The phrase “affordability crisis” is one that is now familiar to all Canadians. The cost of living has been on a steady upward trend for the past number of years, and the increase in living costs has hit particularly hard in an area where expenditures are completely non-discretionary – the cost of food. Individuals and families may be able to put off replacing their current vehicle, or forgo the annual vacation, but there is no scenario in which expenditures on groceries can be considered discretionary.
The relentless upward trend in the cost of food has been noted repeatedly by Statistics Canada in its publications. StatsCan figures show that, as of July 2026, Canadians were paying around 30% more for food than they were in July 2020. As well, increases in the cost of groceries have outpaced the general rate of inflation in every single month since early 2025.
When prices for non-discretionary spending items increase in that way it’s noticed by everyone, but has a disproportionate impact on those who are living on a fixed income and who must, therefore, spend an ever-increasing percentage of that income on such non-discretionary spending. While such individuals and families can be found in all age groups, retirees make up the largest Canadian demographic who live on such fixed incomes.
For many Canadian retirees, benefits received from the Canada Pension Plan (CPP) and Old Age Security (OAS) program make up a substantial portion of their annual income. And while both CPP and OAS payment amounts are indexed to inflation, that indexation is based on the overall or general rate of inflation. Where the cost of necessities, like groceries, increase much more than the general rate of inflation, the indexing of CPP and OAS benefit amounts just doesn’t keep up with those changes, creating a cash flow shortfall for many retirees.
In addition to dealing with increased living costs, retirees are also dealing with interest rates which have declined over the past three or four years, meaning a decrease in investment income for the majority of retirees who invest their retirement savings in lower-risk vehicles like guaranteed investment certificates.
It must seem to Canadian retirees that there just aren’t many good options when it comes to generating the cash flow needed to cover ever-increasing costs for non-discretionary expenditures. Fortunately, however, the majority of Canadians who are over the age of 60 own their own homes, and that fact provides them with additional options. Canadians who are now in retirement and own their homes most likely purchased those homes many years or even decades ago and have consequently built up significant equity. In the current economic circumstances, that equity has made them house-rich and cash-poor. And that equity can now provide an ongoing source of retirement income – through a reverse mortgage or a home equity line of credit (HELOC). Both such financial products have the same basic structure, which is to allow homeowners to borrow against the value of the equity which they have in their home. In both cases there will be costs associated with taking out a HELOC or reverse mortgage which must be borne by the homeowner, including appraisal costs and other administrative fees. There are, however, definite differences between a HELOC and a reverse mortgage, in terms of costs and benefits, and an individual homeowner’s circumstances will determine which such product (if either) makes the most sense for them.
The HELOC, as the name implies, is a line of credit which permits the homeowner to borrow up to a pre-set limit, based on the current market value of their home. Such borrowings can be in any amount (to a maximum of 65% of the value of the home, or the amount of equity the homeowner has in the home, whichever is less) and can be made at any time and for any purpose. Typically, the interest rate charged on a HELOC is a variable rate – usually one half or one percent more than the prime rate used by the lender. There is, however, a significant feature of the HELOC of which potential borrowers must be aware. While there is generally no obligation to repay amounts borrowed from a HELOC until either the death of the homeowner or until the house is sold, borrowers are required to pay interest each month on the total amount borrowed.
Take, for example, a couple who own a house currently valued at $750,000. Assume that the couple obtain a HELOC based on that home value and borrow $1,000 each month ($12,000 annually), from the HELOC to help meet current cash flow shortfalls. At an interest rate of 5.50%, they will be obliged to make an interest payment of approximately $55 per month on that $12,000 borrowing. As the amount of HELOC indebtedness increases over time, or the interest rate charged goes up, the amount of those required monthly interest payment obligations will, of course, also increase.
The other major option open to homeowners is the reverse mortgage. Most Canadian homeowners will be familiar with at least the concept of a reverse mortgage, as those products have been heavily advertised in Canadian media. Like a HELOC, a reverse mortgage allows homeowners who are age 55 and older to borrow based on the market value of their property – up to 55% of the home’s market value or the amount of equity they have in the home, whichever is less. A reverse mortgage is also similar to a HELOC in that borrowers can borrow a lump-sum amount, or can opt to structure the reverse mortgage as a series of payments which will provide a regular income stream, or some combination of the two. And, as with a HELOC, no repayment of the funds advanced under a reverse mortgage is usually required until the death of the homeowner, or until they leave or sell the home.
The basic advantage of a reverse mortgage over a HELOC is that the homeowner is not required to make any payments of interest amounts charged. However, homeowners need to consider the impact that advantage can have over time. Once the reverse mortgage is taken out, interest (usually at a rate higher than would be charged for a HELOC) will, of course, be levied on all amounts borrowed, and will accumulate from the time the funds are first advanced. Total interest costs can add up very quickly and reach significant amounts by the time the debt is eventually to be repaid, usually out of the proceeds from the sale of the house. And, of course, every dollar of funds advanced and interest levied reduces the amount of equity which the homeowner has built up, on a dollar-for-dollar basis. By contrast, with a HELOC, where accrued interest charges must be paid monthly, the amount of debt (and consequent reduction in equity) will never be greater than the principal amount borrowed. Finally, under the terms of many reverse mortgages, a prepayment penalty is levied where the homeowner moves or sells the house within a few years of obtaining the reverse mortgage – the exact time frame will depend on terms provided by the particular lender. With a HELOC, however, repayment of the outstanding balance can be made in part or in full at any time, without penalty.
As is almost always the case with financial issues, there is no one right answer or even a one-size-fits-all answer, as the “correct” answer is always based on the particular financial and life circumstances of the individuals involved. Help in making that decision – including a listing of the benefits and downsides of each option – can be found in a very comprehensive summary of the features of HELOCs and reverse mortgages, which is available on the website of the Financial Consumer Agency of Canada at https://www.canada.ca/en/financial-consumer-agency/services/loans.html.