 25% of home value given would a person be able to increase % at end of 5yr term?
    Thanks,

    • Hi Ray

      No problem, here are the answers to your questions:

      1. Yes, the interest cost will be lower. Interest is only charged at the point of withdrawal. So, with monthly payments interest would be start to accumulate as you withdraw each month; with a lump sum you are making the withdrawal in one go, meaning interest will start to accumulate immediately.
      2. Yes, at the end of 5 years you can get the amount of reverse mortgage (as a percentage of home value) available to you increased. This is usually for 2 reasons – one that you are 5 years older and two that your house price may have gone up in value. However, note that you would need to get a new appraisal at this point – you would almost be reapplying essentially. It is kind of like ‘refinancing’ the reverse mortgage – so it would be a new application essentially. They would not charge the fees though.

      Hope this helps.

      Thanks,
      Mich

  • I wanted to purchase a house and have cash for down payment $270,000. Could I use reverse mortgage to finance the purchase?
    I am just turning 55 y o

    • Hi Levine

      Yes, you can use a reverse mortgage for a purchase. Of course, it would still depend on the property, location, your age and the other key factors to make sure that you qualify for enough money to cover the remaining mortgage. At 55 years old, you won’t qualify for the full 55% reverse mortgage but something more like 20-40% of the purchase price – where you fit in that range really depends on the property type and location.

      Hope this helps.

      Thanks,
      Mich

  • Great article. Two questions for you.
    1. I assume if you sign up for a small amount (let’s say $ 100,000) in total and draw it all once, then you cannot take out any more until the renewal date without going through all the hoops. Is that correct? Would you then be better sign up for more at the beginning (say $ 200,000), draw $ 100,00 at the beginning, and if you needed more before the 5 year renewal time you can get more at any time?
    2. You say there is no penalty upon death, What if only one of the joint tenants passes away but the other wants to move out of the house into a smaller place (not a nursing home) – do all the penalties apply?
    Thanks very much.

    • Hi John

      1. No, actually it works a little easier than you think. Let’s say you qualify and are approved for $200,000. You decide to only withdraw $100,000. Accessing the additional $100,000 you qualify for is very simple – it is literally a couple of phone calls. It’s called a ‘subsequent advance’ in the language of reverse mortgages.

      In addition to this, you don’t even need to sign up/ask for it to be available – if you qualify for $200,000 but only want $100,000 – they will always make $100,000 available for you, even if you don’t plan on using it. The maximum available amount of funds are always made available.

      Where it gets difficult and you’d have to jump through the hoops again is where you’d be looking for more than $200,000 (in the example above). Then you’d have to re-qualify (new appraisal etc) – similar in the way you’d have to do this to refinance an existing mortgage.

      2. In this case, unfortunately, penalties would apply. However, you should be aware that penalties are at the discretion of the lender – they can choose to waive them whenever they feel like. In this case, I would be very surprised if they wouldn’t be sympathetic to the circumstances. I can tell you that given the bad reputation of reverse mortgages in the USA, the lender in Canada is very careful to do things in a much more conservative manner – anything that would give the product a bad name (which imposing penalties here would do), they tend to avoid.

      However, they would be within their rights to apply penalties in this case. The only positive is that penalties would not actually paid out of pocket but would be taken from the proceeds of the sale.

      But your question is excellent and something for people to think about and consider when deciding if a reverse mortgage is right for them – I would urge anyone reading this to do so.

      Thanks,
      Mich

  • Is this place insured just like the banks under CDIC .

    • Hi Sally

      HomEquity Bank are a Schedule I bank – so they follow all the same rules and regulations as the other Schedule I banks in Canada (CIBC, BMO, RBC, Scotiabank, TD etc).

      No mortgages – reverse or otherwise – are insured under CDIC. CDIC is intended to insure the cash that you hold in your bank account – it is not intended for mortgages.

      Thanks,
      Mich

  • Thanks for reply Mitch. I have read all of the information you have provided(and will re-read it) for me and in answer to my questions. ALL OF IT IS VERY CONFUSING AND DIFFICULT TO DEAL WITH unless a CPA – like you. I think it is “CRAP SHOOT” since no one has a crystal ball. I do not think that one can know ALL the answers first.
    I think the saying “take your chances” applies here.
    I am more inclined now, after reading all the information, to be pro reverse mortgage, since I feel it would help my situation, which is the bottom line….thanks again….Carol …..PS – thank you for your help and providing this website, which is well done and easy to read.

    • Hi Carol

      You’re welcome – glad we could help. Yes, it can be very difficult to understand – hence why I created the site with all the articles and information 🙂

      Any mortgage or financing decision has an element of risk and the unknown. However, the downsides of a reverse mortgage are better than the downsides or other mortgage products in some ways – for example, the fact you can never lose your home.

