There are many people out there who do not believe in Reverse Mortgages in Canada.
I used to be one of them.
Then I learned more about the product and now I can see it can and has benefited many people.
And yes, of course, there are people who a reverse mortgage is not right for. Naturally, it is not the solution for everybody. No one product is ‘perfect’.
However, I challenge anybody to find a better product for people over 55, who want to stay in their home, who need some additional cash and for whom the majority of their net worth is tied up in their home (“house rich, cash poor”).
As much as my attitude changed, as I learned more about the product, there is no doubt in my mind that reverse mortgages have had an undeserved bad name. I come across many people who say this every day. You might have too.
And in Canada this perception of reverse mortgages is largely unjustified.
So let’s look at the top 3 reasons why some people believe reverse mortgages are evil/bad/terrible:
1. People Don’t Understand Reverse Mortgages
Reverse mortgages aren’t the most straight forward product and this confusion leads to resentment.
Generally speaking, people are scared by things that confuse them.
This is why I wrote our free guide – to try and educate people about CHIP reverse mortgages in Canada.
I, too, once feared reverse mortgages because I didn’t understand them.
The only way to overcome this is to learn more about them – this is why I created ReversMortgagePros.ca and this is exactly what I do with my clients – I use the free guide I wrote and my reverse mortgage email tips to help people learn about the product.
Do 100% of my clients take reverse mortgages? Absolutely not! But until you’ve learned about the product then you won’t know whether or not it’s a good fit for you.
2. The Word ‘Mortgage’
Unfortunately, Reverse Mortgage is the correct term for the product in Canada.
But the word ‘mortgage’ has negative connotations.
What a ‘mortgage’ means at heart is a loan related to your home – this is why Reverse Mortgage is the correct term in Canada.
In Japan, reverse mortgages are called ‘Home Pensions’ – essentially recognising the fact that you are using your home equity as part of your pension.
This is a much better name for them and more clearly demonstrates what this product is about and the type of person who can benefit the most from them (as I mentioned above, the best candidates are people who the majority of their net worth lies in their home).
However, unfortunately, the Canadian name isn’t about to change anytime soon!
3. Reverse Mortgages In The USA
The USA has really given all mortgage products a bad name over the past 10 years.
It started with the subprime mortgage crisis – where lenders gave inflated mortgages to people who couldn’t afford them and they created products such as ‘interest only’ or ‘zero down’ mortgages. This behaviour culminated in the global financial crisis of 2008.
However, it is important to remember that Canadian banks were not bailed out because our mortgage products are very different and our banking system is much more conservative than in the USA. We don’t have ‘interest only’ or ‘zero down’ mortgages.
Well, Reverse Mortgages are no different.
The USA has also done things that Canadian lenders are not allowed to do – lending to people under 55, lending more than 55% of the value of the home, lending to people who had not obtained independent legal advice and building up debts greater than the value of the home.
Remember: Canadian mortgages didn’t bring down our financial system because they are better products and lenders are more conservative. This also applies to reverse mortgages.
In Canada, reverse mortgages have 4 very important safety nets that many US reverse mortgages do not:
– You cannot get a reverse mortgage if either you or your spouse is under 55.
– You cannot borrow more than 55% (maximum) of your home under a reverse mortgage.
– You can never owe more than your home is worth.
– We require that you seek independent legal advice before signing.
This why 99% of Canadian reverse mortgage holders get money back (i.e. have equity remaining) when they discharge their reverse mortgage.
So there you have it – the next time you hear someone bad mouthing reverse mortgages, please send them to this article!