“𝐇𝐚𝐯𝐞 𝐲𝐨𝐮 𝐬𝐞𝐞𝐧 𝐬𝐨𝐦𝐞𝐭𝐡𝐢𝐧𝐠 𝐥𝐢𝐤𝐞 𝐭𝐡𝐢𝐬 𝐛𝐞𝐟𝐨𝐫𝐞?”

A lender called us yesterday about a file involving a senior couple who had defaulted on their reverse mortgage and were looking to refinance their way out of trouble.

Our client wanted to help but had never dealt with a reverse mortgage before.

Reverse mortgages are among the most misunderstood lending products in Canada.

Many people assume a lender takes ownership of the home.

Others view them as inherently predatory.

It doesn’t help that every so often there’s a news story about a vulnerable, elderly borrower being scammed.

𝐁𝐮𝐭 𝐭𝐡𝐞 𝐫𝐞𝐚𝐥𝐢𝐭𝐲 𝐢𝐬 𝐦𝐨𝐫𝐞 𝐧𝐮𝐚𝐧𝐜𝐞𝐝.

🏘 Borrowers retain ownership of their property.

💵 No monthly payments are required.

🤝 Interest accrues and the loan is typically repaid when the property is sold, the borrower moves out or passes away.

🧱 The amount owed is generally capped at the value of the property.

What we find particularly interesting is how differently these loans are underwritten.

With a conventional mortgage, heavy focus is placed on a borrower's ability to make payments.

𝐖𝐢𝐭𝐡 𝐚 𝐫𝐞𝐯𝐞𝐫𝐬𝐞 𝐦𝐨𝐫𝐭𝐠𝐚𝐠𝐞, 𝐭𝐡𝐞 𝐟𝐨𝐜𝐮𝐬 𝐬𝐡𝐢𝐟𝐭𝐬 𝐭𝐨 𝐨𝐧𝐞 𝐪𝐮𝐞𝐬𝐭𝐢𝐨𝐧:

𝐖𝐢𝐥𝐥 𝐭𝐡𝐞𝐫𝐞 𝐬𝐭𝐢𝐥𝐥 𝐛𝐞 𝐞𝐧𝐨𝐮𝐠𝐡 𝐞𝐪𝐮𝐢𝐭𝐲 𝐢𝐧 𝐭𝐡𝐞 𝐩𝐫𝐨𝐩𝐞𝐫𝐭𝐲 𝐲𝐞𝐚𝐫𝐬 𝐟𝐫𝐨𝐦 𝐧𝐨𝐰?

Add to that the requirement for significant capital reserves and actuarial mortality modelling and the risk analysis becomes very different.

Despite their complexity, reverse mortgages have grown from roughly $650𝐌 to nearly $11𝐁 over the past 15 years.

As Canada's population ages and some homeowners find themselves equity-rich but cash-flow constrained, it is not surprising that this product continues to gain traction.

Whether you love them or hate them, reverse mortgages are becoming an increasingly important part of the Canadian lending landscape.