Should I pay off my $250K reverse mortgage early — and aim to survive off CPP and OAS — or keep my $375K savings intact?

Consider this scenario: Samantha is 69, retired, and a few years ago she took out a reverse mortgage at 6.75%. Her home has about $375,000 in equity, her outstanding loan balance is close to $250,000, and she has roughly $300,000 in savings.

One option is to use a large portion of those savings to wipe out the mortgage and live on the Canada Pension Plan (CPP) — but is this wise? Or does it make more sense to leave the savings intact and let the reverse mortgage run its course?

How does a reverse mortgage work?

A reverse mortgage allows homeowners who are at least 55 to borrow money based on the equity in their home. (Your equity is based on how much you’d get if you sold your home, minus how much you have left on your mortgage.)

Unlike a traditional mortgage, you don’t make monthly loan payments. Instead, the lender pays you, using your house as collateral.

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The benefits of a reverse mortgage include:

• Ability for a homeowner to borrow from their home equity without selling — financial institutions sometimes call this ‘equity release’
• No monthly mortgage payments
• Funds are tax-free
• Funds are not considered income, so the money won’t generally affect your CPP or Old Age Security (OAS) benefits

Keep in mind, you still have to pay utility costs, home insurance and property taxes.

Plus, interest accrues on the loan balance, meaning the amount you owe grows over time. If you have a high interest rate, that can add up — and fast. That’s because a reverse mortgage increases your debt while decreasing your equity, and the interest added to your balance each month can use up much — or even all — of your equity over time.

As of April 2026, reverse mortgage rates in Canada range from roughly 6.44% to 7.69% for fixed-rate products, depending on the lender, term length and loan-to-value ratio (1). While those interest rates are meaningfully lower than the 7% to 10% range borrowers were paying a few years ago, the rates are still well above conventional mortgage rates. And the compounding effect matters: At 6.64%, a $250,000 balance doubles in roughly 11 years if no payments are made.

The total (including interest) must be repaid either when you move out and sell your home, or after you pass away — in which case it must be repaid by your estate.

If you sell your home, you can use part of the proceeds to pay off the loan. This could make sense if you want to downsize, move in with family, or transition to an assisted living facility.

However, if you continue living in your home until you pass away, your heirs will inherit the house — and the reverse mortgage.

Canadian reverse mortgages include a no-negative-equity guarantee, meaning your estate will never owe more than your home’s fair market value, as long as the loan terms are met.

Options for paying off a reverse mortgage early

Maybe Samantha wants the peace of mind of owning her home outright, or maybe she wants to leave the house to her children without burdening them with debt. Whatever the reason, she has a few options.

One option is to do nothing.

This option lets her remain in her home, with income from CPP and her retirement savings covering her day-to-day expenses. When she passes away, her children could sell the home and use the proceeds to repay the reverse mortgage. It’s a trade-off: Samantha lives more comfortably and leaves less to her children, or she lives more frugally to leave them more.

For context, the maximum monthly CPP payment for someone starting at age 65 in 2026 is $1,507.65, up from $1,433 last year — though most Canadians receive less than the maximum, depending on their contribution history (2).

Another option is to repay the reverse mortgage loan early.

If Samantha does decide to pay the loan off early, she could consider paying it all off in one lump sum, making a partial payment, or making voluntary payments to reduce interest over time. (You usually have the option to pay off the principal and interest in full at any time.)

However, depending on the conditions established with the lender, early repayment may incur a prepayment penalty — so it’s always best to check with your lender before acting. If you’re still on the fence about early repayment, consult with a trusted financial advisor who has a holistic view of your overall financial situation. This can help you make an educated decision based on numbers rather than anxiety.