Introduction
Looking for a reverse mortgage lender in Canada? HomeEquity Bank (HEB) and Equitable Bank (EQ) are two of the largest reverse mortgage lenders available.
While both lenders offer similar products, there are some important differences to consider.
In this article, we'll complete a reverse mortgage comparison and help you decide which reverse mortgage product is right for you.
Before we dive in, let’s share some background about reverse mortgages in Canada.
What is a Reverse Mortgage?
If you're a homeowner over the age of 55 in Canada looking for financial flexibility in retirement, a reverse mortgage may be a viable option.
Reverse mortgages allow you to tap into your home's equity without selling your property and do not require the homeowner to make any monthly payments.
The money from a reverse mortgage is received as tax-free cash and the reverse mortgage balance does not need to be repaid until the homeowner sells their home, moves out or passes away.
In order to be approved for a reverse mortgage in Canada, a lender will not focus on your income or your credit scores.
As a result, you can be approved for a reverse mortgage even if you are receiving pension income or have bad credit.
These qualifying requirements allow reverse mortgages to be much more attainable for retired homeowners than home equity lines of credit or traditional home equity mortgages.
Homeowners can quickly get an estimate on their reverse mortgage approval amount by using a reputable, Canadian online reverse mortgage calculator.
Learn More:
Unlocking the Benefits of a Reverse Mortgage
What are the Reverse Mortgage Age Rules?
Types of Reverse Mortgages
HomeEquity Bank provides the CHIP Reverse Mortgage and Equitable Bank provides the Flex Reverse Mortgage.
Both the CHIP Reverse Mortgage and the Flex Reverse Mortgage come with various options, allowing a homeowner to receive a reverse mortgage suitable for their needs.
Let’s look at how these options differ for both the HEB reverse mortgages and the EQ reverse mortgages. As we review these options, we’ll decide which lender wins the category.
Learn More:
What are Your CHIP Reverse Mortgage Obligations?
Reverse Mortgage Terms
Just like traditional mortgages, reverse mortgages are offered for a term where the reverse mortgage interest rate will be fixed (in the case of variable rate reverse mortgages, then the interest rate spread will also be fixed, for example, Prime + 1% or Prime + 2%).
Both the CHIP reverse mortgage and the EQ reverse mortgage offer 1, 3 and 5 year terms to seniors who are looking for a reverse mortgage.
Where do the lenders differ?
The reverse mortgage term options differ as follows: the EQ reverse mortgage offers a 2-year term and a 6-month closed term, while Home Equity Bank offers a 6-month open term at a variable interest rate.
Winner: HomeEquity Bank
We think the 6-month open feature by Home Equity Bank is more useful to homeowners who are looking for a short-term term option without having to pay a prepayment penalty.
This short-term reverse mortgage option for homeowners is more flexible than the 6-month closed term offered with EQ reverse mortgages which impose a penalty if they are paid off earlier than 6 months.
These short-term reverse mortgages are very popular with our clients who are in the process of downsizing their principal residence and need to spend money on home improvements before they sell the home.
Many of our clients also use this type of a short-term reverse mortgage to make the deposit or down payment of their new home if their existing home has not yet been sold.
Learn more:
How to Downsize Using a Reverse Mortgage
Maximum Reverse Mortgage Amounts
Both reverse mortgage lenders will use your age and the value of the primary residence to determine how much you are eligible to receive for your loan amount.
Both lenders will require a real estate appraiser to visit the property to decide how much the home is worth.
The appraiser, in preparing their report, will look at the home’s condition, its age, its features, its location and recent comparable sales.
In urban areas, homeowners tend to get approved for similar amounts for the CHIP reverse mortgage and the Flex reverse mortgage.
However, in less remote areas, Equitable Bank tends to reduce the amount of its Flex reverse mortgage or won’t offer the product in the location at all.
The CHIP Reverse Mortgage, on the other hand, is offered across the country without limitation. The maximum loan amount for CHIP Reverse Mortgages in rural locations will be reduced though.
