How to Get Out of a Reverse Mortgage in Canada (2026)

"What happens if I want to pay off my reverse mortgage before selling my home?" Most people enter a reverse mortgage thinking it will last until they die or sell. But circumstances change — an unexpected inheritance, a desire to downsize, a change in family plans, or simply a better offer from another lender. The good news is that getting out of a reverse mortgage is always possible. The more important question is: what will it cost? This guide explains every exit path and how to minimise the penalty.

This article is for educational purposes only and does not constitute financial advice.

The Four Ways to Exit a Reverse Mortgage

There are four circumstances under which a Canadian reverse mortgage is repaid. Two are planned, two are triggered by life events.

Exit Route	When It Happens	Penalty Applies?
Sell the home	Voluntary — seller's choice	Only if within closed term and you repay early
Voluntary full repayment	Proactive decision — keep the home	Yes — if within closed term
Refinance with another lender	Strategic — access better rates	Prepayment penalty on existing reverse mortgage
Death or permanent move-out	Life event	Generally no penalty — estate repays from sale proceeds

Open vs Closed Terms: The Core Decision

The most important factor in exit cost is whether your reverse mortgage is on an open or closed term.

Feature	Open Term	Closed Term
Prepayment penalty	None — exit any time	Yes — calculated as per contract
Interest rate	Higher (0.25%–0.75% premium)	Lower
Best for	Borrowers who may repay early	Borrowers planning long-term holds
Typical terms available	6-month, 1-year	3-year, 5-year fixed

Most reverse mortgage borrowers choose closed terms for the lower rate. This is financially sensible if you plan to stay in the home for the full term. The cost of choosing the wrong term — and exiting a closed mortgage early — can be significant.

How Prepayment Penalties Are Calculated

For closed-term reverse mortgages, the prepayment penalty is typically the greater of two calculations:

Calculation 1: Three Months' Interest

Three months of interest on the outstanding balance at the contract rate.

Example: $250,000 balance at 6.54% → 3 months' interest = $250,000 × 6.54% ÷ 4 = $4,088

Calculation 2: Interest Rate Differential (IRD)

The difference between your contract rate and the lender's current rate for a comparable term, applied to the remaining balance for the remaining term.

Example: You have a 5-year fixed at 7.24%. With 2 years remaining, the lender's current 2-year rate is 6.50%. The IRD is 0.74% × $300,000 × 2 years = $4,440

The penalty is whichever is higher — in this example, the IRD at $4,440.

According to the FCAC, the Interest Rate Differential (IRD) is the most common method used by Canadian mortgage lenders to calculate prepayment penalties on fixed-rate mortgages. Borrowers should request a specific penalty estimate from their lender before deciding to exit early.

Scenario	Balance	Remaining Term	Contract Rate	Current Rate	IRD Penalty	3-Month Interest	Penalty Applied
Scenario A	$200,000	1 year	7.24%	6.80%	$880	$3,620	$3,620
Scenario B	$300,000	3 years	7.24%	6.20%	$9,360	$5,430	$9,360
Scenario C	$400,000	2 years	6.54%	6.00%	$4,320	$6,540	$6,540

Prepayment Privileges: Penalty-Free Partial Repayments

Both CHIP (HomeEquity Bank) and Equitable Bank allow borrowers to repay a portion of their balance each year without penalty, within defined limits.

Lender	Annual Prepayment Privilege	Notes
CHIP (HomeEquity Bank)	Up to 10% of original principal	Once per calendar year
Equitable Bank	Up to 10% of original principal	Once per calendar year
Bloom Financial	Check current agreement	Varies by product
Home Trust (EquityAccess)	Check current agreement	Varies by product

If your goal is to reduce the outstanding balance — and thereby reduce compounding interest — making regular annual prepayments within the penalty-free window is an excellent strategy.

Example: $200,000 reverse mortgage. Each year you repay $20,000 (10% of original principal). After 5 years, your outstanding balance is $200,000 + compounding interest − $100,000 in voluntary payments. The effective compounding effect is dramatically reduced.

Strategic Refinancing: Switching Lenders

If your existing reverse mortgage carries a rate significantly above the current market, it may be worth calculating whether a penalty-paid refinance to a lower-rate lender saves money over the remaining term.

