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December 14^th 2021 - Philip Roe

Though things are largely prosperous in Canada, retirement is still a major concern. Finding the proper savings for the big day is important but not something that many Canadians have figured out. There are also some misconceptions and misunderstandings between U.S. and Canada reverse mortgages.

If you are looking to gain a better understanding of the difference between U.S. and Canada reverse mortgages, this is the right place. A lot of Canadians have access to American television and will hear about some of these products as they are similar in nature. For transplants from the U.S. in particular, knowing the differences can be infinitely helpful for those interested in a reverse mortgage.

The History of U.S. and Canada Reverse Mortgages

Reverse mortgages have been around in both countries for just over 30 years. In the United States, they are sometimes referred to as Home Equity Conversion Mortgages (HECM), though they are generally not called by that name much anymore.

For Canadians, there is a program specifical to HomeEquity known as the Canadian Home Income Plan (CHIP). The general idea is the same in that it is meant to give seniors access to equity within their home. There are some differences in the qualification process, though.

Qualification Differences Between U.S. and Canada Reverse Mortgages

Though the concept is generally the same, there are some minor differences. For instance, only one spouse needs to be at least 62 years old to qualify in the United States. In Canada, anyone listed on the title of the home has to be at least 55 years old.

That fact is an important one as to why U.S. reverse mortgages have gotten a bad name. Only requiring one person to qualify is the major difference as opposed to Canada. Not only that, but Canadian applicants have to seek out independent legal advice before they can be approved. In the United States, that is not the case.

Back to the age difference. Prior to 2014, when the requirements were revised, there would be a problem with one spouse being under 62. In the event that the applicant passed away, the loan would become due. More often than not, this would lead to the loss of home as the surviving spouse could not afford to pay off the loan.

This has since changed but has played an important part in reverse mortgages getting a bad reputation in the United States. This is why Canadian reverse mortgages require that everyone on the title be of the required age.

Lending Standards for U.S. and Canada Reverse Mortgages

Back in 2008, the United States went through a housing crisis. Because of the housing crisis, a whopping 734 banks across the United States needed to be bailed out. That’s more banks than even exist across all of Canada.

The number of banks requiring a bailout in Canada is zero. Banking in general in Canada tends to be handled much more conservatively even with recent changes to lending practices in the United States. That means getting approval is not likely if lending practices are not met. It is meant to protect both the lender and the borrower from defaulting.

What does that mean? Well, it means that in Canada, you can be more confident when taking out a particular loan. Lenders won’t just go giving out loans to anyone at any time, which is something that helped bring down the American housing market.

If that didn’t instill confidence for Canadians out there, how’s this for a fact: 99% of Canadians still have equity in their home when the reverse mortgage gets discharged.

What are the Similarities Between U.S. and Canada Reverse Mortgages?

In both Canada and the United States, you cannot take out more than 55% of the equity in your home. The number in the United States is actually 50% but it’s pretty close overall. This is to ensure that equity remains in the home even after the discharge of the reverse mortgage.

The reason for this percentage is to protect the estate. Worst case, the estate can sell the home or use the remaining equity to pay off the loan in the event that the loan holders pass away prior to the end of the term.

In order to receive the money from the reverse mortgage, there cannot be any outstanding property taxes, mortgages, or other loans out against the home. The good thing is that in both countries, you can pay off those balances using the funds from the reverse mortgage itself. Anything leftover after paying off those debts can then be used for anything that you want.

Paying off all of the loans against the home is important because it protects both the buyer and the lender. With no mortgage to pay, there is no threat of falling behind on payments and eventually losing the home altogether. Both borrower and lender would lose in the event of a foreclosure.

And most importantly, both U.S. and Canada reverse mortgages require no monthly payments. The principal and the interest will become due at the end of the term. In both the U.S. and Canada, payments on reverse mortgages are optional. You can pay down the interest if you like but it is definitely not required. That provides flexibility for the borrower in how the interest and principal are repaid.

Canadian Reverse Mortgages

In short, U.S. and Canada reverse mortgages are largely the same thing. There are some minor differences, primarily on the Canadian side, meant to protect both the buyer and the lender in the end. In Canada, they are structured to protect the buyer from unfortunate instances that could lead to the loss of one’s home.

Generally speaking, Canadian reverse mortgages are the safer of the two options. This is more based on the lending practices in Canada versus the United States. Recent changes have offered more protection to borrowers, though there are still concerns.

Who Do I Ask About Reverse Mortgages?

The first place that you need to start when inquiring about reverse mortgages is with the team here at Lotus Income. We have years of experience that can get you the answers that you need. The most important thing when it comes to finding a reverse mortgage is knowledge. Being armed with the answers to your questions can mean the difference between a favorable loan and one that you regret.

Reverse mortgages have their own unique set of pros and cons and definitely are not suitable for anyone who qualifies. Discussing with a professional is a great first step and will at least give you a better understanding of this type of loan.

Call our team today or check out our FAQ page to find the answers to your questions. We can get you started down the path to a reverse mortgage today.