Key Takeaways
- Initial costs for getting a reverse mortgage in Canada consist of appraisal, legal and lender closing costs
- Appraisal and legal costs are the same regardless of reverse mortgage lender; only the appraisal needs to be paid up front by the homeowner-other fees can be deducted from the loan proceeds
- Equitable Bank has a closing cost that ranges $800-$1,800 less than HomeEquity Bank’s closing cost
- Homeowners should choose a reverse mortgage lender based on product suitability, interest rate and approved loan amount, rather than initial setup fees and ongoing costs
Introduction
Reverse mortgages have become an increasingly popular financial solution for senior Canadians looking to tap into the equity of their homes. People frequently ask us: “How much does it cost to get a reverse mortgage?” or “How much will it cost to reverse a mortgage?”
We understand why people ask these questions; reverse mortgages are relatively new in Canada and many older homeowners want to feel comfortable with the product.
In this article, we will provide a comparison of reverse mortgage fees and costs so you can understand their associated initial setup and ongoing costs. We will compare the fees and costs from the two leading providers in Canada: Equitable Bank (who provides the Flex Reverse Mortgage) and HomeEquity Bank (who provides the CHIP reverse mortgage). By understanding these costs, you can make an informed decision about whether a reverse mortgage is the right financial solution for you.
What is a Reverse Mortgage?
Before we get into these details, let’s quickly discuss some basic points about reverse mortgages in general. A reverse mortgage is a type of loan that allows homeowners aged 55 and older to borrow money using the equity in their home as security.
The loan does not require regular mortgage payments. Instead, the interest accumulates over time and the loan is paid back when the homeowner sells their home, moves out, or passes away.
A reverse mortgage can provide homeowners with a lump sum amount or be set up to provide a regular monthly allowance. It can also be set up to act as a traditional home equity line of credit.
The money can be used for any purpose, such as covering living expenses, paying off debts, or funding home renovations. Furthermore, the income from a reverse mortgage is tax-free and does not affect Old-Age Security or Guaranteed Income Supplement benefits.
To learn more about reverse mortgages, you can read our popular articles:
- What are the Benefits of a Reverse Mortgage?
- How Does a Reverse Mortgage Work in Canada?
- Debunking Reverse Mortgage Myths
Before getting a reverse mortgage, borrowers should be well-informed about the product and its associated costs and fees. Whenever possible, we think borrowers should get the reverse mortgage that suits their needs without unnecessarily overspending on fees and other charges.
Therefore, it's crucial to understand all the costs associated with a reverse mortgage before deciding if it's the right option for you. In the following sections, we will delve into these costs, comparing the offerings of Equitable Bank and HomeEquity Bank.
Initial Setup Costs of a CHIP Reverse Mortgage
Every reverse mortgage with HomeEquity Bank will require the homeowner to pay various setup fees when getting the mortgage. These costs are typical of all mortgage transactions in Canada (including traditional mortgages) and are required to ensure all legal and administrative requirements are met.
Appraisal Fee
The first upfront cost you’ll encounter is the appraisal fee. HomeEquity Bank changed its appraisal policy a few years ago and now orders its appraisals directly from First Canadian Title for a flat rate of $350 (previously homeowners could order their own appraisals).
The homeowner pays this fee directly to FCT prior to the appraisal being completed. The appraisal is necessary for the lender to understand the current fair market value of your home and this amount (along with your age, etc.) will be used to calculate the amount of your reverse mortgage loan.
Legal Fees
Legal fees are another part of the reverse mortgage costs. These fees can be split into two categories: legal fees for independent legal advice (ILA) and legal fees for mortgage registration.
Legal Fees for ILA
Before you get your reverse mortgage, the lender will require you to visit a neutral lawyer who is not involved in the transaction and review the mortgage paperwork with you. The purpose of getting ILA is to ensure you understand your benefits, responsibilities and obligations under the mortgage contract as well as the consequences for failing to meet your responsibilities and obligations.
Independent legal advice fees typically range from $250 to $500. The fee can vary because you are responsible for choosing your ILA lawyer and different lawyers have different rates.
Depending on the lawyer you choose, this ILA fee could be deducted from the reverse mortgage loan proceeds or you may be required to pay it yourself at the end of the ILA meeting.
In our experience, most ILA lawyers accept their ILA fee being paid from the loan proceeds, although technically, they should only accept payment directly from you at the time of the ILA meeting, independent of whether the mortgage transaction is completed or not.
