The National Post did a piece on reverse mortgages today. It’s been said before but it deserves repeating. The reverse mortgage market has immense growth potential. (Related story: Reverse Mortgage Statistics)
HOMEQ is leading the charge. It’s a compelling company because it essentially holds a monopoly in a rapidly growing business. HOMEQ’s CHIP brand has a huge head start on would-be competitors, in terms of funding, distribution and name recognition. The company’s stock (Ticker: HEQ) is something worth watching.
Sidebar: There’s a correction needed to the Post story. It misquoted the following: “There is no application process [for reverse mortgages].”
There is, in fact, an application process, but it’s easier to be approved than a regular mortgage because reverse mortgages generally require no income confirmation.
Rob McLister, CMT
Congratulations on the coverage Rob!
It looks like they bungled the website name too. “MortgageTrends.com??”
So much for journalists being detail oriented!
I find the adds by HEQ really turn me off. They call their product a ‘home income plan’ although there is no income involved. It’s debt. They play up the tax free aspect, which is only necessary because they use the term ‘income’ instead of ‘mortgage’.
The adds make light of the idea of taking on this debt when it’s a pretty serious move. Could work out great if the seniors pass away in their home, but if they need to make other living arrangements they could find very little money coming their way when they sell their house.
An accurate tag line: You spent a lifetime paying interest to the banks, and now it’s time to start doing so again. Get your reverse mortgage now!
Hi HT,
Couldn’t agree more that folks need to carefully weigh the alternatives to a reverse mortgage.
It’s important to note, however, that CHIP is meant to be an option for people with no better options. It serves that purpose well.
There are seniors with no assets besides their house who would be in desperate financial straits if it weren’t for CHIP. Alternatives like selling one’s home, getting a line of credit, etc. are simply not suitable for all seniors.
Some may argue that these folks didn’t plan their retirement well enough, but it’s not our role to judge their circumstances. In some cases, unavoidable life events leave senior citizens cash-poor…and CPP + OAS doesn’t get them far.
Cheers,
Rob
I would think a solid alternative would be to get the biggest mortgage possible at the lower rate, use however much of the proceeds you need, and invest as much as possible of the rest.
If you get a mortgage at 3% and invest at 2% (GICs), you’ve decreased your net interest cost to a little over 1%* on the portion of the money that was invested. Much better than the 4.75% mentioned in the article.
* I’m assuming a small portion of the GIC income would be taxed away, but only a small amount since we should be talking about seniors with modest incomes.
Hi HT,
People who choose reverse mortgages over standard mortgages generally do so because they cannot qualify for a sufficient traditional mortgage, or don’t want (or can’t afford) the payments.
Standard mortgages also present risk to seniors with tight cash flow. There’s risk of non-renewal, risk that your invested principal won’t be sufficient to service the debt, greater risk if interest rates soar, risk that you won’t be able to roll into a reverse mortgage later, and risk that your property value will fall (leaving you or your estate in a negative equity scenario).
Cheers…
A great mortgage broker can assist you in applying for your 2nd mortgage. An experienced mortgage broker rest assured will provide you with the most professional service and all the options presented to you were chosen to meet your needs.