By Pattie Lovett-Reid, Chief Financial Commentator, HomeEquity Bank
Reverse mortgages have long been a financial product shrouded in misconception, both for consumers and financial mortgage professionals. For years, I shared in the skepticism surrounding reverse mortgages, even voicing my reservations on CTV.
However, as I delved deeper into the intricacies of this financial tool, I found that many of the fears and misconceptions surrounding reverse mortgages were unfounded. In fact, I came to see them as a viable solution for retired Canadian homeowners.
So, why is the product so misunderstood? Many potential clients have expressed concerns that the bank could assume ownership of their home or that they might end up owing more money than their home is worth. These fears are largely unfounded. With the CHIP Reverse Mortgage by HomeEquity Bank, for instance, clients always retain title and ownership of their home, and there is a safeguard in place called the “No Negative Equity Guarantee”.
Other fears associated with reverse mortgages include worries about losing the home following the death of a spouse or concerns about equity erosion over time. However, given the increased demand for reverse mortgages in Canada, it’s time for Canadians and financial professionals alike to reconsider their stance on this financial tool.
Several key factors contribute to the growing need for reverse mortgage solutions as part of retirement plans in Canada. These factors include Canada’s aging population, its historically strong real estate market, high levels of consumer debt, and the growing number of retiring Canadians. Recognizing the importance of addressing the misconceptions surrounding reverse mortgages and helping financial professionals better serve their clients, I decided to join HomeEquity Bank as Chief Financial Commentator in May 2022. My aim was to ensure that Canadians make informed decisions about their financial futures.
The CHIP Reverse Mortgage Solution
One of the most compelling aspects of the CHIP Reverse Mortgage solution is its unique approach. Unlike traditional mortgages, it does not require monthly mortgage payments. Clients can receive up to 55% of their home equity in tax-free cash, and since the funds obtained through the CHIP Reverse Mortgage are considered a loan, it does not contribute to a client’s taxable income. Plus, it has no bearing on benefits such as Old Age Security (OAS). Repayment of the loan is only required if clients move or sell their home. Moreover, with the CHIP Reverse Mortgage, the “No Negative Equity Guarantee” ensures clients will never owe more than the fair market value of their property as long as property taxes and insurance are paid, and the home is maintained in good condition.
The amount a client can borrow is determined by several factors, including their age (and their spouse’s), the geographic location of the home, the type of home, and the home’s appraised value.
But how do clients typically use the funds from the CHIP Reverse Mortgage?
Debt Consolidation:Many clients use the funds to eliminate monthly mortgage payments or pay off high-interest credit card debt, providing them with much-needed financial relief in retirement.
Home Renovation: With a desire to “age in place,” many clients require home renovations to improve accessibility and safety. These funds can be used to make necessary modifications to their homes.
Health Expenses:As Canadians are living longer and more active lives, the costs of aging, from medication to in-home healthcare, can be expensive. The CHIP Reverse Mortgage can help cover these expenses.
Income Supplementation:Rather than drawing down on their investments, clients can use a reverse mortgage to supplement their monthly income, enhancing their retirement lifestyle and providing greater financial security.
Leaving a Legacy: Some clients use a reverse mortgage to leave a “living legacy,” such as contributing to a grandchild’s education or helping with a child’s first home down payment, allowing them to provide for their loved ones while enjoying retirement.
As I like to say, your clients can’t “eat a brick” in retirement, but they can access some of the capital they’ve built up in their homes, which can be especially important during retirement when income may be fixed or limited. After years of skepticism, I’ve reversed my thoughts on reverse mortgages. I firmly believe reverse mortgages are an essential retirement planning solution for Canadian homeowners 55 and better.
When helping your clients fund their retirement, showing them they have options is crucial. By empowering them with an understanding of the pros and cons of these options, they can make choices that are right for them and their families.
To learn more about how the CHIP Reverse Mortgage by HomeEquity Bank can support your clients in securing their retirement finances, I recommend speaking with a HomeEquity Bank Business Development Manager (BDM). Your designated BDM can provide valuable insights on strategies for identifying clients 55+ who may benefit from this solution and offer guidance on effective communication when approaching potential clients for this unique financial option.
In addition to your HomeEquity Bank BDM, chipadvisor.ca is a great resource to get started with reverse mortgages. You can use the Financial Illustration tool to determine how much your client may qualify for and configure a reverse mortgage solution tailored to their needs. You can also access Broker Launchpad, an incredible portal that gives you access to a suite of pre-written marketing materials designed to promote your business and the CHIP Reverse Mortgage to your clients.
It’s time for financial professionals and mortgage brokers to reevaluate their perception of reverse mortgages, recognizing them as a valuable and flexible addition to the toolkit for retirement planning. Embracing this financial tool has the potential to pave the way for a more secure and comfortable retirement for many Canadians.
The guarantee excludes administrative expenses and interest that has accumulated after the due date.