Regardless of location, both reverse mortgage lenders have a maximum loan limit of 59% of the property’s value.
A key difference between the lenders is that HomeEquity Bank allows a second mortgage to be placed on the property, allowing a senior to borrow up to 65% of the property value.
EQ does not permit second mortgages.
HomeEquity Bank will not offer the second mortgage option if a retiree contacts them directly; homeowners will need to work with a reverse mortgage broker if they wish to arrange this type of a bundled solution.
Learn more:
You Need a Mortgage Broker to Get a Reverse Mortgage
EQ's minimum loan amount is $25,000 with no official maximum limit.
HEB's minimum loan amount is $25,000 with no official maximum limit.
Winner: HomeEquity Bank
In our opinion, the option for a retiree to obtain a second mortgage allows homeowners tremendous financial flexibility. For this reason, we think the CHIP Reverse Mortgage beats the Flex Reverse Mortgage in this category.
We use this second mortgage feature quite frequently, where the CHIP Reverse Mortgage quote is not enough, and arrange for a no-payment second mortgage to allow the homeowner to obtain the benefits of a reverse mortgage.
The second mortgage is typically combined with the original CHIP Reverse Mortgage when the homeowner qualifies for a sufficient CHIP reverse mortgage amount (either because they are older or the property value has increased).
Reverse Mortgage Interest Rates
Both lenders offer fixed and variable interest rate options for their 1-5 year terms.
In our experience, we find the EQ Flex Reverse Mortgage is consistently priced lower than the CHIP Reverse Mortgage as EQ Bank is trying to grow its market share. The Flex Reverse Mortgage is commonly priced 0.25% less than CHIP Reverse Mortgage.
Both lenders offer their standard posted interest rates on renewal.
Winner: Equitable Bank
We picked EQ bank as the winner of this category because lower rates mean lower interest charges and eventually, a lower mortgage amount owing by the homeowner.
While we often tell homeowners to view a reverse mortgage as a lifestyle product that should not be evaluated on interest rates alone, that does not mean over-paying unnecessarily.
In our discussions with HEB about this difference in interest rates, their management has expressed a reluctance to “fight to the bottom” in terms of pricing.
Still, HomeEquity Bank will match EQ’s pricing when asked to do so by a preferred mortgage broker partner such as RetireBetter.
This approach by HEB has led to EQ gaining a significant market share in less than two years.
Reverse Mortgage Setup Fees
EQ's setup fee is $995, while HEB's setup fee for a CHIP Reverse Mortgage ranges from $1,795 to $2,995 depending on the term a homeowner wishes to obtain.
Both lenders require the homeowner to pay for their own legal and appraisal expenses. Both
lenders allow the setup fee to be deducted from the loan proceeds.
Winner: Equitable Bank
EQ has consistently underpriced HEB with respect to its set-up fees and we expect it will continue to do so in the foreseeable future.
Quite frankly, we think HEB’s pricing is a leftover from being the only “show” in town—now that there is a strong competitor in the market like EQ, HEB needs to re-evaluate their inflated setup fee.
Lending Territory
EQ tends to be focused on urban areas but is slowly increasing its geographic scope. EQ is also limited to Ontario, Alberta, British Columbia, and Quebec.
HEB is available nationwide, and rural locations do not tend to be an issue. Note that both lenders do scale back their loan limits in locations they deem to be more remote.
Winner: Home Equity Bank
HEB wins this category simply because it has a broader lending territory than EQ.
At the moment, depending on your home’s location, HomeEquity Bank may be your only reverse mortgage option.
We suspect as EQ becomes more comfortable in the performance of its reverse mortgage product, they will start to expand its lending territory to match that of HEB.
Equity Protection Guarantee
Both lenders offer an equity protection guarantee. This means that a homeowner will never owe more than the fair market value of the property, as long as they meet their contractual obligations.
Winner: Tie
See our FAQ section below for more details about this Equity Protection Guarantee.
Reverse Mortgage Property Requirements
Both lenders require a minimum property value of $250,000.
Neither lender will lend to you if your home is on leased land or is a mobile home.
