How does reverse mortgage interest compound in Canada?

Canadian reverse mortgages use semi-annual compounding, the same as traditional mortgages. The annual rate is converted to a semi-annual effective rate, then to a monthly rate using the formula: effectiveMonthly = (1 + annualRate/2)^(1/6) - 1. This means interest compounds on interest every month, causing the loan balance to grow exponentially over time.

Are reverse mortgage proceeds taxable in Canada?

No. Reverse mortgage proceeds are a loan, not income. The CRA does not tax them and they do not affect your Old Age Security (OAS), Guaranteed Income Supplement (GIS), or other income-tested benefits. This is one of the key advantages over withdrawing from RRSPs or other registered accounts.

What happens to the reverse mortgage when I die?

When the last borrower dies, the estate has a limited time (typically 6-12 months) to repay the loan. Heirs can sell the home to repay, refinance with a traditional mortgage, or pay from other estate assets. All Canadian reverse mortgages include a negative equity guarantee — heirs never owe more than the home is worth.

Does my spouse pay tax on an inherited home in Canada?

If your spouse or common-law partner inherits your home, the spousal rollover rule applies — the property transfers at your adjusted cost base with zero capital gains triggered. The reverse mortgage can also continue in the surviving spouse's name. This is the most tax-efficient inheritance scenario in Canada.

What happens without a will in my province?

Each province has different intestate succession rules. For example, in Ontario the spouse receives the first $350,000 plus 50% of the remainder, while children split the rest. In Quebec, the spouse receives one-third and children receive two-thirds. Without a will, probate is required and estate settlement typically takes 6-12 months longer.

What are probate fees and how are they calculated?

Probate fees (called estate administration tax in Ontario) are provincial fees charged to validate a will. Rates vary significantly: Ontario charges 1.5% on estates above $50,000, BC charges 1.4% above $50,000, while Alberta caps fees at $525 and Quebec charges nothing for notarial wills. These fees apply to the total estate value passing through probate.

Can heirs keep the home after the borrower dies?

Yes. Heirs can keep the home by repaying the reverse mortgage from other funds or by refinancing with a traditional mortgage. They are not required to sell. However, they must repay the full loan balance plus accrued interest within the lender's specified timeframe, typically 6-12 months.

What is the spousal rollover rule?

The spousal rollover is a Canadian tax provision allowing assets to transfer to a spouse or common-law partner at the original adjusted cost base rather than fair market value. This defers all capital gains taxes until the surviving spouse eventually disposes of the property. It applies automatically unless the executor elects otherwise.

Which reverse mortgage lender is best in Canada?

The three main Canadian reverse mortgage lenders are Equitable Bank (lowest rates around 6.54%), CHIP by HomeEquity Bank (largest provider with widest property eligibility at 6.64%), and Bloom (SafeRate guarantee at 6.99%). The best choice depends on your location, property type, and whether you prioritize rate vs. features.

Is gifting equity better than leaving an inheritance?

Gifting equity now through a reverse mortgage can be advantageous: the gift is tax-free, avoids probate fees, gives you control over who receives what, and allows heirs to invest the funds immediately. However, it reduces your own financial safety net. The optimal strategy depends on your financial security, health, and family situation.

What is escheat and when does the government take everything?

Escheat occurs when someone dies without a will and without any surviving relatives — spouse, children, parents, siblings, nieces, nephews, or any blood relatives. In this rare situation, the entire estate reverts to the provincial Crown. This underscores the importance of having a will, regardless of estate size.

Do I need a Power of Attorney with a reverse mortgage?

Yes, having a Power of Attorney (POA) is critical. If you become mentally incapacitated without a POA, the court must appoint a guardian to manage your affairs — an expensive process costing $5,000-$15,000+. A POA ensures someone you trust can manage your reverse mortgage, make payments decisions, and handle your estate planning.

Back to Home Free Calculator Tool

Reverse Mortgage Calculator

Compare 4 Canadian reverse mortgage lenders, project equity erosion over 25 years, calculate provincial probate fees, and compare gifting equity tax-free vs leaving inheritance.