Legal Fees for Mortgage Registration
The reverse mortgage will need to be registered on the title of your home before the loan money will be advanced to you. This is common for all real estate loans and is sometimes referred to as “recording fees”. You can use HomeEquity Bank’s FCT legal service (they work with lawyers in addition to appraisers) for this part of the process or you can use your own lawyer.
If you use FCT’s legal services, the charges vary across the country but you can assume it will cost approximately $1,000 (including title insurance and taxes). This FCT legal service charge can be deducted from the loan proceeds and does not need to be paid in advance.
If you use your own lawyer, again the costs will depend on how expensive your selected lawyer is. Most lawyers will charge between $1,500 and $2,500 for their fees, disbursements and taxes. Most lawyers do not require a retainer for this type of work and so this entire amount can be deducted from the loan proceeds.
Lender Closing Costs Fee
HomeEquity Bank charges a one-time fee for setting up the CHIP reverse mortgage. The fee amount ranges from $1,795 to $2,795 (depending on the type of CHIP reverse mortgage you are getting) and is deducted from the loan proceeds. One point to mention here: if you decide to cancel the transaction, you would not pay this setup fee.
Initial Setup Costs of a Flex Reverse Mortgage
The setup costs for a Flex reverse mortgage are very similar to the setup costs of CHIP reverse mortgage.
Appraisal Fee
Equitable Bank will require you to pay for an appraisal before issuing you a formal loan agreement. You have the choice of selecting your appraisal company (provided its on Equitable’s approved appraiser list) or can request Equitable Bank to order one for you from FCT.
If you order from FCT, the charge will be $350 but if you decide to order one directly from an appraisal company, the charge can vary between $400 and $750. Regardless of who you use for your appraisal, you will be required to pay out-of-pocket prior to the appraisal being completed.
Legal Fees
Similar to CHIP reverse mortgages, Flex reverse mortgages involve legal fees for ILA and legal fees for mortgage registration.
Legal Fees for ILA
As we discussed before, ILA legal fees can vary depending on the rates of the lawyer you choose. Expect to pay somewhere between $250 to $500 and expect to pay out-of-pocket, although some ILA lawyers will agree to be paid from the loan proceeds.
Legal Fees for Mortgage Registration
Regardless of whether you get a CHIP reverse mortgage or a Flex reverse mortgage, you can use FCT’s legal service or your own lawyer to register the mortgage. As we discussed earlier, FCT’s legal service can be paid from loan proceeds (not out of pocket) and is approximately $1,000.
If you use your own lawyer to register the Flex mortgage, legal costs are typically betwee $1,500 and $2,500 for their fees, disbursements and taxes and can be paid entirely from the loan proceeds.
Lender Closing Costs Fee
Equitable Bank charges a flat rate of $995 for their closing costs, regardless of which Flex reverse mortgage product you are getting. It only needs to be paid if the transaction is completed and is deducted from the loan proceeds.
Here is a table summarizing the initial costs to setup a reverse mortgage with Equitable Bank or HomeEquity Bank:
From this table, you can see that most of these initial setup costs are the same, except for the lender’s closing costs, where Equitable Bank is noticeably less than HomeEquity Bank.
Ongoing Costs of a CHIP Reverse Mortgage
HomeEquity Bank also has several ongoing costs associated with maintaining a reverse mortgage account (sometimes referred to as “servicing fees”). These fees only are charged if they become applicable and can be paid directly by the homeowner or get added to the loan balance.
Power-of-Attorney Fee
Adding a Power of Attorney to your account incurs a fee of $1,000. This is for cases where you want someone else to manage your affairs.
Property Severance/Subdivision Fee
If you choose to sever or subdivide your property, HomeEquity charges a one-time fee of $1,000.
Reprint of Annual Statements/Other Letters
If you need an additional copy of your annual statement or any other letter the Bank sends, there is a fee of $50.
Title Changes/Acknowledgment
Changing titleholders on your property or requesting an acknowledgment of a titleholder incurs a fee of $650.
Cheque Processing Fee
There is a fee of $66 for cheque processing in connection with your mortgage.
Planned Advance Account Changes
For planned advance account changes, including but not limited to, increasing or decreasing the planned advance amount outside of your normal allowance and transferring funds from the planned advance to Lump Sum Account, there is a fee of $150.
