Thursday, November 9, 2017

400 Year History Of Reverse Mortgages

Reverse mortgages have been around for over 400 years, yet they are still often misunderstood in Canada.

In order to address the misconceptions, it is useful to examine the history of reverse mortgages and how they have evolved over time.

400 Years of History

The concept of seniors not having enough money to enjoy their retirement is nothing new. Records dating back over 400 years ago from the U.K. and in Europe reveal that it was common practice for investors to purchase homes from seniors and then allow the senior to live “rent-free” in the home until the senior died. At the time of the seniors’ death, the home would be sold by the investor or rented out.

It is this practice that began centuries ago that has generated the #1 Reverse Mortgage Myth: “You give up ownership to your home”.

Today, this is simply not true. In Canada, you retain full ownership and rights to your home, 100%.

In the Crash of 1929 and the Great Depression that followed, the U.K created a financial product called “Home-Equity Reversion”. Home-Equity Reversion was no different than the practice that began over 400 years ago, in that borrowers sold all or a part of their home to a third party, normally a reversion company (or an individual investor) in exchange to live rent-free in the home until they died. The major difference was that the reversion business skyrocketed during one of the worst economic downturns in modern history. It is for this reason that reversion companies and individual investors were commonly viewed as taking predatory action upon impoverished seniors.

Reversion companies similar to those in the U.K. sprung up across Europe. In France, they were known as “Viageres” and when they eventually made their way to the U.S. in the 1970’s they were re-named “Home Equity Conversion Loans” and were also referred to as “Reverse Mortgages”. You can see why Misconception #1 is still so prevalent in North America – Reverse Mortgages began in the U.S. as a way for a senior to stay in their home – by selling their home to a reversion company or a wealthy individual investor.

The Beginnings of Reverse Mortgages in Canada

Fast forward to 1986 when a chartered accountant by the name of William Turner introduced a new type of reverse mortgage product to the residents of Vancouver, British Columbia. William Turner studied the old reverse mortgage models and rejected the idea that a senior would have to give up ownership to their home, simply to be able to afford to continue living in it.

When William Turner founded the Canadian Home Income Plan (CHIP) in 1986, he pioneered a new reverse mortgage concept in Canada. The CHIP reverse mortgage allowed seniors to maintain full ownership of their home, and at the same time, gave seniors the ability to unlock some of the equity so that they could continue to afford and enjoy living in their home. The CHIP reverse mortgage product and business model became so popular that companies from the U.K., Australia, U.S. and Europe, would often contact CHIP for guidance and structure on their own reverse mortgage product offerings.

 

William Turner Retires

In 2002, Canadian Home Income Plan became a publicly traded company, changed its name to “HomEquity Income Trust” and was traded on the TSX under the stock symbol “HEQ.UN”. In 2007, William Turner retired from the Board of Trustees. In a press release, Pierre Label, Chairman of the Board is quoted:

“We are most thankful to William for his extraordinary contribution to HomEquity Income Trust as the founder of the reverse mortgage business in Canada. The Board has benefited greatly from his wealth of experience and unique perspective on the needs of seniors. He remained on a first name basis with many of our original clients and established a culture of respect and consideration in our dealings with seniors and their families”.

The Creation of HomEquity Bank

In 2009, HomEquity Income Trust became a Chartered Schedule I Canadian Bank and changed its name to “HomEquity Bank”. This allowed HomEquity Bank to raise capital just like any other bank in Canada: by selling GIC’s and long-term notes.

With a nationally recognized brand, HomEquity Bank championed the financial needs of Canadian seniors and business blossomed.

In 2012, HomEquity Bank was acquired by Birch Hill Equity Partners.

In the past 5-years, HomEquity Bank has seen unprecedented growth. With “94% of HomEquity Banks clients saying they would recommend a CHIP reverse mortgage”, and the need for seniors to supplement their retirement savings, HomeEquity Bank has officially positions itself as the bank that caters exclusively to the financial needs of Canadian seniors”.

It’s never too late to know more about reverse mortgages and the benefits you can derive from it.