Calculate Now

4 Canadian Lenders

Equitable, CHIP, Bloom + Custom

Provincial Probate Costs

All 10 provinces calculated

Tax-Free Equity Planning

Gift now vs inheritance analysis

Your Details

Home Value

Current Mortgage Balance

Age of Youngest Borrower 65

Province

Lender

Interest Rate (%) 6.54%

Home Appreciation (%/yr) 2.00%

Investment Return (%/yr) 5.00%

Primary Beneficiary

Property is NOT my principal residence

Results

Maximum Available Equity

$280,000

Max LTV: 35% at age 65

Year	Home Value	Loan Bal.	Equity	%

Probate Fee (Ontario)

On remaining equity at year 10

What the Government Takes (at Year 10)

Probate fees$0

Capital gains tax$0

Estate admin costs$10,000

Total government take$10,000

Heirs actually receive$0

💍 Spousal Rollover Applies

Assets transfer at adjusted cost base — zero capital gains triggered. Reverse mortgage can continue.

⚠️ Deemed Disposition at Death

Non-principal residence properties trigger capital gains at FMV. Principal residence remains exempt.

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*Estimates only. Actual rates and LTV limits may vary by lender and property.

Gift Now vs. Reverse Mortgage vs. Do Nothing

Compare three strategies for your home equity over the next 25 years

Gift Amount Max available: $0

Choose the exact dollar amount you want to gift now and project how it could grow if invested.

🎁 Gift Now

Gift a specific amount now and let it grow tax-free in the family

Year Invested Value

Best for: Helping children or heirs now, avoiding probate, and controlling exactly how much you transfer.

🏠 Reverse Mortgage

Use home equity now, leave the remaining equity later

Year Net to Heirs

Note: Good for cash flow today, but heirs usually receive less because interest grows over time and probate still applies.

🏘️ Do Nothing

Keep the house untouched and pass along the estate later

Year Net to Heirs

Note: Usually the highest raw estate value, but probate, taxes, and settlement delays still affect what heirs receive.

Canadian Reverse Mortgage Lenders

Lender	Rate	Min Age	Max LTV	Key Feature
Equitable Bank	6.54%	55	Up to 55%	Lowest rates, flexible options
CHIP / HomeEquity Bank	6.64%	55	Up to 55%	Largest Canadian provider, widest property eligibility
Bloom SafeRate	6.99%	55	Up to 50%	Rate-lock guarantee, no negative equity guarantee

Rates as of March 2026. Subject to change. Contact lenders for current rates.

Tax Implications of Reverse Mortgages

✅

Proceeds Are NOT Income

Reverse mortgage proceeds are a loan, not income. The CRA does not tax them — no impact on your OAS, GIS, or other benefits.

🏠

Principal Residence Exemption

Your home remains your principal residence while you live in it. All appreciation is tax-free regardless of who inherits.

💍

Spousal Rollover (Tax-Free)

Spouse/common-law partner inherits at adjusted cost base — zero capital gains triggered on any property. The reverse mortgage can continue.

⚠️

Deemed Disposition (Children/Others)

Non-spouse heirs trigger deemed disposition at FMV. Investment properties face capital gains at 66.67% inclusion above $250K threshold.

📈

Interest Usually Isn’t Deductible

Reverse mortgage interest is generally not tax deductible for personal use, but it may be deductible when the borrowed funds are clearly used for income-producing investments.

📊

Capital Gains Inclusion Rate

As of 2024, capital gains above $250,000 are included at 66.67% (up from 50%). Below that threshold, the 50% inclusion rate still applies.

Will & Estate Planning Considerations

📜

Without a Will (Intestate)

Province-specific distribution rules apply. Your estate may not go where you want — see the intestate table below.

✅

With a Will

The reverse mortgage is deducted from your estate before distribution. Your will controls who gets the remaining equity.

🤝

Joint Ownership (JTWROS)

Joint tenancy with right of survivorship bypasses probate entirely. The property passes directly to the surviving owner.

⚖️

Power of Attorney

Critical for managing your reverse mortgage if you become incapacitated. Without a POA, the court appoints someone — expensive and slow.

🏷️

Beneficiary Designations

RRSPs, TFSAs, and insurance bypass probate with named beneficiaries. Consider this when planning around reverse mortgage equity.

Probate Fees & Timeline by Province

Your selected province is highlighted. Fees calculated on remaining equity at year 10.

Province	Fee Formula	Your Cost	Timeline

Intestate Distribution by Province

What happens to your equity if you die without a will

Province	Spouse Receives	Children Receive

📋 Your Intestate Distribution (at Year 10)

Select your province above to see the breakdown.

🏛️ Escheat: When the Government Gets Everything

If you die without a will AND have no surviving relatives (spouse, children, parents, siblings, nieces/nephews, etc.), your entire estate — including all home equity — reverts to the provincial Crown under escheat laws. This is rare but underscores the importance of having a will.

Not Sure Which Strategy Is Right?

Let our experts help you decide between gifting equity, a reverse mortgage, or keeping your home as-is.

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