August 21, 2019

Expect change to playing field for reverse mortgages

 By Paul Barker, For Postmedia News March 30, 2011
 
 HomEquity Bank, operator of the Canadian Home Income Plan reverse mortgage, better known as CHIP, has a monopoly today, but mortgage experts say it’s only a matter of time before competitors move into this highly lucrative and growing market.

“I can’t predict when it might happen but I know there are people looking into this space,” says Robert McLister, a mortgage specialist with brokerage firm Mortgage Architects in Vancouver and co-founder of Mortgage Trends.com.

“There is a lot of money being left on the table. When you see CHIP’s growth numbers, they are just phenomenal.

“The upside is when you have no better options, they are a simple way to extract the necessary cash from your house. There is no application process, there is no proof of income. There are no mortgage payments that need to be made.”

Through the CHIP program, launched in 1986, homeowners over the age of 60 can receive a tax-free lumpsum payment or monthly payments of anywhere between 10 per cent and 40 per cent of the equity they have in their home.

According to the Canadian Mortgage and Housing Corp., it is modelled on similar programs in the United Kingdom and U.S., and treated as a loan that it is registered as a lien against the property.

That loan is currently subject to a 4.75 per cent interest rate.

“Compare that to a 3.5 per cent line-of-credit rate, and there is a big interest spread,” says McLister.

Greg Bandler, senior vicepresident at HomEquity Bank, says the rise in the number of homeowners signing on to the CHIP program is partly a result of changing attitudes about retirement:

“What is important in retirement? Good health, living life the way I envisioned and having enough money,” he says.

“We are definitely seeing that among our clientele.

The reality is that property has undergone tremendous appreciation and is an important asset within their total portfolio and net worth, but it is an asset that is very illiquid.

“On the emotional side of the ledger, they are very attached to the house and want to live there. The alternatives are not great. If you want to downsize and move to a smaller place, you are realizing the appreciated value, but you are also buying in today’s market with today’s dollars.”

Gary Siegle, a Calgarybased regional manager with Invis, a national independent brokerage firm, says the market is going to grow because there are a lot of people that have not planned appropriately for retirement.

“It wouldn’t be a shock to me to find that there are some people in boardrooms somewhere in this country looking and studying reverse mortgages and saying, this is going to be a ballooning market and we need to get a piece of it.’

“That is part of the reason that the Home Equity Bank is trying to continue to sharpen its pencils and make the product as attractive as possible. Even though they don’t have competition in the market today, they could face competition someplace in the next few years.”

© Copyright (c) The Calgary Herald
 
 

 

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