Questions?
There are currently three providers of true reverse mortgages in Canada, the ‘CHIP’ Canadian Home Income Plan by Homequity Bank, the reverse mortgage by Equitable Bank, and the reverse mortgage by Bloom. Some people are uncomfortable with the rate and terms, or do not meet the minimum age requirements traditional reverse mortgages. More commonly borrowers are frustrated that they cannot borrow as much as they would like.
There are other options….
HELOC WITH NO REQUIRED PAYMENT
This is a mortgage at market-rates that are usually substantially lower than those offered by CHIP. The attractive feature is that it does not require any payment, as long as the mortgage debt remains under 50% of the value of the home. It is structured as a line of credit, and for certain people can be a great alternative to a reverse mortgage. The rate is usually
It is also perfect for those clients that want something similar to a reverse mortgage but do not meet the minimum age requirement of 55. It is well suited to clients that would like the flexibility of not making payments, but are welcome to do so if they choose. It is a mortgage for those that like the idea of a reverse mortgage but are uncomfortable with the higher interest rate at which they are available.
Yet other clients are comfortable with a reverse mortgage, but want to borrow more than the modest loan-to-values available with that product. This accrual-style mortgage is perfect for those that need to mortgage a higher amount than a reverse mortgage allows for.
Advantages
- Has a lower interest rate than a reverse mortgage;
- Can lend to 50% of the value of your home regardless of your age;
- Income, job history and debt guidelines are slightly relaxed;
- Available in first or second position;
- No penalties to payout the mortgage in part or in full at any time; and
- Payments are optional up until a certain LTV is reached.
Disadvantages
- Minimum credit score requirements;
- Interest-only payments may eventually be required;
- Cannot lend beyond 50% of the value of the property;
- Monthly banking fee
PRIVATE REVERSE MORTGAGE
These operate similar to a reverse mortgage, but do not have an age limit. The lender simply provides 40% – 50% of the appraised value of the property (depending on location and lender).
No payment is required. Terms run from 1 -5 years. However, unlike a true reverse mortgage, there is no right-of-renewal. These mortgages are not “for life” like a conventional reverse mortgage, and are better suited to a short term goal.