If you are a homeowner over the age of 55 in Canada, you may be considering a reverse mortgage to improve your lifestyle. Or perhaps you are thinking of buying an expensive item or completing a renovation and someone has suggested you use a reverse mortgage to pay for the purchase. To be clear, there is nothing wrong with reverse mortgages in Canada. They are simply a financial tool designed to help retired homeowners with getting a loan that does not require monthly payments.
Unfortunately, scammers have started using the benefits of reverse mortgages to take advantage of homeowners in Canada. In this article, we'll discuss 8 common reverse mortgage scams and tactics that seniors should be aware of, as well as tips for avoiding them. By being informed and working with a trusted advisor like RetireBetter, you can make the most of your reverse mortgage without falling victim to fraud.
What is a Reverse Mortgage?
Before we dive into the scams, let's first define what a reverse mortgage is. A reverse mortgage is a loan that allows homeowners aged 55 or older to access the equity in their homes without having to sell or move out. The loan is repaid when the homeowner sells the home, moves out, or passes away. The loan application process is simpler than traditional mortgages and is designed to be a stress-free process for seniors, without the need to provide lots of supporting documents. For older homeowners, it is not difficult to qualify for a reverse mortgage.
Reverse mortgages are also very flexible in terms of how they can be used: there are no restrictions on how you can use the money from a reverse mortgage. Retired homeowners can use the loan funds to supplement their retirement income, pay for home improvements, long term care, cover unexpected expenses or help family members. They can receive the loan funds as a lump sum or in installments.
From the above, you can see the reverse mortgage loan and process is something that should be good for any homeowner over the age of 55 who is looking for a financial solution as they enter retirement. But it is these same qualities that scammers take advantage of. So let’s discuss what these scammers are doing so you can protect yourself from becoming a victim.
Scam Tactic # 1: Using High-Pressure Sales Tactics
According to a survey by the Canadian Association of Retired Persons (CARP), warning signs of high-pressure sales tactics include being rushed into making a decision, being asked to sign documents without fully understanding them, and being promised unrealistic returns or benefits.
The high-pressure tactics can come from anyone, and not just the lender. You should pay attention to the “advice” or “suggestions” being given by anyone around the overall transaction, especially if one person has recommended the services of another person. Scammers are very good at playing “good cop/bad cop” in order to pressure you.
How to Protect Yourself from High-Pressure Sales Tactics
To avoid falling victim to high-pressure sales tactics, it's important to work with reputable advisors and lenders and to work on your timeline rather than anyone else’s. There is no rush to get a reverse mortgage and you should take the time to make sure you fully understand the terms and conditions of the reverse mortgage agreement.
The Financial Consumer Agency of Canada (FCAC) recommends that seniors shop around and compare offers from different lenders, ask questions, and seek independent legal advice if necessary.
Warning Signs of High-Pressure Sales Tactics
According to a survey by the Canadian Association of Retired Persons (CARP), warning signs of high-pressure sales tactics include being rushed into making a decision, being asked to sign documents without fully understanding them, and being promised unrealistic returns or benefits.
There are no “special limited-time only offers” with reverse mortgages! You should always have enough time to think about your decision, to ask your questions and to discuss your situation with your lawyer and your family members.
Scam Tactic #2: Hidden Fees and Charges
As the adage goes, "Nothing in life is free," and this is especially true when it comes to getting a loan. Financial products like reverse mortgages involve many people and they do not work for free or without the expectation of making profit. Anyone who is working on your transaction without getting paid by you or unable to explain how they are being paid should be viewed with some suspicion.
What are Hidden Fees and Charges with a Reverse Mortgage?
Hidden fees and charges are costs associated with a reverse mortgage that are not clearly disclosed or explained to the borrower. In any reverse mortgage transaction, your property will need to be appraised by a licensed appraiser. The home appraisal typically costs $300-$500 and can be paid up-front by the borrower or paid from the loan proceeds.
Every reverse mortgage transaction will also involve lawyers—they will act for you and also for the lender. Their fees can vary but should be less than $2000 and are typically paid from the loan proceeds. Lenders will also charge a one-time administrative fee and will include this amount in their loan agreement. You should receive a detailed disclosure form from the lender outlining all the charges and fees associated with their reverse mortgage loan. In fact, the reverse mortgage documents should be very similar to your traditional mortgage documents—there is never a one page loan document!
