Mortgage Blog

Difference between HELOC and Reverse Mortgage

May 22, 2025 | Posted by: Sarabjit Dhuna

In Canada, Reverse Mortgages and HELOCs (Home Equity Lines of Credit) are two different financial products that allow homeowners to access the equity in their homes, but they differ significantly in structure, qualification requirements, repayment terms, and use cases. Here's a detailed comparison:

Reverse Mortgage (Canada)

Overview:

A reverse mortgage allows homeowners aged 55+ to borrow against the equity in their home without making monthly payments. The loan is repaid only when the home is sold, the owner moves out permanently, or passes away.

Key Features:

• Eligibility: Homeowners 55 years or older.

• Loan Amount: Up to 55% of the home’s appraised value (depending on age and location).

• Repayment: No regular payments required; repaid upon sale or death.

• Interest: Compound interest accumulates over time.

• Ownership: You retain ownership of the home.

• Use: Funds can be used for any purpose (retirement income, medical costs, etc.).

• Popular Providers: HomeEquity Bank (CHIP Reverse Mortgage), Equitable Bank.

Pros:

• No monthly payments.

• Tax-free cash.

• Doesn't affect CPP or OAS benefits.

Cons:

• Higher interest rates than traditional loans.

• Home equity diminishes over time due to compounding interest.

• Estate receives less value upon homeowner's death.

HELOC (Home Equity Line of Credit)

Overview:

A HELOC is a revolving line of credit secured against your home, allowing you to borrow and repay as needed, up to a set limit.

Key Features:

• Eligibility: Must qualify based on income, credit score, and debt ratios.

• Loan Amount: Up to 65% of your home’s value, or 80% when combined with a mortgage.

• Repayment: Minimum monthly interest payments; principal is optional.

• Interest: Typically variable, and lower than a reverse mortgage.

• Ownership: You retain ownership of the home.

• Use: Flexible – renovations, investments, education, etc.

• Providers: All major Canadian banks offer HELOCs.

Pros:

• Flexible access to credit.

• Lower interest rates than unsecured loans or reverse mortgages.

• Only pay interest on the amount you use.

Cons:

• Monthly payments are required (interest at minimum).

• You must have sufficient income and good credit to qualify.

• Risk of foreclosure if payments aren't made.

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