How a $200K Reverse Mortgage Becomes $693K (And the Cheaper Fix Most Canadians Miss)
By Alex McFadyen | General | 7 min read | Published 2026-07-21
**A reverse mortgage turns your home equity into tax-free cash with no monthly payments, and for the right person it can be the right call. But it is a loan at roughly 6.4%, the balance compounds instead of shrinking, and a $200,000 draw at age 65 grows to about $693,000 by age 85. Before anyone signs one, there are usually two or three cheaper doors, and the person selling the reverse mortgage is not the one who will show them to you.**
If you are 55 or older, or you are the adult child watching a parent consider this, the honest version of the math is worth 7 minutes of your time. Here it is on real 2026 numbers.
## Why Canadians owe $11 billion on reverse mortgages
Canadians now owe about $10.9 billion on reverse mortgages, and that number has been climbing at roughly 21% a year for a decade, a figure the Globe & Mail flagged this summer. The reason is simple enough. An entire generation is reaching retirement house-rich and cash-poor, the home is worth a fortune on paper and the bank account is not, because pensions did not keep up while property taxes and groceries and everything else did.
So when a company offers money you do not have to pay back until you leave the house, it feels like a rescue. For a specific group of people it is a real tool. But it is a loan, not a gift, and every dollar you pull out today is a dollar that stops working for you and starts working against you, because the interest compounds for as long as you live in that home.
## The math runs backwards
A normal mortgage runs one way. You make a payment every month, the balance shrinks, and after 25 years it is gone. A reverse mortgage runs the other way. It asks you for nothing, no payment ever while you live there, and that sounds wonderful until you sit with what it means, because no payment means no brake. The balance never pauses. Interest gets charged on the loan, then interest gets charged on that interest, year after year.
Here is the number the brochure buries. A reverse mortgage in Canada runs around 6.4% today, that is CHIP's 5-year fixed as of July 2026, while the best 5-year fixed a healthy borrower can get on a Flow rate sheet is 4.29%. So you are paying roughly 2 full percentage points more, on a balance that grows instead of shrinks. That gap is what does the damage, and it is easiest to see on a $200,000 draw taken at 65:
| Age | Years in | Balance owed |
|---|---|---|
| 65 | 0 | $200,000 |
| 70 | 5 | ~$273,000 |
| 75 | 10 | ~$372,000 |
| 80 | 15 | ~$508,000 |
| 85 | 20 | ~$693,000 |
The balance roughly doubles every 11 years. Nothing went wrong to make that happen, no missed payment, no penalty. That is the product working exactly as designed, and it is why $200,000 at 65 can become a debt closer to $700,000 by the time an estate gets settled.
## The three cheaper doors
There are almost always two or three options that should get priced before anyone signs a reverse mortgage, and your reverse lender is not going to walk you through them.
The first is a HELOC, a home equity line of credit. On the same house you might carry a HELOC at around 5% instead of 6.4%, and the rate is only part of it, because a HELOC also lets you pay the interest each month if you can swing it. The moment you are paying the interest, the balance stops compounding and sits still. On a $200,000 draw that is roughly $830 a month to keep the debt frozen at $200,000 instead of watching it grow to $693,000. For a retiree with some cash flow, even a pension that covers it, that is a completely different outcome for the family.
The second, for people who still have provable income, is a straight refinance, where you pull equity at a normal mortgage rate in the 4s and structure a real payment. The third, which nobody wants to hear, is that for some homeowners the right move is to sell, take the full equity clean with no compounding debt attached, and buy or rent something that fits the retirement, especially if leaving the house to someone was never really the plan.
## When a reverse mortgage actually fits
This is not a case against the product. A reverse mortgage is the right tool in a narrow situation, when you are 55 or older, you want to stay in that specific home, and you cannot service any payment, no pension room and no income a lender will count, so a HELOC or a refinance is off the table because you would not qualify. In that exact case the reverse mortgage does something real. It lets you stay. The major Canadian products also carry a guarantee that you will not owe more than the home is worth when it sells, so nobody is thrown out and the estate is not chased for a shortfall, and that protection is worth taking seriously.
The problem is that it gets sold to people who had a cheaper door open the whole time and were never shown it. The one thing a reverse lender almost never does is check whether you qualify for something two points cheaper first. That check is free, it takes an afternoon, and skipping it is what turns a $200,000 decision into a $500,000 one.
## What your family actually inherits
Put it on a real BC house. Say the home is worth $1.1 million today, around the Vancouver benchmark. In a calm market growing at 3% a year it might be worth close to $2 million in 20 years, so even after the reverse mortgage grows to $693,000, the kids still inherit real money. But we have not been living in a clean 3% market, and if that home is flat for a stretch, or dips, then the $693,000 is no longer eating into the growth, it is eating straight into the equity your family was counting on.
The scenario families do not see coming is the adult child who was living with a parent, helping care for them, who assumes there is time to sort it out. Then the last borrower passes, the loan comes due, and if they cannot qualify for a new mortgage to buy the house back, the estate has to sell it to clear the debt. That is a conversation worth having long before the letter arrives.
## Your move
A reverse mortgage is a real loan at roughly 6.4% that compounds with no payments, and it can turn $200,000 into nearly $700,000 over a retirement. For a lot of people who were sold one, a HELOC, a refinance, or a clean sale would have kept a few hundred thousand dollars in the family instead of in the lender's pocket. If you or your parents are 55 or older and anyone has floated a reverse mortgage, get the cheaper options priced first, by someone who is not paid to sell you the expensive one.
Structure it right, and you will come out of this stronger than you went in. If you want your own numbers run before you sign anything, [book a call with our team](https://www.getflowmortgage.ca) and we will price every door, not just the expensive one.