Reverse Mortgages and AI Tools (Artificial Intelligence)
AI is the latest craze right now and many folks are turning to tools like Chat GPT or Google Gemini to get answers about many questions they have.
But how accurate are these tools? Could they help you with a reverse mortgage?
Today I’ll examine AI and reverse mortgages to see how well these AI tools perform.
To do this, I decided to ask Chat GPT and Google Gemini some questions and see how they did.
I’ve posted the results with my analysis below.
As always, you can watch the video below or read the full article underneath:
Firstly: What Is A Reverse Mortgage?
A mortgage available to homeowners 55 and over that doesn’t require you to repay any money with no monthly payments.
You can get up to 55% – usually 10% to 55% of your home value – depending on your age, property type and location.
You can get as much money as you qualify for, but any existing mortgage on your home must be paid off first using the funds.
The are designed to help you tap into your home equity for retirement and to continue to live in your home.
If you’re new to reverse mortgages and just starting to learn about them, I highly recommend you download my free reverse mortgage guide.
Question 1: How Do Reverse Mortgages Work In Canada?
Here’s a brief summary of the answers provided by Chat GPT and Google Gemini:
- Age: You must be at least 55 years old. If there are co-owners (such as a spouse), all owners on the title must be at least 55.
- Primary Residence: The home must be your primary residence, meaning you live there for at least six months of the year.
- Property Type: Eligible properties generally include single-family homes, semi-detached houses, townhouses, and most condos.
- Minimum Home Value: Most lenders require the home to be worth at least $250,000.
We’re off to a pretty good start – these are fairly solid answers. If I was to nit pick I’d say ‘most Condos’ isn’t totally accurate but it’s also not far off.
Continuing on, here are some of the other answers the AI tools provided:
You can structure it a few ways: lump sum, monthly payments, line of credit, or a combination of the above. There are no monthly payments required, tax-free cash, and you can stay in your home for life (as long as you meet conditions). It can be used for anything (debt, income, renovations, etc.). Note that interest compounds – your loan grows over time, eats into equity, and affects inheritance, leaving less equity for heirs.
Now we have already started to see some issues with their answers. Specifically:
- You can’t get a line of credit for a reverse mortgage, no lenders offer this in Canada
- The phrase “leaving less equity for heirs” is not correct at all. If your reverse mortgage balance grows slower than your home value, you’ll actually leave more equity for your heirs.
Question 2: How Many Lenders Are There? Which of the Major Banks Offer Reverse Mortgages?
Here’s a summary of what the AI tools said:
There are currently three primary lenders that operate on a national or near-national scale in Canada. In addition to these three, there are a few smaller, regional, or “boutique” lenders. Most major banks have referral agreements with HomeEquity Bank. Instead of giving you a bank-branded product, the advisor will refer you to a representative from HomeEquity Bank.
This was a pretty bad answer. They completely missed that there are actually 4 lenders in Canada just now – Bloom Finance, Equitable Bank, HomeEquity Bank and Home Trust.
In addition to this the idea that there are smaller, regional, boutique lenders is false – all 4 lenders lend in more than one Province and there are no such reverse mortgage lenders.
The point about HomeEquity Bank having a referral relationship with banks is a really good pickup though – not many folks know about this. That is, if you go and talk to your bank about a reverse mortgage, they will send you to HomeEquity Bank (as opposed to the other 4 lenders) because they have a referral agreement and are paid to do this.
Question 3: What Are the Rates Just Now and What Are the Rates Typically? What About Fees?
Answers from the AI tools:
You will typically find 5-year fixed rates ranging from 5.49% to 7.50%. Reverse mortgage rates sit about 2% to 3% higher than standard 5-year fixed mortgage rates.
Fees include:
- Setup fees ~$995 to $1,800
- Appraisal ~$300 – $500
- Legal fees ~$700 – $1,500
- Total typical upfront cost: $2,000 – $4,000 all-in
The interest rates are completely off. At the time of publishing this article, rates are in the 6.5% to 7% range – as you can see on my reverse mortgage rates page.
