Reverse mortgage basics
Reverse Mortgage Interest Rates, Explained in Plain English
The interest rate is the single most misunderstood part of a reverse mortgage. Not because the math is hard, but because nobody sits down and walks through it with you slowly. Let's do that here, with real numbers.
Why the rate runs higher than a regular mortgage
Reverse mortgage rates typically sit roughly one to two percentage points above conventional mortgage rates at any given time. That gap isn't padding, it reflects a real difference in how the lender gets repaid. On a conventional mortgage, the lender collects a payment every month and knows roughly when the loan will be paid off. On a reverse mortgage, there are no required payments, and the lender doesn't know whether repayment will come in three years or twenty-three, since it depends on when you sell, move, or pass away. That uncertainty, and the years of waiting for one final repayment instead of steady monthly income, is priced into a higher rate. It is a real cost of the product's flexibility, not a sign that something is wrong or that you're being taken advantage of.
Fixed vs. variable
Like a conventional mortgage, reverse mortgages come in fixed and variable options, and the choice matters more here because there are no payments resetting your exposure along the way.
- Fixed rate. The rate is locked for a set term, commonly one, three, or five years, though some lenders now offer longer or even lifetime fixed options. You know exactly what rate applies for that period, which some retirees find easier to plan around.
- Variable rate. The rate moves with the lender's prime rate over time. It can end up cheaper if rates fall, or more expensive if they rise, and because the balance compounds without payments, a variable rate adds an extra layer of uncertainty on top of the interest itself.
Neither choice is universally right. If predictability matters most to you, fixed is usually the more comfortable choice. If you're comfortable with some movement and think rates may trend down, variable is worth a conversation. This is exactly the kind of decision worth making with real numbers in front of you rather than a general rule, and it is one of the things I walk through on every call.
How compounding works when there are no payments
This is the part that surprises people the most, so it's worth seeing in numbers rather than just described in words. When you don't pay the interest each year, it gets added to the balance, and the following year's interest is calculated on that larger balance. Over time, this snowballs. Here's a simplified illustration using a starting balance of $100,000 and an illustrative rate of 7% a year, chosen purely to make the math easy to follow, not as a quote of any current or future rate.
| Year | Balance owing |
|---|---|
| 1 | $107,000 |
| 2 | $114,490 |
| 3 | $122,504 |
| 4 | $131,080 |
| 5 | $140,255 |
| 6 | $150,073 |
| 7 | $160,578 |
| 8 | $171,819 |
| 9 | $183,846 |
| 10 | $196,715 |
Hypothetical illustration only, using a rounded 7% annual rate purely for arithmetic clarity. This is not a quoted or predicted current rate; actual rates change with the market and vary by lender. No fees are included in this simplified example.
Notice the balance nearly doubles in this illustration over ten years, without a single payment being missed or a single dollar being taken by anyone acting improperly. That's simply what compounding without payments does over time, and it's exactly why the equity remaining in your home shrinks the longer the loan runs without any interest paid down. Anyone who glosses over this isn't being straight with you.
Optional interest payments can freeze the balance
Here's the part people often don't realize: making payments is never required on a reverse mortgage, but it is usually allowed. Most lenders let you voluntarily pay some or all of the interest each year if you choose to. If you paid the full interest amount every year on the example above, the balance would simply stay at $100,000 for the full ten years instead of climbing toward $196,715. Many retirees choose a middle path, paying part of the interest from other income when they can, which slows the growth without committing to a fixed monthly obligation the way a HELOC would require. It's worth discussing this option specifically, since it can meaningfully change the long-term picture without giving up any of the flexibility that makes a reverse mortgage attractive in the first place. I compare this trade-off directly against a HELOC in reverse mortgage vs. HELOC in Ontario.
How lenders actually set the rate
Reverse mortgage rates aren't pulled from thin air. Like conventional mortgage rates, they're built from the lender's own cost of borrowing money in the broader bond and lending markets, plus a spread that reflects the lender's costs and the added risk of a product with no scheduled repayment date. When conventional mortgage rates move up or down with the broader economy, reverse mortgage rates generally move in the same direction, though not always by the same amount or at the same time, since each lender manages its own funding costs and risk appetite. This is why the specific rate you're quoted always depends on when you apply and which lender you're comparing, and why any number you read in an old article, including a rate mentioned by a lender in the news, should never be assumed to reflect current pricing.
What actually determines your specific rate
Within any given market environment, a few things influence which specific rate a lender offers you: whether you choose a fixed or variable structure, the term length you select, and sometimes the size of the loan relative to your home's value. Your income and credit history, unlike a conventional mortgage or a HELOC, generally do not affect your rate, since reverse mortgage pricing isn't built around a credit risk assessment the way other lending products are. That's a meaningful difference worth remembering if you've been quoted a rate on a HELOC application and are comparing it to a reverse mortgage rate; the two numbers are built on different foundations, not just different products.
Why the all-in cost matters more than the headline rate
A slightly lower advertised rate isn't automatically the better deal. Set-up fees, appraisal costs, prepayment charges if you repay early, and whether the product offers portability if you move can all shift the true cost of borrowing well beyond what the posted rate suggests. Two lenders quoting rates a fraction of a percentage point apart can end up costing meaningfully different amounts once these factors are added in. This is exactly why I walk clients through actual, current quotes side by side rather than comparing headline numbers, and why I put together an honest look at the three major Canadian lenders in CHIP vs. Equitable Flex vs. Bloom. The only way to know your real numbers, rate included, is a personalized quote based on your age and property, which I can arrange at no cost.
For the fuller picture on eligibility and how much you might access in the first place, see how much can you borrow, and my reverse mortgage explainer page covers the rest of the mechanics beyond the rate itself.
A note on how to read any rate you see advertised
If you're researching on your own and come across an advertised reverse mortgage rate, treat it the way you'd treat any advertised financial rate: as a starting point for a conversation, not a promise of what you personally will receive. Advertised rates typically reflect the best case for a specific term, structure, and sometimes a specific loan-to-value range, and they change often enough that a rate you read about even a few months ago may no longer be current. The only rate that matters to your decision is the one in a personalized quote based on your actual age, property, and the term and structure you choose, confirmed in writing before you sign anything. Everything else, however useful for general education, is context rather than a commitment.
Questions people ask about this
Are reverse mortgage rates always higher than a regular mortgage?
Typically yes, usually by roughly one to two percentage points, because the lender is waiting years for one final repayment instead of collecting monthly payments along the way. This gap can widen or narrow depending on market conditions, so it should never be assumed to be fixed.
Should I choose a fixed or variable rate?
It depends on your comfort with uncertainty and how long you expect to hold the loan. A fixed rate gives you certainty over the term. A variable rate can end up cheaper or more expensive depending on which way rates move, and some lenders now offer longer-term or lifetime fixed options as well. This is worth discussing against your specific plans.
Can I pay the interest instead of letting it compound?
Yes. Most lenders let you voluntarily pay some or all of the interest as you go, even though it is never required. Doing so slows or completely stops the balance from growing, which preserves more of your home equity over time.
What should I compare besides the interest rate?
Set-up and appraisal fees, prepayment charges, portability if you might move, and the exact wording of the no-negative-equity guarantee all affect the true, all-in cost of the loan. Two products with the same headline rate can cost noticeably different amounts once these are factored in.
This article is general education for Ontario residents, current to July 10, 2026, and is not legal, tax, or investment advice. Reverse mortgage features vary by lender; approval, rates, and amounts are never guaranteed. Please consult an independent legal or financial advisor about your personal situation.