What do you do when your existing lender is no longer competitive? You switch lenders, that’s what.
For decades, there was just one national provider in the reverse mortgage market, HomeEquity Bank. But now that there’s competition, thanks to Equitable Bank’s 2018 entrance, reverse mortgage borrowers should consider changing lenders — anytime it's to their advantage.
“Last year, Equitable Bank switched in many reverse mortgages and paid out other traditional and private mortgages, often saving clients as much as $100,000 over a 10-year period (projected savings),” the bank says.
It says that’s especially true, given its competitor’s renewal rates can be significantly higher than its rates at origination. Depending on the term, the difference between the renewal rate a customer is offered by their existing lender and the best available rates can be over one percentage point.
“What we recommend is that clients explore switching after three years or so, because there are options at that point to prepay at a much lower prepayment charge,” says Equitable Bank VP Paul von Martels.
He adds that people with larger reverse mortgages should be especially cognizant of this strategy because the savings are larger. Moreover, since home prices have grown substantially, people’s equity has increased. Thus, it’s often easier to roll an existing reverse mortgage and other debt into a new lower-cost reverse mortgage.
Sure, originating a new reverse mortgage is a pain in the neck and there are some costs to doing so—up to $4,000 or more, excluding prepayment charges—but it’s not hard to save real money over a 5-year span (net net), depending on one’s circumstances.
This, by the way, is where a highly experienced independent reverse mortgage advisor (i.e., one not employed by these banks) comes in handy. If your reverse mortgage is coming up for renewal, they can run the numbers objectively to see if you’ll come out ahead by switching lenders.
Here’s a quick rundown of both company’s products:
|HomeEquity Bank Reverse Mortgage||HomeEquity Bank CHIP Max Reverse Mortgage||HomeEquity Bank CHIP Open Reverse Mortgage|
|Loan-to-Value||15-40%||15-55%||22-55%||34% to 55% (higher LTVs for younger clients ages 55 to ~75)||26% to 55%|
|Funding Options||Initial Lump-sum||Lump-sum, ad-hoc draws or Scheduled draws||Lump-sum, ad-hoc draws or Scheduled draws||Lump-sum, ad-hoc draws||Lump-sum, ad-hoc draws|
|Rates at Origination||3.49%-3.79%||3.69%-4.39%||3.89%-4.59%||5.64% to 6.24%||6.45% (P + 4%)|
|Rates at Renewal||3.49%-3.79%||3.99%-4.69%||4.59%-4.99%||5.64% to 6.24%||6.45% (P + 4%)|
|Prepayment Charge||5/4/3-months’ interest (in years 1/2/3)||5/4/3-months’ interest (in years 1/2/3)||5%/4%/3% of balance (in years 1/2/3)||5%/4%/3% of balance being repaid (in years 1/2/3)||No prepayment charges when balance is paid in full|
|Lending Areas||Urban centres in ON, AB, BC, QC||Urban centres in ON, AB, BC, QC||Nationwide||Urban centres in ON, AB, BC, QC||Nationwide|