Winner: Tie
Reverse Mortgage Advance Options
Both lenders allow the following options with respect to receiving loan funds: initial lump-sum, scheduled and unscheduled advances.
Winner: Tie
Using a Power of Attorney
Both lenders will complete a transaction using a power of attorney if necessary. However, EQ has been willing to complete a transaction involving a POA even when HEB has declined the same transactions unexpectedly.
Winner: EQ
In our experience, if you are dealing with a Power of Attorney, EQ seems to be more flexible with their loan underwriting.
HEB seems to be becoming less comfortable with Power of Attorney transactions and their decisions have left us shaking our heads in the past.
Prepayment Privileges
Both lenders offer a 10% annual prepayment privilege. Both lenders also permit a single monthly payment for the outstanding interest amount.
Winner: Tie
Prepayment Charges
Both HomeEquity Bank and Equitable Bank charge a prepayment penalty, which is calculated differently than traditional mortgages.
When calculating their prepayment charges, both lenders focus on the initial date of loan setup rather than mortgage term.
In other words, a homeowner can end up paying a prepayment penalty even when their reverse mortgage “term” has come due!
In calculating their prepayment charge, EQ reverse mortgages charge 5/4/3 months' interest if the loan is paid off in years 1/2/3, respectively.
On the other hand, CHIP Reverse Mortgages charge 5/4/3 percent of the loan amount if the loan is paid off in years 1/2/3, respectively.
If prepayment is made in years 4-10, both lenders charge 3 months' interest, which can be waived if 3 months' notice is given.
Furthermore, if prepayment is made after 5 years within 30 days of your term renewal (your interest reset date), neither lender charges a prepayment fee.
If prepayment is made in year 11 or later, neither lender charges a prepayment penalty.
In addition, both lenders take your annual prepayment privilege into account when determining your prepayment penalty.
HEB has stated that it will waive the prepayment penalty upon the death of the last borrower and reduce it by 50% if the last borrower moves into a long-term care facility.
Winner: EQ
Equitable Bank is the clear winner in terms of prepayment charges, as they offer a more favorable penalty structure compared to HomeEquity Bank.
EQ’s formula could save you thousands of dollars if you decide to pay off your mortgage in the first 3 years.
Quite frankly, we don’t understand the reason why HEB has set up its prepayment penalty structure in this manner (other than it was the only provider of reverse mortgages in the past).
By continuing to use this prepayment penalty approach, they have created a significant advantage in selecting an EQ reverse mortgage.
Client Portal
Equitable Bank has a modern and informative client portal where you can check your balance, download documents, and request changes.
On the other hand, HomeEquity Bank does not have a client portal and requires its clients to call into their contact center.
Winner: EQ
EQ has provided a modern client experience for its borrowers.
In our opinion, HEB’s expectation that a borrower should call into their centre is just not consistent with modern banking standards.
Our Verdict
All things being equal, EQ comes out as our winner in this head-to-head comparison of reverse mortgages in Canada.
Our verdict is based on the lower rates offered by EQ, their flexibility with Powers of Attorney, their lower prepayment penalty and lower setup fees.
If you are looking for a short-term option without a prepayment penalty or live in an area that is not serviced by EQ, then the CHIP Reverse Mortgage is a better option for you.
FAQ
Q: Can I still leave an inheritance for my heirs if I take out a reverse mortgage?
A: Yes, it is still possible to leave an inheritance for your heirs. However, the amount of the inheritance will depend on the outstanding loan balance at the time of your passing.
Learn more:
How Does a Reverse Mortgage Affect Inheritances
Q: What happens if the loan amount exceeds the value of my property?
A: Both HomeEquity Bank and Equitable Bank offer an Equity Protection Guarantee, which means that a homeowner will never owe more than the fair market value of the property, as long as they meet their contractual obligations.
Q: Can I use the funds from a reverse mortgage for any purpose?
A: Yes, there are no restrictions on how the funds can be used. Borrowers may use the funds for any purpose, such as home renovations, healthcare expenses, travel, or to supplement their retirement income.