400 Year History Of Reverse Mortgages first appeared on:
Reverse Mortgage Pros
8 Sampson Mews Suite 201,
Toronto,
Ontario,
M3C 0H5
1-888-358-7771
https://goo.gl/TwzUYA


by Stephanie via Reverse Mortgage Pros

400 Year History Of Reverse Mortgages

Reverse mortgages have been around for over 400 years, yet they are still often misunderstood in Canada.

In order to address the misconceptions, it is useful to examine the history of reverse mortgages and how they have evolved over time.

400 Years of History

The concept of seniors not having enough money to enjoy their retirement is nothing new. Records dating back over 400 years ago from the U.K. and in Europe reveal that it was common practice for investors to purchase homes from seniors and then allow the senior to live “rent-free” in the home until the senior died. At the time of the seniors’ death, the home would be sold by the investor or rented out.

It is this practice that began centuries ago that has generated the #1 Reverse Mortgage Myth: “You give up ownership to your home”.

Today, this is simply not true. In Canada, you retain full ownership and rights to your home, 100%.

In the Crash of 1929 and the Great Depression that followed, the U.K created a financial product called “Home-Equity Reversion”. Home-Equity Reversion was no different than the practice that began over 400 years ago, in that borrowers sold all or a part of their home to a third party, normally a reversion company (or an individual investor) in exchange to live rent-free in the home until they died. The major difference was that the reversion business skyrocketed during one of the worst economic downturns in modern history. It is for this reason that reversion companies and individual investors were commonly viewed as taking predatory action upon impoverished seniors.

Reversion companies similar to those in the U.K. sprung up across Europe. In France, they were known as “Viageres” and when they eventually made their way to the U.S. in the 1970’s they were re-named “Home Equity Conversion Loans” and were also referred to as “Reverse Mortgages”. You can see why Misconception #1 is still so prevalent in North America – Reverse Mortgages began in the U.S. as a way for a senior to stay in their home – by selling their home to a reversion company or a wealthy individual investor.

The Beginnings of Reverse Mortgages in Canada

Fast forward to 1986 when a chartered accountant by the name of William Turner introduced a new type of reverse mortgage product to the residents of Vancouver, British Columbia. William Turner studied the old reverse mortgage models and rejected the idea that a senior would have to give up ownership to their home, simply to be able to afford to continue living in it.

When William Turner founded the Canadian Home Income Plan (CHIP) in 1986, he pioneered a new reverse mortgage concept in Canada. The CHIP reverse mortgage allowed seniors to maintain full ownership of their home, and at the same time, gave seniors the ability to unlock some of the equity so that they could continue to afford and enjoy living in their home. The CHIP reverse mortgage product and business model became so popular that companies from the U.K., Australia, U.S. and Europe, would often contact CHIP for guidance and structure on their own reverse mortgage product offerings.

 

William Turner Retires

In 2002, Canadian Home Income Plan became a publicly traded company, changed its name to “HomEquity Income Trust” and was traded on the TSX under the stock symbol “HEQ.UN”. In 2007, William Turner retired from the Board of Trustees. In a press release, Pierre Label, Chairman of the Board is quoted:

“We are most thankful to William for his extraordinary contribution to HomEquity Income Trust as the founder of the reverse mortgage business in Canada. The Board has benefited greatly from his wealth of experience and unique perspective on the needs of seniors. He remained on a first name basis with many of our original clients and established a culture of respect and consideration in our dealings with seniors and their families”.

The Creation of HomEquity Bank

In 2009, HomEquity Income Trust became a Chartered Schedule I Canadian Bank and changed its name to “HomEquity Bank”. This allowed HomEquity Bank to raise capital just like any other bank in Canada: by selling GIC’s and long-term notes.

With a nationally recognized brand, HomEquity Bank championed the financial needs of Canadian seniors and business blossomed.

In 2012, HomEquity Bank was acquired by Birch Hill Equity Partners.

In the past 5-years, HomEquity Bank has seen unprecedented growth. With “94% of HomEquity Banks clients saying they would recommend a CHIP reverse mortgage”, and the need for seniors to supplement their retirement savings, HomeEquity Bank has officially positions itself as the bank that caters exclusively to the financial needs of Canadian seniors”.

It’s never too late to know more about reverse mortgages and the benefits you can derive from it.

