Are Reverse Mortgage Rates Really Too High?

One of the most common reactions I hear when talking about reverse mortgages is that the “rates are too high.”

But are they really that high?

And compared to what, exactly?

How do reverse mortgage rates compare to other financial options available today?

And how do they stack up historically over time?

In this article, I’ll break it all down for you – giving you the real facts, as always – so you can better understand the reality of reverse mortgage rates.

As always, you can read the article below or watch the video version:

Before I Start – What Exactly Is A Reverse Mortgage

A reverse mortgage is a type of loan available to homeowners aged 55 and over.

It’s different from a traditional mortgage because it doesn’t require you to repay any money on a monthly basis—there are no required monthly payments.

You can receive up to 55% of your home’s value (though it typically ranges between 10% and 55%), depending on your age, the type of property you own, and where it’s located.

The amount you can access also depends on whether you have an existing mortgage, which must be paid off first using your reverse mortgage funds.

The product is specifically designed to help older Canadians access the equity in their homes for retirement, while still allowing them to stay in and enjoy their home.

If you’re new to reverse mortgages, the best place to start is my free reverse mortgage guide.

“Reverse Mortgage Rates Are Too High”

One of the most common phrases I hear is that “reverse mortgage rates are too high.”

But what does that really mean?

When someone says that rates are high, the question becomes: compared to what?

What defines a ‘high’ interest rate?

Without understanding the context, this statement can be misleading.

Let’s break it down to see where reverse mortgage rates really fit in when it comes to rates to borrow money – so you’ll have the real facts, as always.

Are Rates Really That High?

The answer depends entirely on what you’re comparing them to.

If you’re comparing reverse mortgage rates to an ‘A level’ mortgage – meaning the lowest-rate mortgage products available in the market – then yes, reverse mortgage rates are higher.

By ‘A level’ I mean the mortgage rates for those with strong income to support it and an excellent credit score.

But everything is higher compared to an ‘A level’ mortgage rate – they are literally the lowest rate you can get to borrow money as an individual in Canada.

Reverse mortgage rates are usually around 1.5% to 2% higher than these rates – the absolute best rates available.

But – as I mentioned – those ‘A level’ mortgage rates are only available to people with excellent income and credit.

If you compare reverse mortgage rates to other financial products on the market that don’t require top-tier qualifications, suddenly they may not seem so high at all.

Different Products & Their Rates

Here’s a chart showing the most common ways of borrowing money in Canada, with the level of interest rate you’d expect to pay:

As you can see in the chart above, reverse mortgages are close to car loans and a home equity line of credit in terms of their rate.

In fact, sometimes reverse mortgage rates are lower than both these options, sometimes they are slightly higher – it can vary over time.

However, the point is that reverse mortgages are actually one of the lower interest ways that you can borrow money.

It’s also worth noting that many of the financial products that offer lower rates – such as ‘A level’ mortgages or home equity lines of credit – require strong income and a solid credit history.  I discuss this in more detail in my article on reverse mortgages vs a home equity line of credit (HELOC).

These products are often not available to retirees or people with modest income or credit challenges that is to say:

This Isn’t A Fair Comparison…

That’s because many of those other products require you to have good income and credit to qualify.

An ‘A rated’ mortgage or a home equity line of credit is only available if you meet certain financial criteria.

If you’re considering a reverse mortgage, the odds are that you’re retired or near retirement and on a lower income than you were in the past.

So, what happens when we compare only the products that are available to people with little income?  Or only to those with average to ok credit scores?

Products You Can Get With Little Income & Average / Ok Credit Scores

Here’s an updated chart showing the borrowing options available for folks with either reduced or lower income (e.g. retirees or those near retirement) or people with a lower credit score:

As you can see, I’ve taken out personal loans, personal lines of credit, home equity lines of credit and the ‘A level’ mortgages, as all of these require either good income, a good credit score or both.

When you look at the revised list above all of a sudden you can see that a reverse mortgage actually becomes the lowest rate product available.

This helps put the idea of “high” reverse mortgage rates into better perspective.

Even This Is Still Not A Fair Comparison…

Why? Because all of those other products also require regular payments.

