Before they sign up for a reverse mortgage, we’ve heard some customers ask, “Are reverse mortgages safe in Canada?”
We’re not surprised to hear this question, given that some worrying reverse mortgage stories made the news several years ago. However, those stories came out of the US, where banking is less regulated than here in Canada.
Many Canadian homeowners approaching retirement wonder “Are Reverse Mortgages safe in Canada?” – especially after hearing troubling stories from the US.
But why are reverse mortgages safe in Canada? Let’s take a closer look at those US reverse mortgage stories and why they couldn’t happen here. We’ll also look at the laws in place to protect Canadian reverse mortgage customers, and we’ll answer the questions, “are reverse mortgages safe for seniors?” and “is a CHIP reverse mortgage safe?”
Why some people wonder if Reverse Mortgages are safe
Several high-profile news stories about reverse mortgages in the US are the main reasons why some customers in Canada are hesitant about taking out a reverse mortgage.
For example, CBS News had a report about a fire that destroyed several homes in Boulder County, Colorado. One homeowner had a home with a reverse mortgage tied to it, and his mortgage company tried to foreclose on his home because he had to move out due to the fires.
Another homeowner from Simi Valley, California was convinced by her mortgage company to only have her husbands name on the property title to qualify for more money. When her husband passed away, the company tried to force her to pay off the debt.
These stories are understandably worrying and could lead many people to wonder, are reverse mortgages safe for seniors? However, reverse mortgages are far more heavily regulated in Canada. Let’s look at the safety measures in place here and why these stories from the US wouldn’t happen in Canada.
How safe is a Reverse Mortgage in Canada?
Reverse mortgages are extremely safe, protected financial products in Canada. Canadian banks are far more regulated than American financial institutions. The 2008 financial crisis was brought about by banks taking on risky mortgages, and this led to some banks failing. No Canadian banks failed during this period because their products are more regulated, with greater measures in place to protect the financial institutions, their customers and their shareholders
So, just how safe is a reverse mortgage? Let’s look at four key protections that are in place to ensure that reverse mortgages are safe in Canada.
The Federal Bank Act and other Government oversight
Many financial institutions, such as the big Canadian banks and HomeEquity Bank (which offers the CHIP Reverse Mortgage) fall under the rules of the Federal Bank Act, which is in place to protect banking customers. Among other directives, these rules ensure that customers are treated fairly.
On top of that, the Financial Consumer Agency of Canada has introduced even more safety measures for banking customers. This includes that financial institutions must:
• Offer or sell products that fit your financial needs.
• Receive your consent for all products and services.
• Provide protection against being taken advantage of.
• Deal with complaints effectively and in a timely fashion.
So, for example, the situation with the Colorado man being threatened with foreclosure after his house burnt down wouldn’t have happened in Canada because his reverse mortgage provider would have worked with him to get him back into a new home, as part of their duty of care under the Federal Bank Act.
Similarly, the Californian woman would not have been threatened with losing her home in Canada because her reverse mortgage company would not have taken her off the property title. Reverse mortgages in Canada require both spouses (if applicable) to be on the title and the mortgage.
There are few Canadian Reverse Mortgage lenders
The number of financial institutions offering reverse mortgages in the US is far greater than in Canada. Reverse mortgages in the US are more fragmented, making it more difficult to legislate over and ensure ethical practices.
There are only two major providers of reverse mortgages in Canada — HomeEquity Bank being one of them — and both are heavily regulated. This means that these financial institutions are obliged to act in your interests, rather than their own.
Independent legal advice
All applicants for a reverse mortgage have to receive independent legal advice from a lawyer of their choosing. This ensures that you fully understand what you’re signing up for, that you’re capable of making that decision and that you’re not being pressurized into signing up for the mortgage.
You won’t owe more than your home’s worth
The vast majority of HomeEquity Bank’s reverse mortgage customers have well over half of the equity in their home remaining when they come to sell it. However, if your home devalues to the point where it’s worth less than what you owe on your reverse mortgage, HomeEquity Bank will cover the difference.
Given all the protections in place, if you were wondering, “how safe is a reverse mortgage,” in Canada it’s a very safe financial product.
Is a CHIP Reverse Mortgage safe?
If you’re homeowner aged 55 and over and you’re looking for a reverse mortgage, there may be a point where you ask yourself, “is a CHIP Reverse Mortgage safe?”
HomeEquity Bank, which provides the CHIP Reverse Mortgage, has been trusted by tens of thousands of Canadians. It has granted over $1 billion of new reverse mortgages every year for the last three years and holds reverse mortgages worth $7.4 billion.
As a Schedule I Canadian Bank and member of the Canadian Bankers Association, HomeEquity Bank must abide by very strict rules. It takes pride in providing a safe way for tens of thousands of Canadians to keep their financial independence through its range of reverse mortgage products.
Is a CHIP Reverse Mortgage safe for retirees? It is particularly suitable for retirees, given that reverse mortgage holders don’t need to make regular mortgage payments. As well boosting retirees’ retirement income, having a reverse mortgage means that they can’t be in default for non-payment (unlike with regular mortgages). To keep your loan in good standing, all you need to do is live in your home, keep it insured and in good condition, and pay your property taxes.
Is a Reverse Mortgage right for you?
Now that we’ve answered the question, are reverse mortgages safe in Canada, the next question to ask yourself is, is a reverse mortgage right for me?
A CHIP Reverse Mortgage allows homeowners aged 55-plus to cash in up to 55% of the equity in their home without having to make regular mortgage payments. The money is tax-free and can be used for any purpose, including:
• Helping you stay in the home you love.
• Boosting your retirement income/cash flow.
• Allowing you to take more vacations.
• Paying for home renovations (such as making it more accessible).
• Paying for in-home care and medical expenses.
If you’re considering whether a reverse mortgage is right for you, speak with one of our specialists today at 1-866-522-2447. We’ll walk you through your options and ensure you make the decision that’s best for your future.
You can also learn about how 94% of our customers would recommend a CHIP Reverse Mortgage to friends and family.