Presenting completely wrong rate information is a pretty poor result.
The fees were broadly correct – some of the setup fees can be higher and they have provided a very wide (double) range of $2,000 to $4,000 but this isn’t too far off – as you can see from my reverse mortgage costs & fees page.
Question 4: Tell Me About Penalties and How They Work If I Were to Pay It Off
I knew this was going to be a tricky one, as most Mortgage Brokers don’t even understand how penalties work with a reverse mortgage.
Here are the answers provided:
There are usually two methods, and you pay the higher of the two: Interest Rate Differential (IRD) or 3 months’ interest. Most lenders let you pay back 10% to 20% of the principal and interest once per year.
No penalty in these typical scenarios:
- You pass away
- You move into long-term care
- You sell after the term ends
To be fair, it was mainly Chat GPT that got this one wrong per the above answers – Google Gemini performed a little better.
But this answer was completely and utterly wrong.
IRDs do not apply to reverse mortgage penalties – these are a method of calculating penalties on a regular fixed rate mortgage.
In addition to this, the statement that you don’t pay a penalty “after the term ends” is not correct – and one of the biggest mistakes people make – when it comes to a reverse mortgage.
For a reverse mortgage, penalties are not linked to the term at all like they are with a regular mortgage – you can see how penalties really work on my reverse mortgage penalties page.
Question 5: Do I Have to Take All the Money Upfront Like a Regular Mortgage? If Not, What Are the Rates If I Take the Money Later?
The AI response:
When you take money later, you don’t necessarily get the same interest rate you had on your initial draw. Instead, the rate is determined by the market conditions at the time of the withdrawal. Some lenders charge a flat fee (often $50 to $500) every time you request a manual “subsequent draw” to cover the administrative work and wire transfer.
This is a fairly accurate response. The fees quoted of $50 to $500 are not correct, the fee for this is $50 with most of the lenders (and not all).
It did not discuss that some lenders charge different (higher) rates for these and go into more detail – something I have provided full details on in my reverse mortgage rates hub.
Question 6: At the End of My Term What Happens? Can I Move Lenders If I Find a Better Deal Elsewhere?
Summary of the responses:
When your interest rate term ends (e.g., at the 3-year or 5-year mark), your reverse mortgage doesn’t “end” — it simply renews. Technically you can switch lenders but practically it isn’t always possible – you may not requalify and there are costs involved as it’s closer to a refinance than a renewal. You actually have less flexibility over time, not more.
This was a very good response and discussed something that people don’t consider: switching lenders after you get a reverse mortgage is typically quite difficult.
This makes the initial selection and the lender you choose to go with initially much more important.
Summary – Reverse Mortgages and AI
AI tools are a useful way of gathering information, running potential calculations and looking at numbers – but you can’t always trust their answers on key issues.
It’s important to do your own research and get professional help.
When it comes to reverse mortgages in particular, there is a lot more incorrect and false information out there as compared to a regular mortgage.
Get A Free Professional Reverse Mortgage Assessment In 90 Seconds
I started Reverse Mortgage Pros to help people like you understand reverse mortgages – to make an educated and informed decision if they are right for you.
As part of this service, I also offer a free assessment to help you determine whether a reverse mortgage is the right solution for your financial needs.
Included in this, I will recommend a lender (if applicable) and show you all the hidden costs with all the lenders – including the renewal premiums that I mentioned above.
This free assessment only takes 90 seconds – simply click here: Get A Free Professional Reverse Mortgage Assessment
A Canadian Chartered Accountant and licensed Mortgage Professional – creator of Reverse Mortgage Pros – the #1 reverse mortgage specialists in Canada. I make it my mission to educate Canadians about how reverse mortgages work so that you can make an informed and educated decision that’s right for you and your family.
