Both let you borrow against the value of your home. But an equity mortgage and a reverse mortgage work in very different ways, and suit different people. Here’s a plain comparison.

How an equity mortgage works

You borrow against your equity and make regular payments, usually monthly, over a set term. The lender relies mainly on your equity, but you must show you can afford the payments. Anyone who owns a home with enough equity can apply. See What Is an Equity Mortgage?

How a reverse mortgage works

A reverse mortgage is available to homeowners 55 and older. You receive a lump sum or payments over time, and you don’t have to make regular payments. Interest is added to the balance, so the amount owed grows over time. The loan is usually repaid when you sell, move out permanently, or pass away. In Canada, reverse mortgages are offered by a small number of specialized lenders.

Side by side

  • Who can get it: equity mortgages are open to any homeowner with enough equity; reverse mortgages are only for those 55 and older.
  • Monthly payments: required with an equity mortgage; not required with a reverse mortgage.
  • Balance over time: goes down or stays level with an equity mortgage; grows with a reverse mortgage.
  • Income needed: you must afford payments for an equity mortgage; much less emphasis on income for a reverse mortgage.
  • Effect on your estate: with a reverse mortgage, the growing balance reduces what’s left when the home is sold.
  • Costs: both usually cost more than a bank mortgage, in different ways. Compare carefully.

When each tends to fit

An equity mortgage may suit someone who can manage payments, wants to keep the balance under control, and may refinance to a bank later.

A reverse mortgage may suit an older homeowner who wants to stay in the home, has limited income for payments, and is comfortable with the balance growing over time.

Questions to ask about either

  1. What’s the total cost over the time I expect to have it?
  2. What happens if I need to move into care, or want to sell?
  3. How will this affect what I leave to my family?
  4. What fees and penalties apply?

Get independent advice

These are big decisions. Involve your family and consider independent legal advice. See equity mortgages for retirees.

This article is general information, not financial, legal or tax advice. Lender requirements, rates and fees change and depend on your situation.