With four crafted solutions, HomeEquity Bank is leading a new wave of reverse mortgage thinking
This article was produced in partnership with HomeEquity Bank.
Many Canadians see downsizing as a central part of their retirement plan. Not on track to accumulate enough retirement funds? “It’s ok, we can downsize at some point.”
This idea might be okay when you’re 20 years or so away from having to make that decision, but as clients retire, downsizing is not an easy decision to make. When it comes to downsizing, leaving a neighbourhood and home with so many memories can be difficult. It can take an emotional and physical toll going through belongings and cherished possessions. Downsizing is not for everyone, and according to a survey conducted by Ipsos on behalf of HomeEquity Bank1, 93% of Canadians 55+ want to age in place.
These trends bring reverse mortgages into focus – a previously maligned strategy that is now getting an overdue reappraisal. Advisors who had written them off as a viable retirement planning option are changing their minds.
HomeEquity Bank is leading this new wave of reverse mortgage thinking; with more than 30 years of experience in the field and a portfolio that exceeds $6 billion, they are one of the top-growing companies in Canada.
Change in perception
Reverse mortgages have, therefore, gone mainstream. Boosting its appeal are a number of characteristics that feed into a client’s retirement plan. First, The CHIP Reverse Mortgage by HomeEquity Bank is a loan secured against the home's value that lets clients convert up to 55% of their home equity into tax-free cash – without moving or selling. Clients benefit from any home appreciation and can expect to have equity left over when they decide to sell, thanks to HomeEquity bank's No Negative Equity Guarantee*. With the CHIP Reverse Mortgage, once approved, no requalification is required. The best part is that the CHIP Reverse Mortgage does not require monthly mortgage payments until your clients decide to move or sell*.
Crucially, once approved for a HomeEquity Bank CHIP Reverse Mortgage, it stays in place as long as the client owns the home. Clients can use that sum as a safety net if they ever need access to it quickly.
Jeff Thorsteinson, Vice President, Wealth Distribution, HomeEquity Bank, explained: “The key factors are the age of the client and the actuarial approach to their longevity as opposed to income. Income really doesn't factor into our lending decisions, whereas that's the core component of conventional financing. The older somebody is, the more we can lend up to a maximum of 55% of the value of the home.”
HomeEquity Bank provides four crafted solutions:
CHIP Reverse Mortgage – Provides an initial tax-free lump sum loan amount and potential future ad hoc amounts.
Income Advantage – Provides monthly or quarterly tax-free advances in addition to an initial tax-free lump sum.
Chip Max – Provides an initial, tax-free lump sum loan amount higher than CHIP Reverse Mortgage.
CHIP Open – a short-term solution without pre-payment amounts and the flexibility to convert to a longer-term reverse mortgage solution.
In its decades of experience, HomeEquity Bank has developed a deep understanding of the space. It knows its average client is 72 years old, and on average, they have a CHIP Reverse Mortgage in place for ten years. When they ultimately sell the home, the average amount of equity left after the original loan plus accumulated interest, is about 60%. The misconception, said Thorsteinson, is that a reverse mortgage will eat up all the equity, but the reality is different.
Why enter a reverse mortgage?
The core reason usually relates to cashflow if your income in retirement is lower or you need money for a specific purpose. Given the client’s age, conventional financing is out of the question, so borrowing money tax-free makes sense. With the CHIP Reverse Mortgage, clients can take equity out of their home and then invest it in some fashion – be that in topping up investment accounts to generate additional income (or avoiding taxable events) or making a real estate purchase, for example.
Debt consolidation is another usage, especially given the rise in interest rates, while helping kids get on the property ladder or, sadly, dealing with the fallout from a grey divorce where one spouse wants to buy out the other’s half of the property is another growing issue.
How should advisors present this opportunity?
For advisors, Thorsteinson believes the key is to bring in a HomeEquity Bank CHIP Reverse Mortgage expert to inform and educate clients. Then it’s about storytelling – and the company has several case studies highlighting various financial planning needs.
Anecdotally, he recalled a story of a couple who downsized to rent, only to regret it as house prices soared. Their home sold for $395,000 is now worth close to $2 million, and the couple is in a rental situation, feeling less settled and having missed out on a significant sum.
“They’ve lost that appreciation and value,” Thorsteinson said. “Had they done a reverse mortgage, sure, the interest would have added up, and the total owed would probably have gone up to maybe $700,000, but the value of the house would be a million-plus more. They’ve lost out on that. People don’t always think about what a house might be worth. They just think I have X amount of equity today, and it will get eaten up, as though the price of the home will never appreciate.”
HomeEquity Bank can provide a great financial solution to help your 55+ clients maintain or improve their standard of living in retirement. If you want to learn more about the CHIP Reverse Mortgage, contact a HomeEquity Bank BDM today.
1Source: Survey conducted by Ipsos on behalf of HomeEquity Bank. April 12-16, 2022.
*As long as you keep your property in good maintenance, pay your property taxes and property insurance and your property is not in default. The guarantee excludes administrative expenses and interest that has accumulated after the due date.