Home ownership is still viewed by many Canadians as the path to wealth.
In fact, a recent RBC-commissioned Leger poll of about 1,700 Canadians found that even in today’s challenging housing market, many are holding onto their dreams of home ownership. Most consider owning a home as one of life’s biggest financial milestones (80%), a sign of financial independence (73%) or essential to their future (62%).
But as most Canadians’ highest-value asset, it’s also viewed as a source of cash. For Canadians who have purchased a home, it may be tempting to tap into their home equity during times of financial stress using a home equity line of credit (HELOC), reverse mortgage, second mortgage, mortgage refinancing, home equity loans or home equity sharing agreements (HESA).
Financial advisors say there are serious considerations to make before going with one of these options, and that it’s important to look at every decision as part of a broader, long-term financial plan.
“It definitely is a trade-off conversation,” said Ryan McLellan, financial advisor with Edward Jones in Ottawa.
With so many home equity financing products mass advertised today, advisors may get questions from clients about whether one of these products makes sense for them.
It’s important for clients to consider other solutions first, such as reducing lifestyle expenses, working more to boost their income or downsizing, said Jason Pereira, partner and senior financial planner with Mississauga, Ont.-based Woodgate Financial Inc., which operates under IPC Securities Corp.
“The most sensible option in most cases is to downsize,” he said, “because you now have a place to live, you have no debt or mostly everything was paid off, and you now have liquidity or assets basically to finance your lifestyle.”
However, convincing clients to move to a smaller and/or more affordable space requires effort, as many Canadians have an emotional attachment to their homes and aren’t willing to give them up — even if it means they’re no longer living within their means or their home is no longer a fit for them, both McLellan and Pereira pointed out.
That means advisors need to discuss home ownership as part of a broad financial plan, stress test that plan and mentally and emotionally prepare clients for possible modifications to their home ownership and “how that could absolutely be in their best interest and is not a tragedy,” Pereira said.
For example, advisors should discuss whether clients can afford to take on unexpected expenses and remain in their home. If not, something’s got to give.
“If a client needs one of these [home equity financing products] to finance their lifestyle, they effectively over-allocated their net worth to real estate, because they are not able to sustain their lifestyle,” Pereira said.
“And now the chickens have come home to roost, and they’ve got to make a decision.”
He also recommended discussing aging at home versus long-term care and the associated costs and nuances, as these later-in-life decisions can be costly.
If clients want to age at home, will they need to pay for assisted living services or move somewhere that’s easier to maintain and/or has no stairs so they can get around more freely? If they’re planning to move into long-term care, will they need to sell their home to afford this, or are they able to afford the care and pass down their home to their estate? These are just some of the many questions advisors could ask.
Thoughtfully tap into home equity
If a client isn’t willing to give up their home or make other changes to improve their cash flow, then advisors should ensure that they’ve thoroughly explained different home equity financing options to them and how they fit into a long-term plan.
As McLellan sees it, “there’s never going to be a shortage of product out there.” That said, the advisor stressed that clients need to grapple with how each option affects “their ability to sleep at night.”
Shael Weinreb, CEO and founder of The Home Equity Partners Inc. in Toronto, said there’s no such thing as a “one-size-fits-all” product.
“And so, every homeowner has to look at his or her own unique circumstances and figure out which box they fit best into,” Weinreb added.
Advisors should ensure that clients aren’t making snap decisions.
“It should not be at the 11th hour,” Pereira said.
“There should be some time that gives you breathing room, so that you’re not scrambling before they basically run out of money.”
McLellan agreed: “You’re handcuffing yourself if you’re going into these big decisions with a shorter timeline.”
Stage of life is an important consideration.
Pereira shared the story of a widow his practice inherited as a client. The client opted for a reverse mortgage on her home at 71. By the time she was in her 90s and decided to sell the home, it was worth nearly $1 million, but the client netted only around $100,000.
“The amount of time that it compounded against them really encroached upon the equity. So frankly, if you need this early, you’ve got major issues,” Pereira said.
McLellan said he typically discusses reverse mortgages and HELOCs with clients later in life, when they’re concerned about health expenses or about outliving their savings.
“Maybe they run out in their 80s or mid- 80s. Well, then at that time, … we’re going to start having to figure out how we’re going to tap into this home equity, and that’s where we start to think about those products as being a solution,” he said.
With variable-rate home equity products like HELOCs, advisors should also stress-test clients’ plans against potential interest rate increases. This can help determine whether a client can comfortably manage payments if rates remain high for an extended period of time.
HESAs, which were introduced in Canada in 2024, require different considerations. They typically provide home owners with a lump sum in exchange for a percentage of their home’s appreciation or depreciation in value over a specific term, along with the original amount they received upfront.
Unlike reverse mortgages, homeowners don’t need to be at least 55 to qualify for an HESA. They also don’t incur interest or monthly payments.
“We really become like a partner. So, it’s not a borrower-lender relationship like the other [home equity financing options]. It’s really sort of an investor-homeowner kind of relationship,” Weinreb explained.
He noted that “a spectrum of people” have sought out HESAs since The Home Equity Partners started offering them in March 2025, including seniors without pensions, people who don’t qualify for a traditional HELOC, a divorced couple where one partner wanted to buy out the other partner’s share in their home and those who are simply tight on cash.
Weinreb said advisors need to explain to clients how each home equity financing product works and understand “the pros and cons associated with each product.”
As HESAs are still fairly new and don’t offer “free money,” Pereira cautioned against getting into these agreements without having a thorough understanding of the terms.
“Frankly, a lawyer needs to review these contracts and basically weigh in on the implications for it,” he said.
“And preferably the advisor’s role, if they understand this stuff enough, could be to make sure the client makes an informed decision, along with the other professionals — lawyers, accountants, whoever else is in on it — to truly understand what it is the client is saving and what they’re giving away.”
McLellan recommended starting conversations about debt with clients early on.
“This is about, when you’re doing the financial planning, looking beyond what we need to do for business today, and [also at] some of the common decisions that we’ll face in the next three, five years,” he said.
“For some of these things, it may take three years to get everything organized the way you want in order to do a large purchase when you’re managing tax liability. Educate. Extend your timelines. Raise the conversations.”
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