Reverse Mortgage Can Work If…
Your parent is in excellent health, deeply attached to the home, the home is already aging-friendly, and they need cash for 3–7 years (not 15+). It can also bridge a gap until a planned sale.
REVERSE MORTGAGE VS DOWNSIZING
Should You Borrow Against the Home or Sell It?
Reverse mortgages (CHIP) are heavily marketed. Here's the honest comparison most ads don't show.
Two Ways to Unlock Home Equity
If your parent's home is their biggest asset, there are really only two ways to turn that equity into money for the next chapter: sell the home (downsize) or borrow against it (reverse mortgage). Both are legitimate. Both have trade-offs. This page compares them honestly.
How a Reverse Mortgage Actually Works
What is a reverse mortgage in Canada?
A reverse mortgage (commonly the CHIP Reverse Mortgage from HomeEquity Bank or Equitable Bank Reverse Mortgage) lets homeowners 55+ borrow against their home equity without making monthly payments. The loan plus interest is repaid when:
- The home is sold
- The last surviving borrower moves out
- The last surviving borrower passes away
You stay on title, remain the owner, and keep living in the home.
How much can you borrow?
Typically up to 55% of the home's appraised value, depending on age (older = more), home type, location, and lender policy. Example: a $1,000,000 BC home for an 80-year-old might qualify for $400,000–$550,000.
What are the interest rates?
Reverse mortgage rates are significantly higher than regular mortgages. Recent Canadian rates have been in the 7–9%+ range, compared to 4–6% for traditional mortgages. Because you make no payments, interest compounds — the balance grows every month you keep the loan.
What fees are involved?
Typical upfront costs for a reverse mortgage in BC:
- Appraisal fee: $300–$600
- Independent legal advice (required): $500–$1,000
- Setup/administration fee: $1,795–$2,995+
- Early prepayment penalties if paid off in first 5 years
All of this is added to the loan balance, further accelerating compounding.
What happens to the equity over time?
Because interest compounds and no payments are made, the loan balance grows rapidly.
Example: $200,000 borrowed at 8% on a $1,000,000 home
- Year 5 balance: ~$294,000
- Year 10 balance: ~$432,000
- Year 15 balance: ~$634,000
- Year 20 balance: ~$932,000
If the home appreciates at 3% per year, it would be worth ~$1,806,000 after 20 years — leaving about $874,000 in equity. If appreciation is slower or the senior lives longer, remaining equity can shrink dramatically.
Side-by-Side Comparison
| Factor | Reverse Mortgage | Downsizing (Sell + Buy Smaller) |
|---|---|---|
| Stay in family home? | Yes | No — move to new home |
| Access to equity | Up to ~55% of value | 100% of equity (minus selling costs) |
| Interest cost | 7–9%+ compounding | None |
| Monthly payments | None | None (if buying cash) |
| Ongoing home costs | Still owner — all costs | Reduced (smaller home/strata) |
| Home maintenance | Still senior's responsibility | Reduced or eliminated |
| Impact on OAS/GIS | None (loan, not income) | None on sale (primary residence) |
| Effect on heirs | Shrinks inheritance — loan grows | Preserves equity, reduces estate |
| Flexibility | Lower (harder to exit) | Higher — fresh start |
| Best when | Health stable, deeply attached, short horizon | Needs changing, equity matters, home is too much |
When Each Option Makes Sense
Downsizing Usually Wins If…
The home no longer fits their needs, they want to free up full equity, they care about leaving an inheritance, or they want to lock in lower monthly costs long-term.
Warning Signs
Reverse mortgages can quietly consume most of a senior's estate over 15–20 years. Always talk to an independent financial planner and an elder law lawyer before signing.
Want a Second Opinion Before Signing?
We'll help you compare the numbers and connect you with independent financial and legal advisors. No pressure, no commission from either product.
Let's Make a Plan