      Thanks,
      Mich

  • Hi Mich and John:

    Awesome website and awesome information.
    I have a couple of questions.
    I have a Mortgage Disability monthly living benefit from Manulife that runs out the year I reach 55 My wife and I are 55 in the same year.

    My life expectancy is greatly REDUCED because I have a terminal progressive brain disease called Huntington’s Disease.

    Our paid Appraised value is $495,000 and our current mortgage is $300,000.

    I thought the Reverse Mortgage 55% would work in our situation but Home Equity Bank said we would only be able to get 25% because of our age at the time we turn 55.

    Is there anyway that could be increased due my medical condition and reduced life expectancy?

    My wife works part time and I have Disability pensions through CPP and my former employer.

    I was hoping to have enough to pay out the remaining Mortgage Balance when my disability mortgage payments end at age 55?

    Thanks so much.

    • Hi Drew

      I think you emailed us right? We were sad to hear of your situation – I’ll look into it in more detail and make sure someone follows up. If your credit score is good, we could find another option for you too. The problem is going to be the mortgage is almost 61% of the valuation of the home – which limits our options greatly.

      I hope we can help – I will see what I can do.

      Thanks,
      Mich

  • If I renew after term do I pay again for legal appraisal and set up fees

    • Hi Frank

      No, there are no additional costs or fees at renewal. The only time there are additional costs are if initially you don’t take the full amount and decide at a later date that you want to do this.

      Thanks,
      Mich

  • I am just doing a deal for the reverse mortgage & the numbers are larger than I thought for interest rates…6.24 for 3 yrs & 6.49 for 5 yrs. (I have not got the paperwork-just got some numbers over the phone) but I do qualify for 190, 495 on my condo.(valued at $550K) The 3 yr would be 229,094- owed & the 5 yr 259,051. I can’t seem to get it to compute. I assume the rate compounds annually or biannually? Does this look right to you?

    • Hi Sher

      Yes, those rates are right in line with those I included in the article, as of this date (June 2018).

      The interest rate compounds semi-annually (twice a year) on a reverse mortgage.

      Thanks,
      Mich

  • I called the help line & spoke with Gavin who was very helpful
    and I really appreciated his patience, understanding , and great informative manner!
    I now feel much more confident in my choices-thanks you!
    Sher

  • Hi, I have a second mortgage on my home, will this affect me qualifying for a reverse mortgage?

    • Hi Les

      No, you can still qualify with a second mortgage. Both the first mortgage and the second mortgage will need to be paid off from the reverse mortgage proceeds though.

      Thanks,
      Mich

  • I can qualify for Reverse Mortgage even if I have investment properties, but I am getting a reverse mortgage on my current property.

    • Hi Arthur

      Yes, that is correct. One of the properties you are getting a reverse mortgage on must include your current residence. You can actually take out what’s called a ‘blanket mortgage’ covering up to 3 properties. However, one of them must be your principal residence.

      Thanks,
      Mich

  • If my wife is 51 and im 61, can I get a reverse mortgage ?

    • Hi Jonn

      I am afraid you would not qualify. Even if your wife was not on the title, under the laws in Canada this is a ‘matrimonial home’ – so it’s not possible for you to obtain a mortgage without your wife being listed on the mortgage.

      Thanks,
      Mich @ RVMP

  • My husband is 76, I am 75…..would we qualify for a reverse mortgage? What kind of requirements are there for this. Our home is worth approx $500K, have a mortgage of roughly $200K with line of credit. Not sure what this reverse mortgage entails.

    • Hi Mary

      Yes, you would both qualify. However, the existing mortgage would need to be paid off first. So, for example, if you qualify for $240k then $200k would be used to pay off your existing mortgage and you could take the $40k as cash. The main benefit of this is that it frees up your monthly cash flow, since you would no longer need to make the mortgage payments you were making before.

      Hope this helps.

      Thanks,
      Mich @ RVMP

  • are you able to pay off the interest annually so that it doesnt compound?

  • I’m 67 my wife is 66 what % of our home would we qualify for. Our home is worth between $650.000 and $700.00.

    • Hi Gordon

      The amount you qualify for doesn’t just depend on age and value – it would also depend on the home location – including the actual street it is on – and property type.

      If you fill out our free 90 second assessment, we’ll be able to better advise you and give you a quote.

      Thanks,
      Mich

  • Im at the first year anniversary of a 5 year chip reversal mortgage, my health is deteriorating rapidly I cannot climb the stairs to get to my bedroom chip gave me $110k if I have to sell house for a 1 level home how much would I have to pay in penaltys .

    • Hi Joe

      I’d reach out to Home Equity Bank directly. But if you’re at the end of your term, your penalty will be close to zero.

      You could also potentially transfer (port) the mortgage over to your new home – I’d talk to them about this.

      Thanks,
      Mich

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