400 Year History Of Reverse Mortgages first appeared on:
Reverse Mortgage Pros
8 Sampson Mews Suite 201,
Toronto,
Ontario,
M3C 0H5
1-888-358-7771
https://goo.gl/TwzUYA

Wednesday, November 8, 2017

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.

Have you read somewhere that the age to qualify for a reverse mortgage is over 62?  Have you been reading about terms such as HUD, HECM (Home Equity Conversion Mortgage), FHA or Churning?

All of these items only relate to the US reverse mortgage and have nothing to do with the Canadian reverse mortgage.

While both Canada and the U.S. have a reverse mortgage product – 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 them to the newly acquainted.

Here we set out to clarify some of those differences – what you’ll find is that a reverse mortgage in Canada presents a much less risky option than it has been for our US counterparts.

The History Of This Product 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 (HECM) in the U.S., they are not referred to this as much any more.

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

While they both have the same idea – giving seniors access to their home equity – in the U.S., qualifying for 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 very bad name in the USA – 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 it up) 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 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 product in the U.S. or were not properly made to understand prior to 2014.

This has never happened in Canada.

You can not get this mortgage 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 US banks were bailed out according to CNN.

734. That’s a big number.  That’s almost more banks than there are across the whole of Canada.

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 this 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 interest that accumulates.

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

And if you’re interested in the data, 99% of Canadian homes have equity remaining when the reverse mortgage is discharged.

Similarities Between Canada And The U.S.

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 this out for more than half the equity in your home (the number is actually 55% in Canada).
  2. To receive the funds, 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 the amount you borrow – if necessary.  Any proceeds after paying these off can then be kept.
  3. You never have to make monthly payments towards it.

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 the money. 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 towards the 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: 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 prevents unfortunate cases of people losing their homes as was the case in the U.S. prior to 2014.

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, looking at the costs involved in a reverse mortgage, to looking at some of the alternatives to a reverse mortgage – we have you covered.

 

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.

 

Reverse Mortgages In Canada vs The U.S.A. first appeared on:
Reverse Mortgage Pros
8 Sampson Mews Suite 201,
Toronto,
Ontario,
M3C 0H5
1-888-358-7771
https://goo.gl/TwzUYA


by Reverse Mortgage Pros via Reverse Mortgage Pros

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.

Have you read somewhere that the age to qualify for a reverse mortgage is over 62?  Have you been reading about terms such as HUD, HECM (Home Equity Conversion Mortgage), FHA or Churning?

All of these items only relate to the US reverse mortgage and have nothing to do with the Canadian reverse mortgage.

While both Canada and the U.S. have a reverse mortgage product – 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 them to the newly acquainted.

Here we set out to clarify some of those differences – what you’ll find is that a reverse mortgage in Canada presents a much less risky option than it has been for our US counterparts.

The History Of This Product 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 (HECM) in the U.S., they are not referred to this as much any more.

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

While they both have the same idea – giving seniors access to their home equity – in the U.S., qualifying for 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 very bad name in the USA – 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 it up) 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 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 product in the U.S. or were not properly made to understand prior to 2014.

This has never happened in Canada.

You can not get this mortgage 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 US banks were bailed out according to CNN.

734. That’s a big number.  That’s almost more banks than there are across the whole of Canada.

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 this 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 interest that accumulates.

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

And if you’re interested in the data, 99% of Canadian homes have equity remaining when the reverse mortgage is discharged.

Similarities Between Canada And The U.S.

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 this out for more than half the equity in your home (the number is actually 55% in Canada).
  2. To receive the funds, 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 the amount you borrow – if necessary.  Any proceeds after paying these off can then be kept.
  3. You never have to make monthly payments towards it.

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 the money. 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 towards the 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: 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 prevents unfortunate cases of people losing their homes as was the case in the U.S. prior to 2014.

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, looking at the costs involved in a reverse mortgage, to looking at some of the alternatives to a reverse mortgage – we have you covered.

 

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.

 

Reverse Mortgages In Canada vs The U.S.A. first appeared on:
Reverse Mortgage Pros
8 Sampson Mews Suite 201,
Toronto,
Ontario,
M3C 0H5
1-888-358-7771
https://goo.gl/TwzUYA