If you are working with a mortgage broker, you should receive a full package of disclosure documents from them also. Ultimately, you should not experience any surprises with fees and charges—every amount should be contained in your documents. To avoid falling victim to hidden fees and charges, the Financial Consumer Agency of Canada (FCAC) recommends that seniors ask for a detailed breakdown of all fees and charges associated with the reverse mortgage, including any penalties for early repayment or cancellation.
At RetireBetter, we believe in transparency and honesty when it comes to fees and charges associated with a reverse mortgage. We provide a detailed breakdown of all costs associated with the loan and work with our clients to ensure they fully understand the terms and conditions of the agreement.
Section 3: Unscrupulous Lenders
While most lenders in the reverse mortgage industry are reputable and honest, there are some unscrupulous lenders who use deceptive tactics to take advantage of seniors. In this section, we'll discuss some of the warning signs of unscrupulous lenders and how to protect yourself from fraud.
Warning Signs of Unscrupulous Lenders
According to the FCAC, warning signs of unscrupulous lenders include being pressured into taking out a reverse mortgage, being promised unrealistic returns or benefits, and being asked to sign documents without fully understanding them. Other warning signs include being charged excessive fees or being asked to make payments before receiving the loan.
How to Protect Yourself
To protect yourself from unscrupulous lenders, it's important to do your research and work with a reputable lender. The FCAC recommends that seniors shop around and compare offers from different lenders, ask questions, and seek independent legal advice if necessary. It's also important to carefully review the terms and conditions of the reverse mortgage agreement and to ask for a detailed breakdown of all fees and charges associated with the loan.
Scam Tactic #4: Unlicensed Advisors or Lenders
Reverse mortgages are a complex financial product, and like just about anything to do with financial services, everyone needs to be licensed or report to some regulatory authority.
How to Verify Reverse Mortgage Lenders
To protect yourself from unlicensed lenders, it's important to do your research. Check with your provincial consumer affairs office to ensure that the lender is licensed and accredited. You can also check with the Canadian Mortgage and Housing Corporation (CMHC) to verify a lender's credentials. Online research is a simple and effective way to learn about your lender: websites should be professional looking and display current information. Telephone numbers should be active and online reviews should exist.
The largest reverse mortgage lender in Canada is HomeEquity Bank that provides its flagship product known as the “chip reverse mortgage”. Ask your advisor how your lender compares to this market leader.
How to Verify Reverse Mortgage Brokers/Advisors
All mortgage brokers need to be licensed with provincial authorities to work in the mortgage industry. There are no real exceptions to this requirement. Anyone who suggests they are a mortgage broker should be able to provide you with their license number that you can verify online with the regulator’s directory of licensed mortgage agents/brokers. You can verify your reverse mortgage brokers/advisors in the same way you would verify the reverse mortgage lenders: online searches are fast and reliable!
Scam Tactic #5: Loan Flipping
Loan flipping is a type of scam where a lender encourages a borrower to refinance their loan repeatedly, often with high fees and interest rates. With a reverse mortgage, loan flipping can occur when a lender encourages a senior to take out multiple reverse mortgages, each with its own set of fees and interest rates.
Loan flipping can be a lucrative scam for lenders, but it can be devastating for seniors who may end up owing far more than they should. To protect yourself from loan flipping, it’s important to understand that a reverse mortgage is a loan that does not expire or “mature” like traditional mortgages. There should not be a need to “refinance” a reverse mortgage at the behest of a reverse mortgage lender.
You may choose to get a new reverse mortgage at a later time if you want to get additional funds or consolidate additional debts but the decision should be made by you—not the lender.
Scam Tactic #6: Investment Scams
Since there are no restrictions on how you can use your reverse mortgage loan proceeds, some scammers may try to convince seniors to invest their reverse mortgage funds in fraudulent schemes. These investment scams can take many forms, such as Ponzi schemes or fake real estate investments.
To protect yourself from investment scams, it's important to be wary of anyone who promises high returns with little risk. You should also be cautious of unsolicited investment offers and do your research before investing any money. You can check with the Canadian Securities Administrators to verify the credentials of an investment advisor or to check if an investment opportunity is registered.
