- A HELOC lets you borrow up to 65% of your home's value, while a reverse mortgage usually allows up to 55%.
- A HELOC requires you to qualify, including a stress test at a bank, while a reverse mortgage requires no regular payments.
- A HELOC usually has a variable rate, so payments can rise, and a borrower who does not repay could lose the home.
- With a reverse mortgage the interest is added to the balance, so what you owe grows over time.
If you are 55 or older and own your home, you may be weighing two ways to borrow against it: a home equity line of credit (HELOC) or a reverse mortgage. They can look alike because both use your home as security. In practice they work very differently.
This article explains how they compare on qualifying, repayment and risk in Ontario. It is general information, not advice on your own finances, and the right choice depends on your income, your plans and your family.
How the two products work
A HELOC lets you borrow up to 65% of your home's value. A HELOC combined with a mortgage requires at least 20% equity, and a standalone HELOC requires more than 35% equity. You pay interest only on the amount you actually borrow.
A reverse mortgage is a loan for homeowners, usually 55 or older, who borrow against home equity and keep living in and owning the home. It usually lets you borrow up to 55% of the home's current value, depending on the ages of all borrowers on title, the home's condition, type and appraised value, and the lender.
Qualifying: who can get what
To qualify for a HELOC at a bank you need home equity and must pass a stress test. The lender may also require an appraisal, proof of ownership, mortgage details, and a lawyer or notary to register the home as collateral. Other lender requirements can vary, so ask each lender what it looks at.
A reverse mortgage focuses on your age and your home. The home is usually your primary residence, meaning you live there at least 6 months a year. Existing mortgages or HELOCs secured on the home may have to be paid off and closed, and you may not be able to hold a HELOC at the same time.
Whoever arranges your loan, you can check that a mortgage agent or broker is licensed. FSRA does not issue paper or PDF copies of licences, so status is confirmed through its public registry, reached through the Mortgage Brokering section of fsrao.ca.
Repayment and cost compared
| Point | HELOC | Reverse mortgage |
|---|---|---|
| Maximum borrowing | Up to 65% of the home's value. | Usually up to 55% of current value. |
| Regular payments | Interest on what you borrow; interest-only means the loan is never paid off. | None required. |
| Interest rate | Most are variable, based on prime plus a margin, so payments can rise. | Usually higher than a regular mortgage or HELOC. |
| Balance over time | Depends on what you repay. | Interest is added, so the amount owed grows. |
| Repay when | If the home is sold. | Home sold, you move out, last borrower dies, or default. |
With a HELOC, lenders must notify you in writing within 30 days of a rate change. A reverse mortgage may involve appraisal, set-up, legal and closing fees plus prepayment penalties, and these vary by lender. Payout choices include a lump sum, a partial lump sum with later draws, or regular payments, each with its own conditions.
Risks to weigh
- HELOC: rising rates can make repayment harder, a HELOC reduces your equity, and a borrower who does not repay could lose the home.
- Reverse mortgage: the balance grows because interest is added, which means less equity may remain for your heirs.
- Both: borrowing against home equity can lead to foreclosure if you cannot repay.
- Costs: expect appraisal, legal and other fees on either path, and ask lenders for them in writing.
If you have a spouse, remember that a spouse generally cannot encumber an interest in a matrimonial home unless a statutory exception applies, such as the other spouse joining in or consenting. A lawyer can confirm how that applies to your home.
Which fits which situation?
There is no single answer. A HELOC may suit someone with steady income who can handle payments and wants access to funds as needed, if they can qualify. A reverse mortgage may suit someone who wants no required payments and plans to stay in the home, and who accepts a growing balance. The money from a reverse mortgage is tax-free and does not reduce OAS or GIS benefits.
If your goal is to leave the home to your children, think carefully about how each product affects the equity left behind.
What to do next
Some provinces require independent legal advice for a reverse mortgage. Where it is not required, the Financial Consumer Agency of Canada still suggests getting legal advice.
- Get your home's approximate value and your current mortgage balance.
- Work out the most you could borrow under each option using the percentages above.
- Request written quotes with rates, fees and penalties from more than one lender.
- Check any broker's licence status through FSRA's public registry.
- Have a lawyer review the documents before you sign.
Frequently asked questions
Which lets me borrow more, a HELOC or a reverse mortgage?
A HELOC lets you borrow up to 65% of your home's value. A reverse mortgage usually allows up to 55% of current value. Your actual limit depends on the lender and your situation.
Can I have a HELOC and a reverse mortgage together?
Existing mortgages or HELOCs on the home may have to be paid off and closed when you take a reverse mortgage, and you may not be able to hold a HELOC at the same time. Confirm the details with the lender.
Which one carries more risk?
Both carry risk. With a HELOC, rising rates can make repayment harder and a borrower who does not repay could lose the home. With a reverse mortgage, the balance grows because interest is added.
Do I need to pass a stress test for a reverse mortgage?
The stress test is described for HELOCs at a bank. A reverse mortgage requires no regular payments, but lenders have their own requirements, so ask each one.
Sources
- Financial Consumer Agency of Canada (FCAC) – Reverse mortgages — canada.ca
- FCAC – Borrowing against home equity — canada.ca
- FCAC – Home equity line of credit — canada.ca
- Family Law Act, R.S.O. 1990, c. F.3 (CanLII) — canlii.org
- FSRA – Requesting official documents (mortgage agent, broker or principal broker) — fsrao.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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