Reverse mortgage professionals who may look longingly across our northern border at the Canadian market with a mix of envy and puzzlement, may be cautioned that it could be apples and oranges they are comparing. “I am perplexed,” says one reverse originator here in the States, “at how consistently and, at times, rapidly the reverse mortgage product has grown in Canada. It just seems odd to me that two neighboring countries with similar cultures, demographics and needs, are having drastically different growth patterns in a very similar industry,” he laments.
Indeed, the “CHIP – Canadian Home Income Plan,” essentially the only reverse mortgage program in Canada, “has evolved from a niche product and is continuing to garner popularity as a mainstream financial solution,” says Steven Ranson, President and CEO, HomEquity Bank, the single source of the product there since 1986.
But, behind the curtain, one sees as many differences as similarities. In Canada, the minimum qualifying age for a reverse mortgage is 60; there are nearly 7 million Canadians that age or older, out of a total population of 33 million – about one-tenth the size of the U.S.
Then, there is the culture.
“Canadians hate to borrow,“ says Arthur Krzycki, a bank spokesman, noting that “despite face-value similarities between the two markets, the consumer attitudes are different,” including a lack of mortgage interest deduction in the tax laws there. (Proceeds from the CHIP reverse mortgage are received tax-free and are not added to taxable income. When the proceeds are used to purchase new investments, the interest expense of the loan may be used to offset tax on the new investment income and reduce the overall tax payable.)
As of September 30, 2010, the bank’s portfolio comprised approximately 7,800 reverse mortgages with an accrued value of $985 million, secured by residential properties across Canada worth approximately $2.7 billion. Currently, a CHIP reverse mortgage charges prime plus 1.75 percent interest.
“Our product has evolved,” says Krzycki, noting that the biggest changes have come in the last five years, with the introduction of more flexible terms, including rules on how one can take money (lump sum or over time) and how often. These have contributed to gains of 15 percent annually in CHIP, he reports.
According to Ranson, over the coming months, the bank intends to “introduce additional product features that will enable an even broader segment of Canadian seniors and homeowners approaching retirement to put their home equity to work for them.”
Written by Neil Morse