14 Oct, 2022
Reverse Mortgage
Mortgages,Reverse Mortgages,Uncategorised Comments Off on The Canadian Reverse Mortgage Market is Changing – What you need to know 

Reverse Mortgage

Reverse Mortgage is a great option for Canadian homeowners to obtain cash for necessities like living costs and travelling. Reverse mortgages, however, have a bad reputation. Some of the negative connotations are due to misunderstandings.

Why does the Reverse Mortgage product have a bad reputation? 

The primary reason for the bad reputation of Reverse Mortgages is the fact that some consumers have dealt with unregulated, opportunistic private lenders that advertise themselves as offering “Reverse Mortgages.”  Further, the US market is overflowing with false information. In the past, the product was called “Home Equity Reversion,” and it was nothing like the ones currently offered. In order to understand these sentiments, history needs to be explored.

The Reverse Mortgage has gone through numerous evolutionary stages from its birth in the 1400s to become the secure financial instrument it is today. Its origins are thought to have been in Europe, most likely in France. This method, known as “Viager” after the French word for pension, was once a popular way to assist residents who did not have the funds to sell their home to a buyer who would keep the home free of rent for the rest of their lives.

Upon passing away, the investor would either sell the house and keep the proceeds, or keep the house and rent it out while remaining owner. The investor would now quadruple his investment and would not pass the wealth on to the family.  The Great Depression began in 1929, and during that time, financial professionals in the UK developed a mortgage product called “Home Equity Reversion“.  In exchange for the right to live rent-free in their own house until death, homeowners sold all or a portion of their property to a reversion company. The plans now focus more on a conventional mortgage rather than the lender owning the property as they did in the past. 

A Reverse Mortgage enables you to cash out a portion of your home’s equity without having to sell it. There is no unstated clause allowing the bank to in any way compel you to sell your house or take any other action that you wouldn’t normally do as a responsible homeowner.  You retain ownership of your home with a Reverse Mortgage as long as you maintain it.

The key distinction is that they are non-recourse mortgages, which means that unlike a traditional recourse mortgage if you fall behind on your payments, the lender cannot start the power of sale process. The only exception would be fractions in which the lender takes all of the risks in the event that property values decline. In addition, the lender enjoys the gains from rising home values.

There are now four ways for Canadians to obtain a Reverse Mortgage.

1.HomeEquity Bank (CHIP)

HomeEquity Bank provides the Canadian Home Income Plan (CHIP), which is available across Canada. William Turner, a professional accountant, first presented it as an alternative to the Reverse Mortgage to the locals of Vancouver, British Columbia, in 1986. This particular Reverse Mortgage arrangement permitted Canadian homeowners 55 and over to keep full ownership of their houses as well as access to a portion of the value for bolstering their retirement savings. CHIP changed its name to HomeEquity Income Trust in 2002. It underwent a rebranding in 2008 and became known as “HomeEquity Bank.” 

Since 2012, HomeEquity Bank has advocated for the financial requirements of Canadian retirees by offering simple financial products that contribute to a safe and secure retirement. You can use a Reverse Mortgage to access the home equity through the Canadian Home Income Plan (CHIP).

The first Reverse Mortgage product in Canada, known as CHIP (Canadian Home Income Plan), offers seniors over 55 a source of tax-free income. The Reverse Mortgage products offered by HomeEquity Bank are CHIP, CHIP Max, CHIP Open, and Income Advantage.

Click Here to view All of CHIP Reverse Mortgage Products

We’ll decide if you’re eligible for a CHIP reverse mortgage based on your age, the type, location, state, and fair market value of your house, as well as your credit history. 

Furthermore, we will determine the percentage of your home’s value that you are able to withdraw in the form of a reverse mortgage.

2.Equitable Bank 

The history of The Equitable Bank began more than a century ago, when a hardworking German immigrant named Charles Pittelkow established his own insurance company with the goal of assisting other immigrants in purchasing homes. For many years, Equitable remained a family-run company. The Equitable Savings Building and Loan Association was established on May 24, 1927.

Reverse Mortgages are available from Equitable Bank in the majority of key cities and communities in Ontario, British Columbia, Quebec, and Alberta. To qualify for an Equitable Bank Reverse Mortgage, you must be at least 55 years old and own a home valued at least $250,000.

Flex, Flex PLUS, and Flex Lite are the three different reverse mortgage products that Equitable Bank offers. Each has various minimum eligibility standards or maximum loan amounts. 

