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 5.74-6.59% .  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.

Last updated: 20th April 2019

 


Mich

The #1 reverse mortgage specialists in Canada.

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ellie green

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

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

can I receive whole sum at once?

Jim Gordon

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

NL

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… Read more »

Stephen Totzke

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?

Jackie

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

Jackie

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

Lucie Black

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.

Vince

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?

MBI Mortgages

Thank you for sharing valuable information. Nice post.

ray krawczyk

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,

Levine

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

John

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… Read more »

Sally Hoffberg

Is this place insured just like the banks under CDIC .

carol

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… Read more »

Drew Harris

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… Read more »

Frank Bertrand

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

Sher

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?

Sherran

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?

Arthur S.

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

jonn p

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

Mary Auld

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.

kerry verchere

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

Gordon rephin

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.

Joe Kovacs

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 .

D W

In the case of death of the homeowner, and the 2 sons wanting to pay off a past due Chip mortgage. They can put together about $ 200,000 of the $240,000 owing, is there such a thing as negotiating to pay off chip. As the only other option is to sell the family home which they really don’t want to have to do.

Tess

Our home was recently appraised at $469K. We bought it 10 years ago for $255K and is in a highly desirable location. We have a mortgage balance of approximately $160K. My husband is 66 years old and I am 62. We are both retired and collecting government benefits. My husband is still employed. At our age and physical condition, we don’t want to move anymore. Can we qualify for a reverse mortgage?

Helen

Can you get a reverse mortgage if your not living in your home & it is empty, no mortgage, 91, for sale

Dan

In the event that your roof needs repairing, furnace replacing and you have a reverse mortgage, but cannot pay for either of the above; who is responsible the ‘home owner’ or the banking institution?

Tim

Hi, I have to thank you very much. This is very helpful to understand what the RM is.
According to your explanation, the income of applicant wouldn’t be needed to qualify for RM.
But I’ve seen some articles saying the bank do the TDS calculation and ask income docu. I don’t understand for what they calculate TDS which usually need to decide whether the applicant has enough capability to pay the mortgage with his or her income. Would you explain this for me? Thanks in advance

Nicole

Hello and thank you for the rather detailed description. There is still one point though which I am confused about: Say the asset pledged is worth $500K. Say I qualify for a 55% reverse mortgage maximum, i.e. up to $275K. Say, for simplicity sake, assume that I take out the entire $275K in one shot, which is what I owe the bank on day one. Assume I am 70 years old but a healthy one and will proceed to live till I am 95. With an interest rate at say 6.7%, I roughly calculate that my present equity will be… Read more »