What is a Reverse Mortgage?

A Reverse Mortgage in Canada is just like most other mortgages, with a couple of important exceptions: it is only available to seniors aged 55 years or older and there are no monthly repayments required to pay back the mortgage. Because there are no repayments, there is also no underwriting for credit or income/debt requirements. The borrower’s ability to make payments, typically an important concern with most banks, is simply not an issue here.

Never make a monthly mortgage payment with CHIP, Equitable Bank or Bloom reverse mortgages in Canada.

There is a lot of misinformation out there on the internet regarding CHIP, Equitable Bank and Bloom reverse mortgages,  in Canada…. largely because people do an internet search for “reverse mortgage” or “mortgages for seniors” but fail to add the word CANADA or CANADIAN. Our financial system here in Canada, and banking regulations, are very different than down south! When doing your research, be sure you are reading about the Canadian experience. You remain on the title to the home, and you can never owe more than the value of the home. As long as you are still living there, you can never be forced to move or sell. These protections are guaranteed in writing, and the lenders are Schedule 1 banks that are regulated by the federal government. All reverse mortgages in Canada are protected by our laws.

When you have a conventional mortgage on your home, you make monthly payments to the bank or lender, and usually owe less than you borrowed at the end of the term. When you have a line-of-credit mortgage, you make interest-only payments and owe the same principal at the end of the term. With a CHIP, Equitable Bank or Bloom reverse mortgage, you make no payments, and then eventually over time owe more than you borrowed because the interest is being added to the balance. These reverse mortgage lenders also offer an optional option to make some prepayments, which varies among them.

The most attractive feature of a Canadian CHIP, Equitable Bank or Bloom reverse mortgage loan, obviously, is that a senior may carry a reverse mortgage for 5, 10, 15, or even 25 years or more and never be required to make a monthly mortgage payment. Historically, house prices tend to increase. With CHIP reverse mortgage in Canada, the balance of the loan slowly accrues over time… while at the same time the home’s value continues to rise. This process ensures equity in the home over the long term.

With CHIP, Equitable Bank and Bloom reverse mortgages in Canada, theloan balance will not exceed the fair market value of your home.  This is called a No-Negative-Equity-Guarantee and is written right into the contract.

Regardless of market fluctuations, these lenders guarantee, no matter what, that the loan balance will not exceed the fair market value of the home. In other words, you can never owe the lender more than the value of the home. Low interest rates in these types of loans (compared to other forms of private lending, for example) reflect the confidence that a Lender feels in their exposure to loss due to market value fluctuations. Entering into a CHIP, Equitable Bank or Bloom Reverse Mortgage in Canada is a great option for a senior who needs access to their home’s equity but doesn’t want to make payments or be concerned about their debt exceeding the value of their home.

There is some need to do comparisons

There are three national providers of reverse mortgages:  HomeEquity Bank’s CHIP reverse mortgage, Equitable Bank’s reverse mortgage and Bloom’s reverse mortgage.  The general themes are similar, but there are some marked differences among them.  There is no reason to negotiate with these lenders unrepresented when a senior mortgage specialist can help you determine what’s best, at absolutely no cost to you. In fact, because of my high volumes with these lenders, I can often get them to match each other’s rates or advanced funds.

Rates are of course higher at all three, than those for a regular mortgage, as the bank is offering to lend money and not receive a payment for an unpredictable period of time. The premium you pay on the rate is for the luxury of not making a payment, nothing else. If it were an awesome investment for the bank, I think we would see a lot more banks offering  reverse mortgages in Canada. We don’t. A loan without payments is simply not something that investors get excited about.

That said, be sure to talk to us about all your options. Email is a great tool to communicate, that way if you want to think about it, you can always review the correspondence and the answers to your questions. It’s nice to have everything in writing for your reference. Speaking or emailing with one of us is a great way to fine-tune what options are best for you among the three national reverse mortgage lenders…… and there are lots of choices besides the reverse mortgage, we can help you determine what suits your particular situation the best.

Continue to How a CHIP Reverse Mortgages in Canada Works