Most homeowners seeking for a Reverse Mortgage can use Equitable Bank’s original reverse mortgage, the Reverse Mortgage Flex. With a minimum appraised value of $250,000 and a minimum age limit of 55, it allows you to borrow 15–55% of the value of your house. The interest rates for fixed term of 6 months begin at 6.99%. The interest rates for a 1, 2, 3, and 5 year fixed mortgage are 6.87%, 7.34%, 7.37%, and 7.49%, respectively.  A 5-year adjustable term rate begins at P + 2.69%.

For homeowners who might not want to borrow as much money, there is the Flex Lite. Flex Lite borrowers will pay a reduced interest rate in exchange for a smaller borrowing cap; at the moment, they have Canada’s best reverse mortgage rates. 

The Flex PLUS reverse mortgage offers a greater maximum borrowing limit(45-59%) for homeowners who want it, but it comes with a higher reverse mortgage rate and an older age restriction.

The interest rates for fixed term of 6 months begin at 8.24%. The interest rates for a 1, 2, 3, and 5 year fixed mortgage are 8.14%, 8.39%, 8.79%, and 8.99%, respectively. Rate for a 5 year adjustable term begins at P + 3.49%. 

Contact our experts at Cashin Mortgages to learn more about Equitable Bank’s mortgage rates and to obtain the lowest rate. The assistance is completely free. You can save money over the course of your loan by locating the greatest rate for your situation, which will also make borrowing much simpler.

3. Bloom Financial 

Bloom was established in 2019 in order to make the process of releasing home equity easier and more welcoming. It allows you to access up to 55% of the value of your house based on your information.

In 2021, the firm launched its reverse mortgage program for homeowners in Ontario who are 55 or older.

Bloom is the first fintech company to enter the Canadian reverse mortgage market. The firm only a 5-year fixed package now, and when compared to its rivals, its rate pricing is in the center of the pack. To qualify for a Bloom Reverse Mortgage, you must own a home valued at least $100,000.

4. Fraction 

A technological company Fraction Technologies Inc., known as “Fraction,” provides a digital platform that offers financially responsible financial solutions. 

In comparison to a reverse mortgage, a Fraction Mortgage offers more flexibility. There are no monthly payments required during the loan’s tenure; instead, interest accumulates over the duration. Homeowners who are at least 18 years old can apply for a fraction mortgage.

Up to 41% of your home’s equity is available to you at a reasonable rate with no ongoing obligations. A variable interest rate based on home appreciation is available from Fraction, ranging from 7.99% to 12.49%.

To learn everything you need to know about the Fraction Mortgage product, to calculate interest rates, and to determine your eligibility for the Fraction mortgage, get in touch with our specialist at Cashin Mortgages. Our assistance is offered without charge!

What  you need to know when getting a Reverse Mortgage

You must satisfy the following criteria in order to be eligible for a reverse mortgage in Canada:

  • You need to be a homeowner aged 55 or older.
  • The property must be your principal residence (you reside there for at least six months of a calendar year).
  • You must be living in one of the major urban areas of Ontario, Quebec, British Columbia, or Alberta.
  • The house must be appraised and have damage insurance. The purpose is to protect the asset that serves as collateral.
  • The amount of the loan will depend on the age of the applicant. The older you are, the more money you can borrow.
  • The lender must verify that the home is worth the loan amount. 
  • All title holders of the property must apply as joint borrowers.

Interest rate

The money you borrow from a reverse mortgage is subject to interest charges, just like most other loans and credit lines. Every borrower receives a monthly statement that lists these fees, which are calculated daily and applied to the loan total each month.

You are not required to make any mortgage payments if you have a reverse mortgage. Instead, the lender won’t get reimbursed until after you sell or move out of your home. To compensate for this, reverse mortgage rates are higher than standard mortgage rates.

Since a reverse mortgage loan does not require any monthly mortgage payment, the interest is charged to the outstanding loan balance each month. Only the actual balance is subject to accumulation of interest. If a borrower has a line of credit that is available, interest is not charged on that sum.

The longer you stay in your house after taking out a reverse mortgage, the more equity is drawn away because the principal can quickly accumulate compound interest. The interest on a loan or deposit that is calculated based on both the initial principal and the accumulated interest from prior periods is known as compound interest, also known as compounding interest.

The interest rate index and a margin set by the lender are added to determine the overall interest rate.

Because of the additional premiums, reverse mortgage interest compounds on a bigger number each month as opposed to a standard mortgage’s smaller number.

To learn everything you need to know about the Reverse Mortgage product, and to determine your eligibility, get in touch with our specialist at Cashin Mortgages.  Our assistance is offered without charge!



Source: HomeEquty Bank,  O’ReillyRetirement Researcher,  Forbes