A straight answer
What's the catch? Compounding — and it's real.
Every reverse-mortgage ad says "no payments". That's true. What it doesn't say is what happens to a loan nobody pays: the interest is added to the balance, and the next interest is charged on the bigger number. That is the catch. It isn't hidden and it isn't a trick — but you should see it in figures before anyone asks you to sign anything.
The catch, in numbers
Start with what is owed: a $300,000 advance is about $413,068 owed after five years, $568,751 after ten and $783,111 after fifteen, if you never pay a dollar along the way. Then look at what the family keeps: because the house is usually rising at the same time, the family's share doesn't vanish — it shrinks. Whether that trade is worth it depends entirely on what the $300,000 does for you now.
A $300,000 advance, left alone
Illustration: a $900,000 home, a $300,000 advance at age 70, 6.5% interest compounding twice a year, no payments made, and the home rising 3% a year. Not a quote — change any of it in the calculator.
- Year 5 · age 75
- Owed
- $413,068
- Home
- $1,043,347
- Family keeps
- $630,278
- Year 10 · age 80
- Owed
- $568,751
- Home
- $1,209,525
- Family keeps
- $640,773
- Year 15 · age 85
- Owed
- $783,111
- Home
- $1,402,171
- Family keeps
- $619,060
- Year 20 · age 90
- Owed
- $1,078,260
- Home
- $1,625,500
- Family keeps
- $547,240
- Year 25 · age 95
- Owed
- $1,484,651
- Home
- $1,884,400
- Family keeps
- $399,749
Three things that soften it
Payments are optional, not forbidden
Pay the interest each month — about $1,603 on this illustration — and the balance stays at $300,000 for as long as you keep paying. Stop again whenever you like.
You can never owe more than the house
The no-negative-equity guarantee: you or your estate never owe more than the home's fair market value, even if the lines cross.
You stay the owner
Nothing about ownership changes. Your ongoing obligations are the ones you already have: keep the property taxes and insurance current, and keep living in the home.
The other catches people mean
- Set-up costs, paid out of the advance. Legal work (about $1,500–2,500), independent legal advice (about $400–800), and the appraisal. All disclosed in writing before you sign — your own lawyer walks you through them. Every figure, from the lenders' own pages →
- A higher rate than a normal mortgage. Typically 1.5 to 2.5 percentage points above a 5-year fixed. Here is why, and what a point actually does →
- Repaying early. If you might sell or repay within a few years, the lender's early-repayment terms matter. They are in the commitment letter, and we put them in front of you before you sign — not after.
- The inheritance. Money spent now is money the estate won't have later. Talk it through with the people it affects — we are glad to have them at the table, and many families find it is the parents' comfort the children wanted all along.
When the catch outweighs the benefit, we say so
- Your income qualifies for a credit line and the payment is comfortable — that is usually cheaper, and we will say so
- You plan to sell or move within a couple of years — the set-up costs never get time to earn their keep
- The need is small and short-term — a smaller tool fits better
- Preserving every dollar of the estate is the top priority — compounding works directly against that goal
The longer version, with the alternatives we check on every file, is on Is a reverse mortgage right for me?
Asked about the catch
Is the interest really added to the loan every year?
Yes. With no payments, the interest is added to the balance and the next period's interest is charged on the bigger balance — compounding, twice a year in Canada. It is the product working as designed, not a trick, and it is why the balance in the table above grows faster in later years than in early ones.
Can the balance ever be more than the house is worth?
No. A no-negative-equity guarantee applies: neither you nor your estate ever owes more than the home's fair market value when it is sold. If the balance catches the value, the estate keeps nothing from the home — but owes nothing more either.
Can I stop the balance growing?
Yes. Payments are optional, not forbidden. Most lenders let you pay the interest each month, which keeps the balance flat at what you borrowed, and let you stop again whenever you like. Our calculator shows both paths side by side.
What does it cost to set up?
Plan for one-time closing costs paid from the advance: legal work (about $1,500–2,500), independent legal advice (about $400–800), and the appraisal. Independent legal advice — your own lawyer confirming you understand the product — is standard on reverse files.
Figures on this page are illustrations at the stated assumptions — reviewed September 2026 — and depend on age, property, location and product. Your exact numbers come from the lender, in writing.
The other questions people ask before they call
Is it a rip-off? →
The price, itemised, against what it buys — and the cases where a cheaper tool wins.
Are the rates too high? →
Why the rate is higher, what one point does over 25 years, and the lever that matters more.
What does it cost? →
Every item, from the lenders' own published figures — and the one that is hard to defend.
Want the catch priced for your own house?
Bring your numbers — or just the questions. We model your scenario year by year, compare every alternative, and put a written recommendation in front of you. If the honest answer is 'don't do this', that is what we will write.
In a hurry? Answer eight quick questions and see your typical range on screen — about 90 seconds, no obligation.
Prefer to learn first? Join a free live webinar.