Reverse Mortgage vs HELOC in Ontario: Which One Fits You?

A HELOC is cheaper. A reverse mortgage is easier to keep. That's the whole trade-off, and most people asking this question only ever hear the first half.

Here's the short answer. A HELOC lets you borrow up to 65% of your home's value at a lower rate, but you need income to qualify and you pay interest every month. A reverse mortgage is only for homeowners 55 and older. It needs no income test and no monthly payments, but it costs more and the balance grows over time. If you can comfortably carry the payment, a HELOC usually wins. If you can't, or don't want to, the reverse mortgage is the one you can actually hold onto.

Reverse Mortgage vs HELOC: Side by Side

Factor	HELOC	Reverse mortgage
Who can get one	Any homeowner who qualifies	Homeowners 55+, every owner on title
Most you can borrow	65% of home value (80% combined with a mortgage)	Up to 55% to 59% of home value, based on age and property
Income test	Yes, at the stress-test rate	No
Monthly payment	Interest at minimum, every month	None required
Rate	Variable, prime plus a small margin	Higher than standard mortgage rates
Can the lender cut it?	Yes. Limits can be reduced or frozen	No, while you live there and keep up taxes, insurance and upkeep
Balance over time	Flat if you pay the interest	Grows, because interest compounds
When it's repaid	On demand, or when you sell	When the last borrower sells, moves out or passes away

How Does a HELOC Work for Retirees in Ontario?

A HELOC is a revolving line of credit secured against your home. Draw what you need, pay it back, draw again. Federally regulated lenders cap the revolving part at 65% of your home's value, and 80% once you add a regular mortgage on top.

The catch is qualifying. Banks test you at the higher of your contract rate plus 2% or 5.25%, and most of them assume the whole line is drawn when they run the numbers. So a $200,000 limit gets tested like a $200,000 balance. On CPP, OAS and a modest pension, that's where a lot of retired files stop.

Then there's the part nobody mentions at the branch. A HELOC is a demand loan. The lender can lower your limit or freeze it, and they tend to look hardest at exactly the moment you need it, like after a spouse passes and the household income drops.

Still. When it fits, it's hard to beat. Interest only on what you use, at a rate well under any reverse mortgage.

How Does a Reverse Mortgage Work in Ontario?

A reverse mortgage pays you a lump sum, scheduled advances or both, secured against your home, with nothing owed monthly. Interest gets added to the balance instead of paid. It's repaid when the last borrower sells, moves out for good or passes away, usually from the sale of the home. I cover the mechanics in more depth in my guide to how reverse mortgages work in Ontario.

Three lenders offer them in Ontario: HomeEquity Bank (CHIP), Equitable Bank and Home Trust. Each has a no negative equity guarantee, so as long as you meet your obligations, you or your estate won't owe more than the home's fair market value when it sells. How the three differ is its own conversation, and I've laid that out in my comparison of the three reverse mortgage lenders.

What Does Each One Cost Over 10 Years?

Rates move, so treat these as illustrations, not quotes. Say you borrow $100,000 and leave it for 10 years.

$100,000 for 10 years	HELOC at 5.5%	Reverse mortgage at 7%
Monthly payment	About $458, interest only	$0
Interest paid or added	About $55,000, paid as you go	About $99,000, added to the balance
Owed at year 10	$100,000	About $199,000

Roughly $44,000 more for the reverse mortgage. That's real money. But look at what it bought: ten years with no payment at all, and no chance of a bank pulling the line. The HELOC borrower paid $55,000 out of pocket to keep the balance flat, and that's only cheaper if the cash flow was there to begin with. (The reverse figure assumes semi-annual compounding, which is how these products typically calculate interest.)

When Is a HELOC the Better Choice?

When you still have income that clears the stress test and you'd rather pay as you go. A HELOC is also the obvious pick for a short-term need, like bridging a renovation or covering a gap until an investment matures, because there's no big setup cost to earn back. If you're under 55, it's the only one of the two you can get anyway.

When Is a Reverse Mortgage the Better Choice?

When the payment is the problem. If you're retired, own a good chunk of your home and the monthly number is what keeps you up at night, the reverse mortgage takes it off the table. It also makes sense when the bank has already said no to a HELOC, when you want money that can't be frozen, or when you're planning to stay put for the long haul and a slower-growing estate is a trade you're fine with.

Can You Switch From a HELOC to a Reverse Mortgage?

Yes, and it's common. A reverse mortgage has to be the only loan registered on the home, so any existing mortgage or HELOC gets paid out from the first advance at closing. People do this when retirement income drops and the HELOC payment stops making sense. Just know the payout comes out of your available amount, so a big HELOC balance means less cash in hand afterward.

My Take

Honestly? Run the HELOC first. If you qualify and the payment is comfortable, it's the cheaper tool and I'll tell you so. If you don't qualify, or you'd be stretching every month to keep it current, a reverse mortgage isn't the expensive option. It's the stable one. As a broker who works with all three reverse mortgage lenders and the HELOC side too, I can put both on the table for the same house on the same day, which is the only fair way to compare them.

Want the numbers for your own home? That's exactly what I do on the reverse mortgage side of my practice, alongside HELOCs and refinances.

Common Questions