With real estate activity down in 2023 compared to the previous year due to high interest rates, many brokers have been mining their databases for refinancing opportunities with existing customers.
Although central banks have paused interest-rate hikes, inflation remains an ongoing concern. Against this backdrop, longer-term demographic and economic shifts are also occurring that will affect the lending and real estate markets.
To continue growing their business, savvy brokers will need to expand their product offerings and offer lending solutions that meet their clients’ changing needs. The CHIP Reverse Mortgage by HomeEquity Bank is a solution that is tailor-made for the shifting economic climate.
An aging population will need access to cash flow
Canada’s working-age population is as old as it’s ever been, according to StatCan, with almost 22% of working adults nearing retirement, that is, aged 55-64. As we saw these past few years, older Canadians on a fixed income had a tough time adjusting to record-high inflation. While inflation has slowed a little, food prices and the cost of services remain stubbornly high.
At a time when retired Canadians should be enjoying their lives and pursuing new passions, many will face difficult choices in the years ahead—especially since those 55+ are big consumers of services such as health care, home care and leisure. Whether they want to supplement their pensions, pay for an unexpected expense, help a child purchase their first home or renovate their own homes to age comfortably in place, older Canadians will need access to cash flow.
New rules target mortgage lending
Home equity lines of credit (HELOCs) have been one way for Canadian homeowners to access cash flow on an as-needed basis. However, upcoming rule changes to HELOCs and proposed changes to homebuyer stress tests may make it harder for Canadians to qualify for traditional lending options.
The Office of the Superintendent of Financial Institutions (OSFI) announced that the maximum loan-to-value (LTV) for combined loan plans (conventional mortgages paired with revolving lines of credit such as HELOCs) will be reduced to 65% from 80% at the end of 2023. OSFI also proposed changes to loan-to-income and debt-to-income restrictions and interest rate affordability stress tests. These proposals would tighten mortgage lending, impact people’s ability to borrow and potentially increase monthly expenses for mortgage holders, who may then turn to alternative and private lenders.
CHIP Reverse Mortgage not affected by changes
In light of these proposed changes, the CHIP Reverse Mortgage becomes an even more attractive option to have in your lending portfolio. That’s because there are no qualifying income requirements for the CHIP Reverse Mortgage. Canadians 55+ can access up to 55% of their home’s value in tax-free cash, and monthly mortgage payments aren’t required until they move or sell, which frees up additional cash.
The CHIP Reverse Mortgage provides your clients with the utmost financial flexibility. They don’t have to take the full amount of the reverse mortgage they qualify for; they can access funds whenever the need for cashflow arises.
Myths about reverse mortgages
There are still some misconceptions about reverse mortgages, mainly arising from the belief that they are not regulated. In fact, reverse mortgages in Canada are highly regulated, and HomeEquity Bank is a Schedule 1 Canadian Chartered Bank.
Misconception #1: Your clients no longer own their home
The reality: Clients continue to own their home, hold title and have full control, just as with a regular mortgage. The only obligations they have are to live in the home, keep it well-maintained, and pay property taxes and insurance.
Misconception #2: Your clients may end up owing more than the home is worth
The reality: Thanks to HomeEquity Bank’s No Negative Equity Guarantee*, homeowners will never owe more than the fair market value of the property when they move or sell. This is a very important safeguard in today’s uncertain economic climate. It ensures that if their home depreciates below the mortgage amount owing, HomeEquity Bank will cover the difference.
Misconception #3: Interest rates are high compared to traditional mortgages
The reality: Interest rates for a reverse mortgage are a little higher than a conventional mortgage, but not excessively so. In fact, the interest-rate gap has narrowed significantly in the past year. The slightly higher rates are due to the fact that clients don’t have to make monthly mortgage payments.
Misconception #4: A reverse mortgage is expensive to arrange
The reality: Like a conventional mortgage, your clients are required to pay for a property appraisal and independent legal advice. The only additional cost is a one-off closing and administration fee.
Why HomeEquity Bank
Founded in 1986 and operating as a Schedule 1 Bank since 2009, HomeEquity Bank is the leading provider of reverse mortgages in Canada dedicated to helping Canadians 55+ live the retirement they deserve with solutions that work for them.
Reverse mortgages are the sole focus of our business, and we know the market intimately. We offer unparalleled support to meet your clients’ needs—including resources to promote yourself with our one-of-a-kind portal, Broker Launchpad. Our specialized Business Development Managers are experts in the field and are here to help you every step of the way, along with a dedicated team of Mortgage Specialists that hand-hold each file from application to funding. We also provide comprehensive online tools and resources to educate your clients.
With a comprehensive suite of products that include the CHIP Reverse Mortgage, Income Advantage, CHIP Max and CHIP Open, all of your clients’ income goals can be met. Our simplified referral process helps you seamlessly hand over a lead to us and be kept informed throughout the whole process.
In today’s changing economic climate, the CHIP Reverse Mortgage by HomeEquity Bank can help your clients boost their cash flow by unlocking some of the value in their homes. We understand that helping your clients is good for business, and we are here to make that happen with a range of innovative solutions designed for the long term. Contact a Business Development Manager today to learn more.
*As long as the homeowner keeps the property in good maintenance, pays their property taxes and property insurance, and the property is not in default. The Guarantee excludes administrative expenses and interest that have accumulated after the due date.