HELOC vs Reverse Mortgage

By Adriana Wise · Wise Victoria Mortgages

In my years working with homeowners at Wise Victoria Mortgages, no question comes up more often than this one. A homeowner in their sixties sits across from me and says: "Adriana, my bank offered me a HELOC. Why would I pay more for a reverse mortgage?"

It's a fair question. And honestly? Sometimes the HELOC is the better choice. Part of my job is telling you that when it's true.

The Interest Rate Gap Is Real

Let me be straightforward. As of early 2026, a HELOC from a major Canadian bank typically charges prime plus half a percent to prime plus one percent — roughly 5% to 5.5%. A reverse mortgage from the most competitive lender is around 6.5% for a five-year fixed term. That gap matters. Over ten or fifteen years, it adds up to tens of thousands of dollars in additional interest.

But rate is not the whole story. Not even close.

The Payment Problem

A HELOC requires monthly interest payments. On a $200,000 balance at 5.25%, that's roughly $875 per month — every month, indefinitely. If you're living on CPP, OAS, and a modest pension, that $875 monthly obligation may strain your budget or force you to draw down savings you need for other expenses.

A reverse mortgage has no monthly payment requirement. Zero. The interest accrues and is added to the loan balance, which is settled when you eventually sell or move. For many retirees, this is the difference between financial stress and financial peace of mind.

The Call Risk Nobody Talks About

Here's something most people don't know: your bank can call your HELOC at any time. They can reduce your limit, freeze it, or demand repayment — and they don't need a reason. This happens more often than you'd think, particularly when banks tighten lending criteria or when your financial profile changes (retirement income replacing employment income, for instance).

I've sat with clients who had a HELOC frozen the week after they retired. Their income dropped, the bank's automated systems flagged the account, and suddenly the credit they were counting on disappeared. A reverse mortgage cannot be called. Once it's in place, the lender cannot demand repayment as long as you live in the home and meet your basic obligations (property taxes, insurance, maintenance).

The Qualification Barrier

To get or keep a HELOC, you need to demonstrate sufficient income and maintain an acceptable credit profile. In retirement, when your income may drop by half or more, qualifying for a new HELOC — or keeping your existing one — isn't guaranteed. I've seen banks reduce HELOC limits at renewal specifically because the borrower's income declined in retirement.

Reverse mortgages don't require income qualification. They don't require a credit score. They are designed specifically for retired homeowners with limited income but significant home equity.

When the HELOC Wins

If you are still working, have reliable income, can comfortably afford the monthly interest payments, and are confident your bank won't call or reduce the HELOC — it is almost certainly the cheaper option. The lower interest rate saves you real money, and the flexibility of a HELOC (borrow, repay, re-borrow) is hard to beat.

I also recommend setting up a HELOC before you retire, even if you don't need it immediately. It is much easier to qualify while you still have employment income, and having that credit facility available gives you options down the road.

When the Reverse Mortgage Wins

If monthly payments are a burden, if your income doesn't support a HELOC, or if the security of knowing your funding cannot be called away matters to you — the reverse mortgage may be worth the higher rate. The "cost" of a reverse mortgage isn't just the interest rate. It's the price of certainty, stability, and no monthly obligations. For the right person, that's a bargain.

As with everything in this business, the right answer depends on your situation. Not your neighbour's, not your friend's — yours. That's why we sit down with every client individually and walk through the numbers together.