Be especially careful if someone suggests you should borrow money to take part in an investment. This is known as “leverage” and is not typically suitable for investors who are retired or approaching retirement. If you suspect that you have been a victim of an investment scam, you should report it to the appropriate authorities and seek legal advice to explore your options for recovering any losses.
Scam Tactic #7: Identity Theft
Identity theft is a growing problem in Canada, and seniors are often targeted by scammers who try to steal their personal information. With a reverse mortgage, identity theft can occur when a scammer uses a senior's identity to take out a reverse mortgage in their name.
To protect yourself from identity theft, it's important to be cautious of anyone who asks for your personal information, such as your Social Insurance Number or date of birth. You should also monitor your credit report regularly to ensure that there are no unauthorized accounts or loans in your name.
Scam Tactic #8: Misuse of Funds
Some lenders or other parties may misuse a senior's reverse mortgage funds, such as by charging excessive fees or using the funds for personal gain. To protect yourself from misuse of funds, it's important to work with a reputable lender who is transparent about their fees and charges.
You should also be cautious of anyone who asks for your reverse mortgage funds for any reason other than paying off your loan or making necessary repairs to your home. If you suspect that your funds have been misused, you should contact your lender and report the scam to the appropriate authorities.
How to Protect Yourself from Reverse Mortgage Scams
To protect yourself from reverse mortgage scams, it's important to be aware of the warning signs and take steps to protect your personal and financial information. Some tips for protecting yourself include:
- Researching lenders and advisors before working with them
- Reading the fine print and asking questions about fees and charges
- Being wary of unsolicited offers or high-pressure sales tactics
- Monitoring your credit report regularly
- Seeking legal advice if you suspect that you have been a victim of a scam
If you are aware of these scams and take the necessary actions you safely get a reverse mortgage in Canada.
Why Choose RetireBetter?
At RetireBetter, we believe in providing honest, knowledgeable advice to seniors considering a reverse mortgage. We never use high-pressure sales tactics and always prioritize the best interests of our clients. We only work with reputable lenders and provide a detailed breakdown of all costs associated with the loan. By working with RetireBetter, you can make an informed decision about your financial future and avoid falling victim to fraud.
Everyone you deal with at RetireBetter is a licensed, insured and experienced professional who can patiently guide you through the entire reverse mortgage process. There is never any pressure to get a reverse mortgage when you speak to us and we will provide you with an answer (and a document) whenever you ask us anything. You can access our educational resources and tools which are designed to help you understand the benefits of a reverse mortgage and get familiar with the process.
Conclusion
As elder fraud increases and becomes a growing problem in Canada, it's important to be aware of this trend and take steps to protect yourself. Keep in mind that reverse mortgages themselves are not scams but can be used by scammers to take advantage of you.
By understanding the warning signs of scams and working with reputable lenders and advisors, you can make an informed decision about whether a reverse mortgage is right for you and also whether you are dealing with reputable and trustworthy parties. Remember to always do your research, read the fine print, and seek legal advice if necessary.
Resources to Avoid Reverse Mortgage Scams
1- Resource: Canadian Anti-Fraud Centre
Description: Central agency that collects information and intelligence on fraud and identity theft
Website: www.antifraudcentre-centreantifraude.ca
Phone: 1-888-495-8501
2- Resource: Financial Consumer Agency of Canada (FCAC)
Description: Federal agency that provides information and tools to help Canadians make informed financial decisions
Website: www.fcac-acfc.gc.ca
Phone: 1-866-461-3222
3- Resource: Canadian Association of Retired Persons (CARP)
Description: Non-profit organization that advocates for the rights and interests of Canadians as they age
Website: www.carp.ca
Phone: 1-888-363-2279
4- Resource: Elder Abuse Prevention Ontario (EAPO)
Description: Non-profit organization that provides information and resources on how to prevent elder abuse, including financial abuse
Website: www.eapon.ca
Phone: 1-866-299-1011
5- Resource: Provincial Consumer Affairs Offices
Description: Each province in Canada has a consumer affairs office that provides information and resources on consumer protection, including protection against fraud
Contact Information: Visit your provincial government website to find the contact information for your local consumer affairs office
