Reverse Mortgages: Canada vs. U.S.

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Reverse Mortgages: Canada vs. U.S.

An effective approach for seniors to access part of the value they have built up in their homes is via a reverse mortgage. A homeowner who is 62 years of age or older and has a significant amount of equity in their house may use a reverse mortgage to borrow against the value of their property and receive money as a lump sum, a set monthly payment, or a line of credit.

A reverse mortgage does not require the homeowner to make any loan payments, as contrast to a forward mortgage, the kind used to purchase a house. Instead, when the borrower passes away, vacates the property permanently, or sells it, the whole loan sum becomes due and payable.

For more than 30 years, reverse mortgages have been available in both Canada and the United States. Furthermore, reverse mortgages are essentially the same on both sides of the border. There are significant distinctions, however, that might have an impact on your eligibility and the loan limit.

In this guide, we’ll explain these differences.

Key Takeaways

  • Both the United States and Canada provide reverse mortgages, albeit there are a few minor distinctions between how they operate in the two nations.
  • The maximum age for a reverse mortgage in Canada is 55, compared to 62 in the United States.
  • In Canada, you may borrow up to 55% of the value of your property, while in the U.S., the amount you can borrow is based on the youngest borrower’s age as well as interest rates.
  • The typical homeowner probably won’t notice these variances all that much. Although it is feasible to sell your current house, repay your reverse mortgage, and then get a new one in Canada (or vice versa), doing so might result in financial loss due to origination fees.
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Reverse Mortgages: The Key Differences Between Canada and the U.S.

Reverse mortgages in Canada and the United States are mostly comparable. However, there are a few significant variations in terms of eligibility requirements, borrowing limits, and lending standards. These are them.

Lending Standards

There is general agreement that Canadian lending criteria are more stringent than American ones. Comparing the two markets’ foreclosure rates, meanwhile, is challenging.

This is partly because the secondary mortgage market functions differently in each nation. Retail banks are now able to offer their mortgages for sale to third parties as investments in the United States owing to the removal of the Glass-Steagall Act in the 1990s. This encourages the issuance of many reverse mortgages and was a contributing factor in the 2008 housing (and later, larger) crisis.

In contrast, there is no market for private mortgage-backed securities in Canada. In Canada, there are just two financial institutions that provide reverse mortgages, and they have little incentive to make unrepayable loans. Equitable Bank provides a reverse mortgage in several major metropolitan areas, while HomeEquity Bank offers CHIP (formerly known as the Canadian Home Income Plan), which is accessible throughout Canada either directly from HomeEquity Bank or via mortgage brokers.

Eligibility

When it comes to eligibility, there is a second significant distinction between reverse mortgages in Canada and the United States. The age restriction for reverse mortgages is the main distinction in this case. To get a reverse mortgage in the United States, you must be 62 years of age or older. You may get a reverse mortgage in Canada at a younger age, 55.

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Additionally, there are certain distinctions in terms of who is eligible to apply for a reverse mortgage. Everyone named on the title of the property must be 55 years of age or older in order to get a reverse mortgage in Canada. Therefore, if a couple lives together, the first reverse mortgage cannot be obtained until both parties are 55.

How Much You Can Borrow

The maximum loan amount is the last significant distinction between reverse mortgages in Canada and the United States.

In Canada, a reverse mortgage may be worth up to 55% of the current value of the house. The situation is somewhat more difficult in the United States. The initial principal limit, often known as the loan amount cap, determines how much you may really borrow. The maximum initial principal limit for HECMs insured by the Federal Housing Administration (FHA) has raised for 2022 from $822,375 to $970,800. Additionally, it is generally accepted in the US that your property must have at least 50% equity.

This implies that you may theoretically borrow more against the value of your property in the United States than in Canada. However, shifting nations will not really affect this amount as much as your age would.

How Much Can You Borrow on a Reverse Mortgage in Canada?

In Canada, a reverse mortgage cannot exceed 55% of the value of your house. Depending on your age, the comparable percentage in the US ranges from 58% to 62% of the value of the property.

Should I Move to Canada for a Reverse Mortgage?

Most likely not. Since the variations between reverse mortgages in Canada and the United States are fairly negligible, the ordinary homeowner is unlikely to notice them.

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Are There Alternatives to a Reverse Mortgage?

The Bottom Line

You may get a reverse mortgage in either the United States or Canada. There are a few minor variations in how they operate in the two nations. The age requirement for a reverse mortgage in Canada is 55, but it is 62 in the United States. In Canada, you are allowed to borrow up to 55% of the value of your property, but in the U.S., the maximum amount you are permitted to borrow is based on your age.

These variations are unlikely to have a significant effect on the typical homeowner. While it is feasible to sell your current house, repay your reverse mortgage, and then get a new one in Canada (or vice versa), choosing this path would probably result in financial loss due to origination fees.

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