Reverse Mortgage Competition Comes to Canada with New Product

After years with only one reverse mortgage option, older homeowners in Canada now have another choice.

Equitable Bank this month launched the “Path Home Plan,” an equity-release product for Canadians 55 and older. The Path product joins the CHIP Reverse Mortgage from HomEquity Bank, which has issued the loans since 1986 and until now cornered the Canadian market.

“Canadians deserve options when it comes to their financial well-being as they age, and we want to help homeowners stay in control while still living in their homes,” Equitable Bank vice president of residential sales and partner relations Kim Kukulowicz said in a statement announcing the new product.

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“For a long time, Canadians have had limited choice to access the equity in their homes. Now they can sit down with an experienced and well-established mortgage broker network, and get the right guidance and personalized options that meet their needs,” she said.

A spokesperson for Equitable Bank said that Kukulowicz was unable to participate in an interview this week, and referred RMD to the release.

Competition was almost inevitable for CHIP, with HomEquity reporting record originations in 2017 and pointing to favorable demographic shifts in the nation: For the first time in Canada’s history, people aged 65 and older outnumbered children younger than 12 according to the most recent Canadian census.

Like the CHIP, the Path mortgage is entirely private — with no government backing as in the United States — and available to people aged 55 and older. Interested borrowers are required to prove that they received independent legal counsel before applying, along with documentation supporting their ability to pay property taxes, condo fees, and utility costs, similar to the Financial Assessment process in the United States.

Borrowers can then take a one-time draw, regular recurring advances, or single draws upon request, with a variety of minimum draw restrictions. 

But the new Path product allows homeowners to tap into a smaller amount of their equity: While the CHIP has a limit of 55% of home equity, the Path only unlocks a maximum of 40%, according to a report in The Globe and Mail, a Toronto newspaper. In addition, the product is only available to homeowners in major urban areas in the provinces of British Columbia, Alberta, and Ontario; the CHIP became available in all Canadian provinces in 2001.

“We have been studying the equity release market with interest for several years,” Equitable Bank president and CEO Andrew Moor said in a statement. “With the combination of favorable demographics, increased home equity values, and less support from traditional defined benefit pension plans, we believe that the Path Home Plan will provide a valuable option to Canadian seniors, generate attractive returns for our shareholders, and further strengthen our business.”

With increased interest has come increased scrutiny: The Globe and Mail piece also advises consumers to proceed with caution when considering a reverse mortgage.

“The success of reverse mortgages going forward will depend to a large extent on whether mortgage brokers can be relied upon to provide effective, objective advice on the suitability of these products,” personal finance columnist Rob Carrick wrote.

“Too often, Canadians resort to debt to deal with their financial challenges,” he continued. “An accredited financial planner can help you understand the reasons you need a reverse mortgage in the first place.”

Written by Alex Spanko

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  • Equity release? If they are mortgages, they are mortgages. For example, how is a fixed rate H4P equity release? The down payment is huge. What it does is allow seniors to have more cash flow even if it is due to obtaining a mortgage. It is no different than when seniors refi a forward mortgage requiring period payments. Neither may release equity but certainly do provide the cash flow cited in the purpose clause of the HECM program in the official United States Code of laws at 12 USC 1715z-20(a).

  • The age requirement is only 55? Wow … you’d think it’d at least be 60. Are they non-recourse? You’d think starting at 55 would result in lots of negative equity when the term is up.

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