When refinancing makes sense:

• Your current rate is 7.24% (CHIP) and you can switch to 6.54% (Equitable Bank)
• The prepayment penalty is recoverable within 2–3 years of interest savings
• You have 3+ years of remaining term to benefit from the lower rate

When it doesn't:

• Less than 1 year of term remaining (penalty recovery timeline is too short)
• The rate difference is less than 0.50%
• Your home value has changed significantly and you'd need a new appraisal

Refinance Scenario	Current Balance	Penalty to Exit	Annual Interest Saving	Break-Even Period
CHIP to Equitable (0.70% rate diff)	$250,000	$4,500	$1,750	~2.6 years
CHIP to Equitable (0.70% rate diff)	$400,000	$7,200	$2,800	~2.6 years

For a detailed lender comparison, see our CHIP vs Equitable Bank guide →. Current reverse mortgage rates across all four lenders are in our interest rates guide →.

Repaying on Death: What Your Estate Needs to Know

When the last borrower on a reverse mortgage passes away, the loan does not automatically require an immediate lump sum repayment. The estate typically has 6–12 months to arrange repayment — usually by selling the home. During this period, interest continues to compound on the outstanding balance.

The estate process:

1. Executor notifies the lender of the borrower's death
2. Lender confirms the outstanding balance
3. Estate arranges for the home to be appraised and listed for sale
4. At closing, the reverse mortgage is repaid from the sale proceeds
5. Any remaining equity is distributed according to the will

There is no prepayment penalty when repayment is triggered by the borrower's death. For more detail on the estate process, see our reverse mortgage inheritance guide →.

Exiting Early: A Step-by-Step Process

If you want to fully repay your reverse mortgage before its natural repayment trigger:

1. Contact your lender and request a prepayment penalty quote — lenders must provide this in writing
2. Calculate your actual total payoff amount: outstanding balance + accrued interest + prepayment penalty + any discharge fee
3. Determine your source of funds: home sale proceeds, inheritance, investment proceeds, or a new conventional mortgage (if you now qualify based on income)
4. Engage a lawyer to handle the discharge and title change
5. Confirm the discharge date — interest accrues until the date of repayment, not the date you request the quote

According to the FCAC, lenders must provide a prepayment penalty estimate within a reasonable time frame and must do so in writing. Borrowers should always get this in writing before making any financial decisions.

One Drawback of the Open-Term Solution

While choosing an open-term reverse mortgage gives you maximum flexibility to exit, it comes at a cost: higher interest rates. Over a 5-year closed term vs a 1-year open term, the rate difference of 0.25%–0.75% compounds meaningfully on a large balance.

On a $300,000 balance:

• Closed 5-year at 6.54%: grows to approximately $412,000 after 5 years
• Open (rolling 1-year) at 7.04%: grows to approximately $421,000 after 5 years
• Cost of flexibility: ~$9,000 over 5 years

This is worth paying if you genuinely plan to exit within the term. If you are just choosing open as a precaution but are unlikely to repay early, you are paying a premium for flexibility you won't use.

FAQ

Can I exit a reverse mortgage at any time without penalty? You can exit at any time, but a closed-term reverse mortgage carries a prepayment penalty if you repay before the term end. Open-term or annually-renewing reverse mortgages can typically be repaid without penalty on any renewal date.

How long does it take to fully discharge a reverse mortgage in Ontario? Typically 2–4 weeks from your confirmed payoff request to title discharge. Your lawyer handles the legal paperwork, and the lender must provide a discharge document once the balance is paid in full.

Can my children take over a reverse mortgage after I pass away? No. Reverse mortgages are not assumable — they cannot be transferred to a different borrower. When the last borrower passes away, the loan must be repaid by the estate, typically through the sale of the home.

What if I want to keep the home in the family instead of selling it? Your estate (or an adult child) can repay the reverse mortgage from other sources — such as their own savings, an inheritance from you, or by taking out a conventional mortgage on the property — and retain ownership of the home. This is entirely possible; it simply requires having the funds available.

Are there any other fees when discharging a reverse mortgage? In addition to the prepayment penalty, there is typically a discharge fee ($350–$500) payable to the lender, plus your lawyer's legal fees to register the discharge on title. These are relatively modest compared to the prepayment penalty itself.

Can I refinance a reverse mortgage with the same lender at a lower rate? Some lenders will allow a rate renegotiation at renewal without a prepayment penalty. This is worth asking about when your term comes up for renewal, as switching rates within the same lender may be cheaper than discharging and refinancing elsewhere.

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Speak to a licensed mortgage professional. Independent legal advice is required before closing a reverse mortgage in Ontario.

Get your free Ontario Reverse Mortgage Guide →

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This content is for illustrative purposes only. Rates may vary. Call Rick Sekhon for the best rates and more information.