If you fail to make your payments on a credit card, personal loan, private or second mortgage – or even a car loan – the lender can come after your home and other assets.

That’s not the case with a reverse mortgage (as discussed here).

With a reverse mortgage, there are no monthly payments, so your home and assets are protected from payment defaults.

And on top of that, you’re still getting a better rate than what many of these higher-risk products offer.

All of a sudden you’re no longer dealing with a risky, ‘high’ rate product but one of the lowest risk and lowest rate products you can get!

Putting Rates In Context

So, it’s absolutely fair to say that reverse mortgage rates are higher than the ‘A rated’ mortgages with the best available terms.

But it’s also accurate to say that reverse mortgages are among the lowest rate product available that isn’t an ‘A rated’ mortgage.

More importantly, reverse mortgages are the lowest rate product available that doesn’t require you to have strong income or excellent credit to qualify.

When you look at it through that lens, it’s a very different picture.

How Do Rates Compare Over Time?

Interest rates – at the time of writing this – had gone up significantly and then began to cool off.

That can leave many people feeling uncertain and thinking “what if” about locking in a rate.

But to really understand whether reverse mortgage rates are high right now, you need to see how current rates compare to historical averages.

So, how do today’s mortgage rates measure up against what we’ve seen over the last few decades in Canada?

Mortgage Interest Rates Over Time

When you look at the historical chart of mortgage interest rates, you can see the broader trend clearly:

Over time, rates have been coming down steadily and you can see in the chart that where are now is certainly not a period of ‘high’ interest rates!

The best way to think about this is that there are there are periods of different rates:

Very high, high, medium, low and extremely low.

Around the covid pandemic, we went through a period where rates were extremely low.

We’ve now come out of that and rates are still very low, especially compared historically per the chart above but they are not as low as during this extreme period (which we may never see again).

The problem is that even though this was an extreme period caused by a global pandemic, people naturally start to feel that rates as low as this are now the new ‘normal’ and anything above this is deemed ‘high’.

In reality: mortgage interest rates are still in a very low period and only slightly above the lowest rates ever seen, which we may never see again.

It’s important to view current rates with historical context, rather than reacting emotionally to short-term fluctuations.

Rates Are Near Historical Lows

So, as noted, when you take a step back and look at the full chart of mortgage rates over the last 50 years, it’s hard to argue that current rates are “high.”

Reverse mortgage rates, regular mortgage rates – and really, interest rates on almost everything – are still near their historical lows.

In fact, in the past 15 years, we haven’t really had what could be called a “high” mortgage rate by historical standards.

So while rates might feel high relative to just a couple of years ago, they’re still low in the big picture.

In Summary – Are Reverse Mortgage Rates Really That High?

Yes, reverse mortgage rates are higher than the absolute best mortgage rates available today – but those best rates require strong income, great credit, and the ability to make regular payments.

Compared to those, reverse mortgage rates are usually about 1.5% to 2% higher.

But when you look at the full range of financial products available – especially those that don’t require income or credit – reverse mortgage rates are among the lowest out there.

In fact, they’re lower than almost any other product that people with limited income can qualify for.

And historically speaking, reverse mortgage rates (and all mortgage rates) are still near all-time 50 year lows.

When you consider all these factors, it becomes clear: reverse mortgage rates are not nearly as “high” as many people assume.

Get A Free Professional Reverse Mortgage Assessment In 90 Seconds

If you’re wondering whether a reverse mortgage might be the right solution for your needs, I offer a free professional assessment to help you figure that out.

I’ll let you know if a reverse mortgage is a good fit – or if there’s a better alternative for your situation.

I’ll show you a comparison table of the lenders and all your options, so you can make an educated and informed decision.

The assessment only takes 90 seconds and is completely obligation-free.

All it takes is 90 seconds – click here to get started.

Mich Sneddon, CPA, CA

A Canadian Chartered Accountant and licensed Mortgage Professional – creator of Reverse Mortgage Pros – the #1 reverse mortgage specialists in Canada.  I make it my mission to educate Canadians about how reverse mortgages work so that you can make an informed and educated decision that’s right for you and your family.