Reverse Mortgage vs HELOC vs Selling: Three Ways to Use Your Home Equity in Retirement

By Jatin Dua · Broker of Record, RE/MAX Quantum Realty · Updated 29 September 2026 · 10 min read — how a reverse mortgage, a home equity line of credit and a sale each turn your house into retirement money, who qualifies for each, what each leaves your estate, a side-by-side table, and the questions to ask before you sign.

The three options at a glance

Most people I sit down with in their late sixties and seventies are house-rich and cash-careful. The house has done its job and is now worth far more than they paid, but the pension and CPP don’t stretch the way they used to. There are three main ways to turn that equity into spending money. Here they are side by side, using the Financial Consumer Agency of Canada’s description of reverse mortgages and plain-language descriptions of the other two.

None of these is right or wrong on its own. Each suits a different situation, and I’ll explain which later on.

Option 1: a reverse mortgage

The FCAC’s summary is the fairest one I’ve read. A reverse mortgage is for borrowers “usually aged 55 or older” who can “borrow up to 55% of the current value of your home”. You make no regular payments. Interest is added to the loan, so “the total amount you owe increases over time”, and rates are “usually higher than” regular mortgages or HELOCs. The balance comes due when you sell, move out, the last borrower dies, or you default. Neglecting the home can count as a default, and a default can end in foreclosure.

There are costs at the start as well as interest along the way. The FCAC lists appraisal fees, set-up fees, legal fees, closing costs and prepayment penalties. Fees may also apply when you draw more money later.

To show the ceiling: 55% of a $1,100,000 house is $605,000 (simple arithmetic on the FCAC’s maximum). The lender decides the actual amount, and your offer may be lower. I haven’t printed an interest rate because the main lender’s rate table showed no dated figure when I checked. Ask for a written quote and the total you would owe after 5, 10 and 15 years.

I cover reverse mortgages in much more depth, including the pros and cons for couples, in reverse mortgages in Ontario: pros and cons. This guide is about how one compares with the other two routes.

Option 2: a home equity line of credit (HELOC)

A HELOC is a line of credit secured against your house. You borrow what you need when you need it, and you pay interest only on what you’ve drawn. The FCAC lists it as an alternative to a reverse mortgage, and it usually costs less in interest.

The catch for retirees is qualifying. The lender looks at your income and credit, and in retirement your income is usually pension, CPP, OAS and registered withdrawals. For context, the average new CPP pension at 65 was $877.01 a month in April 2026, and OAS for ages 65 to 74 was up to $751.97 a month for July to September 2026. Together that’s $1,628.98 a month per person (simple addition, before any workplace pension). Some lenders will look at that and say yes. Others will want more.

Three things to understand before you open one:

• Interest-only payments don’t shrink the debt. If you draw $100,000 and pay only the interest, you still owe $100,000 ten years later.
• The rate usually moves. Most HELOCs float with the lender’s prime rate, so your monthly payment can rise.
• It’s the lender’s line, not yours. Lenders can review a credit limit, so don’t count on money you haven’t drawn yet.

A HELOC is best for a defined, short-term need: a roof, a bridge between two closings, or help for a child. The borrower should have steady income and a plan to pay it back.

Option 3: selling and moving somewhere smaller

Selling is the only option that turns equity into cash without creating a debt. It’s also the biggest change to daily life. How much it frees up depends on what you sell and what you buy. These are TRREB’s medians for the single month of August 2026, compared median to median. They’re illustrative and come before commission, legal fees, moving and land transfer tax.

Remember the land transfer tax on the next purchase. On a $525,000 condo, Ontario’s tax works out to $6,975 using the province’s published brackets. Inside the City of Toronto, the municipal tax uses the same brackets up to $2,000,000, so the total is $13,950. Repeat buyers don’t get the first-time buyer refunds.

If the house was solely your principal residence for every year you owned it, the gain isn’t taxed, though you still report the sale. The tax side is explained in selling your home in retirement: the tax side. Renting afterwards is another choice. Toronto’s average asking rent was $2,570 in August 2026 (Rentals.ca), and I compare the two paths in sell and rent in retirement?

What each route leaves your family

This is where the three options differ most, and where families most often misunderstand each other.

