Glossary
Reverse mortgage glossary
Short answer
Plain definitions of the words in a Canadian reverse-mortgage contract: advance, scheduled advance, compounding, independent legal advice, no-negative-equity guarantee, prepayment charge, posted and special rates, HELOC, qualifying rate and principal residence. Each is written for a first-time reader, in a sentence or two.
Figures as of November 1, 2026.Plain definitions of the words you'll meet in a Canadian reverse-mortgage offer and at your lawyer's office: advances, compounding, the no-negative-equity guarantee, prepayment charges, repayment triggers, HELOCs and more.
| Home sells for | $400,000 |
|---|---|
| Selling costs | $20,0005% |
| Balance owed | $450,000 |
| Estate owes the lender | $0the guarantee covers the $70,000 gap if terms were kept |
Open this example in the calculator →Computed by our engine with the lender terms and rules on the methodology page.Computed November 1, 2026.
- Reverse mortgage
- A loan secured by your home, for owners 55 and older, with no regular payments. Interest is added to the balance, and the loan is repaid when the home is sold, the last borrower moves out or the last borrower dies. More
- Advance
- Money paid out to you by a reverse-mortgage lender: a lump sum at closing, later lump sums, or a regular monthly or yearly amount.
- Approved amount
- The most a lender agrees to lend you, set after an appraisal. It depends on your age, the home's value, its location and the type of property. More
- Appraisal
- An independent estimate of your home's market value, ordered by the lender before it sets the approved amount. You usually pay for it.
- Compound interest
- Interest charged on interest. With no payments, a reverse-mortgage balance grows faster each year because last year's interest is now part of the balance. More
- Semi-annual compounding
- Interest added to the balance twice a year. It is the usual convention for Canadian fixed-rate mortgages and makes the effective yearly rate slightly higher than the quoted rate.
- Independent legal advice (ILA)
- A meeting with your own lawyer (in Quebec, a notary), separate from the lender, to explain the reverse mortgage before you sign. Canadian reverse-mortgage lenders require it. More
- No negative equity guarantee
- A lender's promise that, if its terms are met, you or your estate will not owe more than the home's fair market value when it is sold, even if the balance has grown past it. More
- Prepayment charge
- A fee a lender may charge if you repay a reverse mortgage early, usually in the first years of a fixed-rate term. Lenders waive it in some situations, such as death or a move to long-term care. More
- Repayment trigger
- An event that makes the loan due: the sale of the home, the last borrower moving out permanently, the last borrower's death, or a default on the loan terms (for example, unpaid property tax or insurance). More
- HELOC (home equity line of credit)
- A revolving line of credit secured by your home. Federally regulated lenders can lend up to 65% of the home's value on the revolving part and you must make at least the interest payment every month. More
- Minimum qualifying rate (stress test)
- The rate a federally regulated lender uses to check that you can afford payments: the greater of your rate plus 2 points or 5.25%. It applies to HELOCs; it doesn't apply to reverse mortgages, which have no payments to test.
- Loan-to-value (LTV)
- What you owe divided by the home's value. A reverse mortgage starts at a low LTV and rises over time as interest builds.
- Downsizing
- Selling your home and buying a smaller or cheaper one, freeing up the difference after selling costs, land transfer tax and moving. More
- Land transfer tax
- A provincial (and in Toronto and Montréal, also municipal) tax the buyer pays on a home purchase. It matters when you downsize because you pay it again on the new home.
- Estate
- Everything you leave when you die. With a reverse mortgage, your estate receives what's left after the home is sold and the loan repaid. More
- Executor (liquidator in Quebec)
- The person named in a will to settle the estate. They deal with the reverse-mortgage lender and the sale of the home.
- Guaranteed Income Supplement (GIS)
- A monthly federal benefit for low-income Old Age Security recipients. Reverse-mortgage advances are loans, not income, so they don't count toward the GIS income test. More
- FCAC
- The Financial Consumer Agency of Canada, the federal agency that oversees federally regulated financial institutions' consumer obligations and publishes plain-language guidance, including on reverse mortgages. More