Reverse Mortgage vs HELOC in Ontario: Which Fits Your Retirement?
By Greg Kalanjian, Principal Broker, Choice Financial Corp. · Lic. M16000014 · FSRA Brokerage #13564
Quick answer: A HELOC usually costs less and keeps more of your equity, but you need income and credit to qualify, and you have to make at least interest-only payments every month. A reverse mortgage (such as CHIP from HomeEquity Bank) is only for homeowners 55+, needs no monthly payments and isn't based mainly on income, but the rate is usually higher and the balance grows over time. If you can comfortably make payments, a HELOC often comes out ahead. If monthly cash flow is the problem, a reverse mortgage may be the better fit.
It's one of the most common questions we hear from homeowners in their 60s and 70s across Toronto and the GTA: "Should I get a line of credit or a reverse mortgage?" Both let you use your home equity without selling. They work very differently, though, and the wrong choice can cost you a lot over 10 or 15 years.
How a HELOC works
A HELOC (home equity line of credit) is a revolving line of credit secured by your home. You borrow what you need, pay interest only on what you use, and can repay and reuse it. A standalone HELOC is usually limited to 65% of your home's value, or up to 80% combined with a mortgage, according to the Financial Consumer Agency of Canada (FCAC). At a bank, you have to pass the stress test and show income. Rates are typically variable. Learn more on our Home Equity Loans & HELOCs page.
How a reverse mortgage works
A reverse mortgage lets homeowners 55+ borrow up to about 55% of their home's value, as a lump sum or in advances. There are no required payments. Interest is added to the balance, and the loan is repaid when you sell, move out or the last borrower passes away. Lenders in Canada include HomeEquity Bank (CHIP), Equitable Bank and Bloom Finance. For a step-by-step guide, read Reverse Mortgage in Canada: How It Works for Toronto Homeowners 55+.
Side-by-side comparison
HELOC | Reverse mortgage | |
|---|---|---|
Who qualifies | Any age; based on income, credit and equity | 55+ (everyone on title); based mainly on age, home value and location |
How much | Up to 65% of value (80% with a mortgage) | Up to about 55% of value |
Monthly payments | Yes, at least interest | None required |
Rate | Usually lower, usually variable | Usually higher; fixed or variable |
What you owe over time | Stays level or goes down if you pay it | Grows, because interest is added |
Effect on estate | More equity kept if you make payments | Less equity left over time |
Legal advice | Normal lawyer for registration | Independent legal advice required in Ontario |
Sources: FCAC "Borrowing against home equity" and "Reverse mortgages"; HomeEquity Bank.
When a HELOC usually makes more sense
You have a steady pension or income that easily covers the interest. You want flexibility to borrow and repay. You want to keep as much equity as possible for your estate or a future move.
When a reverse mortgage usually makes more sense
You're 55+, your income is limited, and you can't or don't want to make monthly payments. You want to stay in your home long-term. You'd like to pay off an existing mortgage so you have no monthly mortgage payment at all.
Other options to compare
A reverse mortgage and a HELOC aren't the only choices. A mortgage refinance can work if you qualify for the payment. Downsizing is sometimes the simplest answer. A short-term second mortgage or private mortgage can help when you need funds quickly and have a clear exit plan.
How we help
We compare HELOCs from 30+ lenders and reverse mortgages from several reverse mortgage lenders, using your real numbers: what you can access, the monthly cost, and what your equity may look like in 5, 10 and 15 years. Rates are subject to change and aren't guaranteed until a lender approves your file.
Frequently Asked Questions
Can I have a HELOC and a reverse mortgage at the same time?
Usually not on the same home. A reverse mortgage generally requires existing mortgages and HELOCs to be paid off, usually with the reverse mortgage funds.
Which is cheaper, a reverse mortgage or a HELOC?
A HELOC usually has a lower rate. But a HELOC needs monthly payments, and a reverse mortgage doesn't, so compare the total cost over the time you expect to stay in the home.
Can a retiree qualify for a HELOC?
Yes, if your pension, investments or other income cover the payments at the qualifying rate and your credit is in good shape. If not, a reverse mortgage may be easier to qualify for.
Can I switch from a HELOC to a reverse mortgage later?
Often yes. The reverse mortgage would pay off the HELOC. Check prepayment terms and your age and equity at that time.
Does a reverse mortgage affect my OAS or GIS?
According to FCAC, no. The money isn't taxable income.
Is CHIP the only reverse mortgage in Canada?
No. CHIP is HomeEquity Bank's product. Equitable Bank and Bloom Finance also offer reverse mortgages, and a broker can compare them.
See our full guide to reverse mortgages in Ontario for eligibility, costs and how we compare lenders.
Not sure which fits?
Book a free, no-pressure call with Greg or call 647-638-6358. Family members are welcome on the call.
Greg Kalanjian, Principal Broker, Choice Financial Corp. · Lic. M16000014 · FSRA Brokerage #13564. This article is general information, not financial, tax or legal advice. Rates and terms are subject to change and aren't guaranteed until approved by the lender.
