Reverse Mortgages In Canada vs The U.S.A.

Most of us watch a lot of American TV and hear American media and news which sometimes can make things confusing when it comes to understanding similar products, like a reverse mortgage.

While both Canada and the U.S. have reverse mortgages – and in fact are the only 2 countries in the world to refer to the product as a ‘reverse mortgage’ – how they operate and the rules and laws behind them can be very different and can present unique challenges when trying to explain reverse mortgages to the newly acquainted.

Here we set out to clarify some of those differences – which you’ll find will leave you much happier and confident with a Canadian reverse mortgage than our US counterparts.
 
 

The History Of Reverse Mortgages In The U.S. And Canada

Reverse mortgages in both the U.S. and Canada have been around for over 30 years. While sometimes called Home Equity Conversion Mortgage in the U.S., they are most commonly referred to as reverse mortgages, which is why there can be some confusion about the differences in Canada and the U.S.

In Canada, the product used to be called the ‘Canadian Home Income Plan’ or ‘CHIP’ – before being re-branded to the reverse mortgage Canada.

While they both have the same idea – giving seniors access to their home equity – in the U.S., qualifying for a reverse mortgage is different in that:
 

  1. – At least one spouse must be over 62 years old, whereas in Canada this is 55 for both applicants.
  2. – In the U.S. only one spouse needs to qualify; in Canada both need to qualify.  This is a very important differentiation and is part of the reason reverse mortgages have a bad name – we’ll talk more about this below.
  3. – In Canada, applicants must obtain independent legal advice before being approved – this is not required in the U.S.

 
This is just for qualifying. Another major difference between our two countries is that the closing costs (the fees associated with setting up the reverse mortgage) in the U.S. tend to be much higher, as well as there are ongoing fees such as servicing fees.

The rules for qualification in the U.S. – in particular, requiring only one applicant be over 62 years old – became a major issue for some people when a spouse over 62 passed away and the remaining spouse was under 62, technically not qualifying for the reverse mortgage.

Before 2014 (when the eligibility requirements were revised), the loan for the remaining spouse under 62 became due in full, often requiring them to lose their home. This obviously is was a shock for many people who did not know or understand the terms of the reverse mortgage in the U.S. or were not properly made to understand prior to 2014.

This has never happened in Canada. Reverse mortgages are not available unless both applicants are over 55, which makes sure that no one ever gets caught by surprise and loses their home by suddenly not qualifying!
 
 

Mortgage And Lending Standards In The U.S. Compared To Canada

Some of you may have seen the movie “The Big Short” or other movies about the 2008 financial housing market crisis. This is often what frightens people when it comes to mortgages in general, and about banks and mortgages in particular.

After 2008, 734 banks were bailed out according to CNN.  734. That’s a big number.

However, in Canada, that number was zero.

Banking continues to be much more conservative here in Canada, which generally means that they are willing to take on less risk, and in the case of reverse mortgages, are less likely to approve someone to receive a reverse mortgage if they feel like they may not be able to recover their money – that is if the property won’t appreciate in value to offset the reverse mortgage interest.

This means that you can be a lot more confident that when you take out a reverse mortgage here in Canada, you are going to be financially okay and be able to make the most of your reverse mortgage and still leave your home equity in sound condition.
 
 

Similarities Between Canadian And U.S. Reverse Mortgages

This takes us to similarities between reverse mortgages in the U.S. and Canada:
 

  1. – In both the U.S. and Canada, you cannot take out a reverse mortgage for more than half the equity in your home (the number is actually 55% in Canada).
  2. – To receive a reverse mortgage, you must not have any outstanding mortgages, outstanding property taxes, or other loans against the home – these can however be paid off and deducted from your reverse mortgage amount if necessary.  Any proceeds after paying these off can then be kept.
  3. – You never have to make monthly payments towards a reverse mortgage.

 
The first point, as seen in some of our previous articles, protects borrowers from being able to pay off the reverse mortgage at the end of the loan from their remaining equity. This protects borrowers substantially by ensuring that they or their families don’t become burdened financially should they move or pass away.

The second point ensures that you are in full possession of your home and can thereby access your full home equity to be able to use a reverse mortgage. This actually protects both you and the lender.  It protects you because by removing any existing mortgage, you are protected from losing your home for not paying it; it also protects the lender from this happening – they would lose out if this happened as well.

Lastly, payments on a reverse mortgage – in both Canada and the U.S.A. – are voluntary.  You can make payments if you like – to pay down the interest for example – however you are not required to do this in any way, shape or form.  And over 95% of reverse mortgage holders in Canada that we work with choose not to make any payments.
 
 

In Summary: Reverse Mortgages In Canada vs The U.S.A.

So you can see how the idea behind reverse mortgages in the U.S. and Canada is the same – give seniors access to the home equity they have built up in their home so they can use the funds during their retirement. But beyond that, the similarities start to disappear. The way reverse mortgages are structured in Canada give borrowers more protection, and prevent unfortunate cases of people losing their homes as was the case in the U.S. prior to 2014.

 
 

More Help And Information About Professional Reverse Mortgage Solutions

If you are thinking about getting a reverse mortgage in Canada, we can assist you. Whether it is comparing the product to the U.S.A or examining the impact of Brexit on reverse mortgages, we have you covered.

We offer complimentary info and advice to assist you through this essential financial decision.  As part of Dominion Lending Centres Edge Financial – so you get independent and impartial mortgage agents who will examine whether a reverse mortgage is best for you – we do not work for the lenders.

Where you are just seeking extra cash or thinking about a reverse mortgage to help the kids – we can give you the advice and guidance you need.

If you have any questions about how any of this works, don’t hesitate to email us at: contact@reversemortgagepros.ca.

Or call and immediately speak to one of the team 24/7, Monday to Sunday toll-free at 1-888-358-7771.

Or if you have any further questions about how reverse mortgages work in Canada, compared to the U.S.A. then leave a comment below and we’ll get back to you.

 

Comments 4

  • I have been in contact previously with a rep re CHIP and was told we could qualify for a reverse mortgage but found him somewhat unprofessional and hard to understand and
    vague on some inquiries. this was supposedly from a local (Vancouver BC office.
    We have a home on 3 acres in rural area in ( Bella Coola B C ) Home is 40 years old and mortgage free.
    I am 71 and my wife is 68 and we are not interested in leaving property to our two adult children who have successful lives of there own and could buy out the mortgage if need be.
    Thank you for your time, Peter

    • Hi Peter

      Sorry to hear about that, I do that even some mortgage brokers are confused about reverse mortgages – so that could be the case with you.

      It looks like you already submitted an assessment, so hopefully you’re now getting the help you need.

      Thanks,
      Mich @ Reverse Mortgage Pros

  • As for CHIP, do interest vary from lender to lender. How about hidden fees? What should I look ou for when applying?

Leave a Reply

Your email address will not be published. Required fields are marked *