The Difference Between Reverse Mortgage and Home Equity Loan: Which is Better?

As Canadians reach retirement age and beyond, they often wish to remain in a familiar setting that offers comfort and security – their homes. Unfortunately, increasing living costs and rising home maintenance expenses make this more difficult for many to achieve. A 2018 survey revealed that an alarming 24% of all retired individuals in Canada are burdened with debt. However, there are two specific loans that can help them stay in their homes where they want to be: a reverse mortgage and a home equity loan.

In this blog, we will discuss the difference between reverse mortgages and home equity loans so you can make an informed decision.


What is Reverse Mortgage?

A reverse mortgage allows you to get money from your home’s equity without having to sell the home. This is also known as “equity release,” and you can borrow up to 55% of its current value.

The following factors determine the maximum amount you can borrow:

  • Your age
  • Your lender
  • Value of your home

You can access the funds to spend however you please with a reverse mortgage – from daily expenses and home repairs to bills or vacationing. Best of all, repayment is only necessary once your house is sold or you pass away.


a couple getting a reverse mortgage in Canada

How Do I Get a Reverse Mortgage in Canada?

For elderly property owners in Canada, obtaining a reverse mortgage is quite simple. Banks and lenders typically review these five requirements:

  1. Your age: You must be at least 55 to qualify.
  2. Your home’s equity: You must have sufficient equity in your home.
  3. Your home’s appraised value: Your property must have an adequate amount of equity built up in it.
  4. Your home’s location: To qualify for a reverse mortgage, you must live in Canada.
  5. Current interest rates: These are determined by the bank or lender you choose.

If you are 55 years old or above and own a house with some equity, you will likely be approved for a reverse mortgage. The older the borrower, the more money they can borrow since lenders operate on the assumption there is less time left to spend any proceeds from the loan.


learning the advantages of getting a reverse mortgage

Advantages and Disadvantages of a Reverse Mortgage

Like most financial decisions, reverse mortgages also come with their pros and cons.

Consider the advantages and disadvantages of a reverse mortgage thoroughly before making your decision.


  • You don’t need to submit any payments on the loan.
  • You don’t have to submit proof of your income to qualify.
  • You can turn some of your home’s value into cash without selling it.
  • Tax-free funds are available for borrowing, and there’s no need to worry about your Old-Age Security or Guaranteed Income Supplement being affected.
  • Your home will remain in your possession, giving you full ownership of this valuable resource.
  • You have the autonomy to allocate your funds however you desire.


  • There are only two providers: HomeEquity Bank and Equitable Bank.
  • As your loan accrues interest, the equity in your home may decrease.
  • The duration of an estate settlement may exceed the timeframe permitted to repay a reverse mortgage, meaning it could become an issue if not addressed.


What is a Home Equity Loan?

A home equity loan, also considered a second mortgage or an add-on mortgage, is secured by the same property used to collateralize the primary mortgage. If payments on either loan are not made in full and on time, it could lead to foreclosure of your residence.

To gain access to the funds you want, applying and qualifying for a home equity loan is a viable option. After approval of the specified amount, you will be awarded a one-time sum plus a fixed or variable interest rate over an agreed period. It’s up to you to then ensure regular payments are made on both mortgages.


being qualified to get a home equity loan

How to Qualify for a Home Equity Loan in Canada?

To be eligible for a Home Equity Loan, you must fulfill the following criteria:

  1. Credit Score: You must have an acceptable credit score to qualify for this loan.
  2. Debt-to-Income Ratio: Lenders will analyze your current financial situation by looking at your debt-to-income ratio and other important factors.
  3. Sufficient Income: You also need proof of adequate income to cover your mortgage and any additional loan payments.
  4. A Good Payment History: You must have a good payment history on your existing mortgage.


advantages and disadvantages in getting a home equity loan

Advantages and Disadvantages of a Home Equity Loan

Consider the benefits and drawbacks of a home equity loan thoroughly before you commit to anything.


  • Access up to 80% of the stored value of your residence with one convenient payment.
  • It has a lower interest rate than credit cards.
  • Fixed-rate home equity loans are a reliable way to get predictable monthly payments and an organized repayment schedule.


  • While some major banks in Canada provide home equity loans, not all do.
  • Compared to traditional mortgages, they have higher interest rates.
  • Using your home as collateral puts you at risk of foreclosure if repayments are not made.


Which Will Yield Faster Financial Gains: A Reverse Mortgage or a Home Equity Loan?

The reverse mortgage closing procedures can be quite lengthy due to the counseling sessions, closing disclosures, and other factors required. On the flip side, home equity loan lenders can typically deliver with a much faster processing period of two to six weeks!


which is better, a home equity loan or a reverse mortgage

Which One is Better for You?

Ultimately, it depends on your financial situation and what you’re seeking to gain from the loan.

If you want immediate access to cash, a home equity loan is likely the better choice. However, a reverse mortgage may be the right move for you if you wish to take out a long-term loan with flexible payments and no credit score requirement.

Consider your individual needs and consult a financial advisor before making a final decision.


Secure Your Financial Future with a Reverse Mortgage or Home Equity Loan Today!

These options can benefit your financial situation with the right strategy and research. It’s vital to weigh the advantages and disadvantages of each option before deciding on one.

Consider your goals, budget, and financial resources before choosing which option is best for you.

It’s a good move to speak with a mortgage broker or financial advisor who will help you understand the implications of each loan. At LendToday, we offer a stress-free experience while we get you the best deal on your reverse mortgage or home equity loan.

Our team of dedicated lending professionals will help you find the most suitable option for you and guide you through the entire process. Contact us today to get started!