Subsequent Advance Request
For subsequent advance requests, there is a fee of $50 for each request (note, there is no fee if you receive money from scheduled advances).
Contacting Insurer or Other Financial Institutions on Your Behalf
If HomeEquity Bank contacts an insurance provider or financial institution(s) on your behalf, there is a fee of $100.
Property Tax Verification
Annually, HomeEquity Bank may request proof of payment of your property taxes. If you do not send confirmation, then the Bank can request this information from the municipality directly. This fee is $150, in addition to the costs charged by your municipality to provide tax information.
Insufficient Funds
If HomeEquity Bank must return payment due to insufficient funds, there is a fee of $100 for each occurrence.
Default Administration Fee
For default processing, including but not limited to condominium fees, property taxes, legal costs, title searches, occupancy checks, property management, and tax certificates, there is a fee of $200 for each occurrence.
Homeowners Insurance Default Charge
Failure to maintain valid homeowners insurance will result in HomeEquity Bank applying a Homeowners Insurance Default Charge to your mortgage account on a monthly basis. This charge is $80 per month.
Payout Processing Administration Fee
If you request to produce a Payout Statement from HomeEquity Bank, there is a fee of $150.
Discharge Fee
The discharge fee varies by province. In Ontario, Nova Scotia, New Brunswick, Saskatchewan, Prince Edward Island, and Newfoundland, the fee is $399. In British Columbia, the fee is $75, and in Manitoba, it is $100. There are no discharge fees in Quebec and Alberta.
It’s important to note that these HomeEquity Bank fees are not exclusive and can change with the Bank providing you proper notice.
Understanding Ongoing Costs of a Flex Reverse Mortgage
Here are the ongoing costs that may apply if you get a Flex reverse mortgage:
Bankruptcy/Consumer Proposal Administration Fee
If you file for bankruptcy or a consumer proposal, there is a fee of $200 for processing the necessary documents, including filing a proof of claim and proof of security with the licensed insolvency trustee.
Conversion Administration Fee
If you choose to convert your Flex reverse mortgage during an Interest Rate Term, there is a fee of $250.
Conversion Differential Fee
When you convert between fixed interest rates during an Interest Rate Term, you will be charged a fee equal to the Conversion Differential Amount.
Discharge Administration Fee
There is a fee of $75 for the preparation, review, and execution of discharge documents.
Discharge Registration Fee
Each provincial government charges a fee to register discharge documents. These fees vary by each province but are typically less than $100.
Forecast Schedule Fee
For the preparation of each schedule, there is a fee of $25.
Insurance Administration Fee
If your property insurance lapses or is inadequate, there is a fee of $200 per month until your insurance policy is in good standing.
Mortgage/Property Verification Fee
If Equitable Bank needs to verify information about the mortgage/property when they suspect or are aware of a breach of mortgage obligations, there is a fee of $75. This fee may cover, among other things, occupancy/property checks and title searches.
Planned Advance Fee
For each Single Advance transaction, there is a fee of $50.
Returned Payment Fee
For each dishonored payment, there is a fee of $50. These ongoing fees are not exclusive and can change with the Bank providing you proper notice.
Summary
Both Equitable Bank and HomeEquity Bank offer reverse mortgages that can provide senior Canadians with a valuable source of income during their retirement years. Both lenders have initial setup fees that all borrowers must pay, although borrowers can experience different costs based on their options selected. Initial setup costs for a reverse mortgage consist of appraisal fees, legal fees, and the lender’s closing fee.
The appraisal and legal fees are generally the same with both reverse mortgage lenders. Equitable Bank has a closing fee that is $800-$1,800 less than HomeEquity Bank, depending on the reverse mortgage product you select. In terms of ongoing costs, both providers charge fees for various services related to maintaining your reverse mortgage.
These ongoing costs can include fees for adding a Power of Attorney to your account, processing cheques, and handling defaults. Again, the specific fees and their amounts can vary between the two providers. In the end, the choice between Equitable Bank and HomeEquity Bank will depend on your specific needs and circumstances. You should not choose a reverse mortgage lender based on initial fees or ongoing costs unless the loan amount and interest rate are the same.
We hope this article has provided you with a clearer understanding of the costs associated with reverse mortgages and how these costs can vary between providers. If you're considering a reverse mortgage, we encourage you to reach out for a personalized consultation to determine which provider and product is the right choice for you.