• Reverse mortgage: the balance grows every year, so there is less equity to leave. The FCAC names this as one of the main risks. The house can still go to your heirs, but the loan is repaid first, usually from the sale.
• HELOC: whatever you owe at death is a debt of the estate and is repaid before anything is distributed.
• Selling: you swap the house for cash and a smaller home. Cash is easier to divide among children, and some parents give part of it away during their lifetime. The tax rules for that are in giving your children money from the house sale.

Whatever you own at death goes through the estate. Ontario’s Estate Administration Tax is nothing on the first $50,000 of an estate and $15 per $1,000 above that.

Which option fits which situation

From the conversations I have every week, this is how it usually shakes out. It’s a starting point, not advice for your household.

• You want to stay for the long run, have little room for monthly payments, and leaving an inheritance is not your top priority. A reverse mortgage is worth pricing, with a lawyer reviewing it.
• You need a set amount for a set purpose, have steady income and will repay it. A HELOC is usually the cheaper tool.
• The house is too big, the stairs are getting harder, or you want the largest sum with no debt. Selling is the cleanest answer. Look at what your house buys when you downsize before you decide it’s out of reach.
• One of you may need care soon. Ask any lender exactly what “move out” means in the contract. Ask how the loan is handled if one spouse moves into care and the other stays.

Before you borrow at all, check the smaller levers. In Toronto, homeowners 65 and older with household income of $62,000 or less can apply to defer property tax increases (2026 deadline: 2 November 2026). Ontario’s Senior Homeowners’ Property Tax Grant pays up to $500 a year to eligible lower-income seniors. The city-by-city list is in property tax relief for seniors.

Questions to ask before you sign anything

1. What is the total cost? For a loan, ask for every fee in writing (appraisal, set-up, legal, closing, prepayment) and the projected balance at 5, 10 and 15 years.
2. What happens if rates rise? Work out the HELOC payment at a higher rate and check it still fits your budget.
3. What happens if one of us moves into care or dies? Get the lender’s answer in writing.
4. What will the next home cost each month? For a condo, add the maintenance fee and the property tax. Toronto’s 2026 residential rate is 0.767311% of the MPAC assessed value, not the price you pay.
5. Have we spoken to an independent lawyer and our accountant? A lawyer should read any loan contract, and your accountant should run the numbers.

Next steps

Start by writing down the amount you need, what it’s for and for how long. That one line usually points to one option over the others. Then try the downsizing money planner below. It estimates the equity a move would free up and compares the monthly cost of staying with the cost of moving. For the bigger picture of where to live, the GTA retirement guide compares every city on prices, taxes, transit and hospitals.

If selling is on the table, I’ll give you a straight view of what your home would sell for today, with no obligation. That number is the starting point for comparing all three options.

If you would like to talk any of this through, with or without your family on the line, book a call or phone 833-330-1925. No pressure and no obligation.

Frequently asked questions

Sources

• FCAC — Reverse mortgages — 55+, up to 55% of value, costs, when due, risks, alternatives
• HomeEquity Bank — CHIP Reverse Mortgage — up to 55% of home value, 55+, no regular payments
• TRREB — Market Watch, August 2026 — August 2026 detached, condo apartment and condo townhouse medians
• Government of Ontario — Calculating land transfer tax — provincial brackets
• City of Toronto — Municipal Land Transfer Tax rates and fees — MLTT brackets from 1 April 2026
• Rentals.ca — National Rent Report — Toronto average asking rent, August 2026
• Canada.ca — CPP retirement pension: how much you could receive — average new CPP pension April 2026
• Canada.ca — Old Age Security payment amounts — OAS July–September 2026
• CRA — Principal residence and other real estate — no tax if solely principal residence every year
• City of Toronto — Property Tax, Water & Solid Waste Relief — 65+ tax increase deferral, $62,000 income limit, 2 Nov 2026 deadline
• City of Toronto — Property Tax Rates & Fees — 2026 residential rate 0.767311%
• Government of Ontario — Senior Homeowners' Property Tax Grant — up to $500 a year

Related reading

• Best Places to Retire in the GTA (2026): A City-by-City Comparison
• Reverse Mortgages in Ontario: Pros and Cons
• Sell and Rent in Retirement?
• What Your House Buys When You Downsize, City by City
• Selling Your Home in Retirement: The Tax Side
• Property Tax Relief for Seniors, City by City
• How Much Do You Need to Retire in Toronto? (Housing Side)