What's the Catch With a Reverse Mortgage in Canada?

The catch is compound interest. Because you make no payments, the balance grows every year and eats into your equity. The catches people fear most, the bank taking your home or your children inheriting debt, don't exist in Canada. But three ongoing obligations can put you in default, and how you draw the money decides how much the real catch costs you.

When people ask what the catch is, they're bracing for something hidden. A clause that lets the bank take the house. A bill that lands on their children.

That isn't what's going on. The catch sits in plain view on page one: you don't make payments, so the interest compounds.

That's the trade. Everything else is either a myth or a manageable obligation, and the three are worth separating.

The real catch: compounding

Borrow $200,000, pay nothing monthly, and interest gets added to the balance. Next year, interest is charged on the new, larger balance. And so on.

Over a long enough stretch that adds up, and it comes out of your equity. That's the price of not having a payment. It isn't hidden and it isn't a trick, and any honest illustration puts the curve in front of you before you sign.

What almost nobody explains is how much control you have over it.

How we structure around it

Interest only accrues on money you've actually drawn. That single fact is the difference between a reverse mortgage that works and one that people write angry articles about.

If you qualify for $300,000 and take $25,000 this year, you pay interest on $25,000. The rest sits available, costing nothing.

So our default is to draw what you need for the year, and take next year's money next year. Most lenders support scheduled advances or a line-of-credit structure, so this isn't exotic. It's just rarely how the product gets sold.

Two effects, and the second one is the one that matters.

Your balance grows more slowly, because you're only paying for money you've spent.

And everything else you own keeps working. Your RRSP or RRIF stays invested instead of being cashed out. Your non-registered investments keep compounding. Your home keeps appreciating on its full value.

The cost of the reverse mortgage is interest on what you've drawn. The offset is growth on everything you left alone. Give the offset time to run and the picture changes completely.

Take the maximum on day one and you've handed that offset back. You pay interest on money you won't spend for years, while selling assets that were still growing.

The people who end up unhappy with a reverse mortgage almost always took the maximum because it was available. If you remember one thing from this page, make it that.

The catches that aren't real

These come up in nearly every conversation we have, and most of them come from American television.

“The bank ends up owning my home.” No. You keep title the entire time. It's a loan secured against your property, the same as any other mortgage. The lender has no ownership stake and can't sell it out from under you.

“My kids will inherit the debt.” No. Canadian reverse mortgages carry a no-negative-equity guarantee. When the home sells, the loan and interest come out of the proceeds and whatever's left goes to your estate. If the balance has grown past what the home sells for, the lender absorbs the difference.

“They can call the loan whenever they want.” No, and this is a real advantage over a HELOC. A bank can freeze or call a HELOC even when you've never missed a payment. A reverse mortgage can't be called, as long as you meet the obligations below.

“I'll be taxed on the money.” No. It's borrowed money, not income. It isn't taxable and doesn't affect income-tested benefits like OAS or GIS.

What can actually put you in default

A reverse mortgage can't be called at a lender's whim. It can be called if you break the terms. There are three, they aren't onerous, and people do trip on them.

Keep it as your primary residence. The home has to stay where you actually live. Long absences can breach this, so if you're planning six months a year somewhere warm, raise it before you sign. The definition varies by lender and it's worth a conversation.

Keep property taxes and insurance current. Both must stay paid and in force. This is the most common cause of trouble, and it's usually an administration problem rather than a money problem. Someone falls behind on paperwork.

Keep the home in reasonable repair. The property is the lender's security. Normal ageing is fine. Serious neglect isn't.

None of this is unusual. It's roughly what any mortgage requires. But without a monthly payment reminding you a lender is involved, it's easier to forget. Set up automatic payment for taxes and insurance on day one and you've removed the main risk.

The catch nobody mentions: the exit

Change your mind in the first few years and there's a prepayment penalty, usually declining over time.

This is where people get caught, not by anything hidden but by not thinking hard enough about their five-year horizon before signing. If there's a real chance you'll move, whether that's a health change on the horizon, a spouse's situation, or a plan to be closer to family, that belongs in the decision now rather than later. That's the first of six reasons in when a reverse mortgage is not right for you.

Is the whole thing worth it?

Fair question, and a different one. The costs are real and higher than a regular mortgage. We put every fee on the table and explain the pricing in is a reverse mortgage a rip-off.

What it costs to find out

Nothing. Free assessment, no credit check, no obligation.

We compare all four Canadian lenders, show you the compounding curve on a drawdown schedule that fits your actual spending, and tell you plainly when the answer is a HELOC, a smaller loan, selling the house, or doing nothing at all. The lender pays us at closing, so if we talk you out of it we earn nothing. We're fine with that.

If you're 55 or older and own your home in Alberta or British Columbia, we'll give you real numbers instead of a brochure range.

Get a free reverse mortgage assessment

Written by Jeff Hill, Mortgage Broker at Sparrow Lending. Licensed mortgage broker with the Real Estate Council of Alberta (RECA). Sparrow Lending operates under TMG The Mortgage Group. Last reviewed August 2026.