Trying to decide between a reverse mortgage vs a home equity loan? Both let you tap the equity in your home without selling, but they work very differently — and the right one depends on your age, whether you can handle monthly payments, and how long you need the money. This guide breaks down the honest differences, plus a short-term option that sits between the two.
Reverse Mortgage vs Home Equity Loan: The Core Difference
The simplest way to understand it: a reverse mortgage requires no monthly payments, while a home equity loan does. That single difference drives almost everything else — who qualifies, what it costs, and how much equity you keep.
With a reverse mortgage, the loan and its interest are repaid only when you sell, move out permanently, or the last borrower passes away. With a home equity loan, you make regular payments from the start, just like any other loan, and pay it down over time.
How a Reverse Mortgage Works
A reverse mortgage is available to Canadian homeowners aged 55 and older. You borrow against your equity — up to 59 percent of your home’s value, scaling with your age — and make no monthly payments. The funds are tax-free and do not affect your OAS or GIS benefits, and a no-negative-equity guarantee means you can never owe more than your home is worth.
The trade-off is that interest accrues on a growing balance, which reduces the equity left in your estate over time, and rates are typically higher than a conventional mortgage. It suits older homeowners who want to stay in their home and free up cash flow without the burden of payments.
How a Home Equity Loan Works
A home equity loan is available at any age and lets you borrow up to a combined 80 percent of your home’s value, counting your existing mortgage and the new loan together. You receive a lump sum and make regular payments to pay it down.
Because you are paying it off rather than letting interest compound, a home equity loan preserves more of your equity over time and usually comes at a lower rate than a reverse mortgage. The trade-off is that you need the income or cash flow to manage the monthly payments. It suits homeowners who can handle payments and want to keep more of their equity intact.
A Middle Option: The Prepaid Home Equity Loan
There is a third option that borrows the best feature of a reverse mortgage — no monthly payments — but works as a short-term home equity loan, and it is available before age 55. With a prepaid home equity loan on a one-year term, the interest is prepaid for the year, so there are no monthly payments to manage during that time.
It is designed for homeowners who hit a temporary rough patch — a layoff, a termination, or an illness that interrupts income — and need breathing room to get back on their feet. It is a short-term bridge, not a long-term solution, and it only works when there is a clear exit strategy such as returning to work, selling, or refinancing once you qualify. If you are under 55 and caught off guard without savings, it can be exactly the fix that keeps you in your home.
Reverse Mortgage vs Home Equity Loan: Side by Side
| Feature | Reverse Mortgage | Home Equity Loan |
|---|---|---|
| Age requirement | 55 and older | Any age |
| Monthly payments | None | Yes |
| Maximum borrowing | Up to 59% of home value | Up to 80% combined |
| Repaid when | You sell, move, or pass away | Over the loan term |
| Effect on equity | Erodes over time | Preserved as you pay down |
| Typical rate | Higher | Lower |
Which One Is Right for You?
Choose a reverse mortgage if you are 55 or older, want to stay in your home, and prefer no monthly payments — accepting that your equity will decrease over time. Choose a home equity loan if you can manage payments, want to preserve more of your equity, and want a lower rate. And if you are under 55 and need a short-term bridge with no payments, the prepaid home equity loan may be the better fit. The right answer depends entirely on your age, your cash flow, and how long you need the funds.
How Turnedaway.ca Can Help
We arrange all three — reverse mortgages through CHIP, Equitable Bank, and Bloom, home equity loans through our full lender network, and prepaid short-term options for those who need a bridge. We have been helping Canadian homeowners access their equity for over 30 years. Apply online or call 1-855-668-3074 for a free, no-obligation consultation.
Reverse Mortgage vs Home Equity Loan FAQs
What is the main difference between a reverse mortgage and a home equity loan?
A reverse mortgage requires no monthly payments and is repaid when you sell, move, or pass away, while a home equity loan requires regular payments from the start. A reverse mortgage is for homeowners 55 and older; a home equity loan is available at any age.
Which is cheaper, a reverse mortgage or a home equity loan?
A home equity loan usually has a lower rate and preserves more of your equity, because you pay it down rather than letting interest compound. A reverse mortgage costs more over time but removes the burden of monthly payments.
Can I get a reverse mortgage if I am under 55?
No. A reverse mortgage requires all homeowners on title to be at least 55. If you are younger, a home equity loan or a prepaid home equity loan on a one-year term can be alternatives, depending on your situation.
Which keeps more of my home equity?
A home equity loan preserves more equity because you pay down the balance over time. With a reverse mortgage, interest accrues on a growing balance, which reduces the equity left in your estate.
