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Mortgage Solutions for the every day Canadian mortgage consumer. Are you thinking about becoming a mortgage broker learn first hand what you should look for in a brokerage and what you need to be successful.
Len 00:02
Welcome. My name is Len Lane, and I am the founder and president of Brokers For Life Inc, and we are Dominion Lending Centers in Western Canada. The topic of our podcast will be about what we consider to be Real Life Mortgage Solutions.
Len 00:19
Welcome back. Today, our guest is Rachel Rogerson, and her background is as a mortgage broker, but she is now the Director of Business Development for Bloom Reverse Mortgages. Welcome.
Rachel 00:32
Perfect. Thank you so much, Len, for having me.
Len 00:33
Probably a lot of people listening to this, maybe for the first time, not in the age group where reverse mortgages applies to them yet; maybe, let's start with just talking about, in general, what reverse mortgages are.
Rachel 00:46
Absolutely. So, reverse mortgages they've been around for a very long time, but only recently have they become a bit more popular. You know, as the cost of living is going up, and Canadians in that age group, which is 55 and over, are sitting on quite a bit of equity. So what it is, it's just a way to tap into the equity in someone's home without having that financial pressure of the monthly payments. So, and the proceeds from reverse mortgage can be used for so many different things. Probably the most popular reason is really just to increase that monthly cash flow. So with Canadians, 55 and older, especially in that retirement age group, you're on a fixed government income, so CPP and OAS, and with things getting more expensive, that money is stretched more and more thin as the years go on. So for an example, if someone's been living in their home for 30 years and they had a small mortgage before, let's say for 200,000, 100,000 and in the last few years, their payments have tripled, so that fixed monthly income that they have is now probably going the majority of that's going to their mortgage payment, and they're not left with a lot of funds at the end of the month to be able to pay for necessities like food and gas and everything else that they need to pay for for that month.
Len 02:12
Yeah, and it's funny, you should put CPP and OAS in there. I don't know anybody who could live on that. Tell you the truth if you still had a mortgage at that point. Again, unfortunately, maybe equity in their properties. I do have one story that one of our agents did with a client in British Columbia is where she was basically on that small government pension above and beyond OAS and CPP, but a million dollars worth of equity in her property. Like $400,000 reverse mortgage, put it into an annuity, and that's what she's been living on, probably for the last four or five years.
Rachel 02:50
Wow. And I'm sure quality of life has gone up significantly without that financial burden monthly.
Len 02:56
It's crazy. So that's kind of one uses for the funds. What else have you seen clients use the funds for?
Rachel 03:03
For sure. Well, I am based out of Vancouver, BC, so as we all know, it's very expensive place to live; so we are seeing a lot of parents and grandparents tap into their home equity through reverse mortgage to pull out money for their kids as a gifted down payment. So, well, up until a couple of days ago, the cap was a million dollars. So, you know, 20% of that is a significant amount of money for someone younger to get into the property market. So we see a lot of parents pulling out money for that. And we call that a living inheritance in some cases. So, instead of money being passed through generations after the parents, the grandparents have passed away, it's being done while both parties are still alive. And you know, the benefit of that, the few benefits, actually, is that the person who's receiving the money can get into the market earlier, and both parties are still alive to see the benefits of where that money is going and what it's doing. So that's a big one. Traditionally, that money has been taken out via home equity line of credits or private mortgages, which, as we know, come with very large monthly payments, which is a, you know, a huge burden for the parents, the grandparents, to take on. So, gifting that money with no monthly payments is a huge benefit. Another one that we're seeing is home renovations. And if you've been in your house for 20-30 years and money's a little tight, and you know, things are getting more expensive, probably the first thing on your list is not to fix that back deck or fix the bathroom, put a suite in the basement, whatever it may be. So, taking out money through a reverse mortgage and being able to add value to your home without those monthly payments is amazing because, you know, the person who has reverse mortgage, they're only going to benefit from increasing the value in their home.
Len 05:06
Yeah, no question. And obviously, Alberta's market value is going up already. We were starting to see 8 to 9% year-over-year increases in Edmonton, a lot more than that in Calgary, of course, which kind of seems to have flattened out and peaked. But anyways, you know that's a big thing. I personally owned about 17 houses, so I don't really fit into that group, but in-laws, of course, right? Bought their house in 1960 it looks nothing like the 1200 square foot bungalow that they bought originally. But again, now it's got, you know, eight, six or $700,000 worth of equity, and it has been paid off for a long time, right? So.
Rachel 05:44
Yeah, and that just is it.
Len 05:45
I mean, the house never had a mortgage.
Rachel 05:47
Never had a mortgage? Oh, wow, that's impressive. And actually, just to your point about Alberta, Calgary is our fastest-growing market. We are seeing the most amount of applications come out of Calgary. Edmonton is not far behind. So we're seeing a huge increase in popularity coming out of those two cities.
Len 06:08
Really? And obviously, Calgary, because values have gone up so much. Is that, yeah, really, what's making the difference?
Rachel 06:16
Yeah, values have gone up so much. And, I mean, it's a combination of people just becoming more aware of this product, and seeing the benefits of it. But yeah, Calgary, definitely. And there's just been a big mass amount of people move to Alberta over the last few years.
Len 06:33
Yup, and I don't think it's slowing down anytime soon. You know, heard the premier speaking the other night on TV, and it's like, we need $8 billion worth of schools in the next five years. And that's basically what they're trying to do.
Rachel 06:48
Oh yeah. They have their work cut out for them.
Len 06:50
Oh yeah. Well, then you have to deal with the city and the municipalities and all that other and the school boards. But anyway, that's our problem. But it's a nice problem to have, right that the growth is going to continue. I have been through several booms in Alberta, and we really, truly feel that there is one on the way here again, but you will see equity, I think, for a lot of Albertans, build up rather quickly. So.
Rachel 07:13
Absolutely, yeah. Alberta. I miss it. Spent 12 years there, and I miss it.
Len 07:18
Bring it back. If you're a tradesman, you get a $5,000 credit on your taxes. There you go. I
07:23
There you go. I did not know that. Perfect.
Len 07:25
Get a side gig as a tradesman. No. So reverse mortgages, probably some of the biggest horror stories we hear about them came out of the US. Years ago. It was, you know, set up so that the bank owned your house, basically is, I think, is how most people, which happened.
Rachel 07:45
Yeah, it’s the west out there for reverse mortgages.
Len 07:48
So, how does the Canadian regulation differ, or what makes it a better way for clients to use that money?
Rachel 07:57
Yeah, good question. I mean, and you're so right about the misconceptions and the myths. We've all heard them, but they definitely stem from the some of the things that have happened in the US and the UK. The UK has been a big user of reverse mortgages for a long time as well. But I mean, if you do a quick Google search about reverse mortgages in the US, there's tons of them, so not as regulated. And if you look up in Canada, we keep it quite safe and tight. So there's about, there's three reverse mortgage lenders in Canada Bloom being one of them, and other two great other lenders in our space as well. So we, the three of us, we operate under very tight guidelines when it comes to things like loan to value. So we that means that your loan, your loan compared to the value of your home, can't exceed a certain percentage, and we tier that based on age. So, the younger you are, the less of a loan amount or LTV that you're going to be approved for. And as you age, that number is going to grow. So the older you are, the higher loan amount loan to value, and that really is just based on the amount of interest that's going to accrue while you're in the home. So you know, you're going to be in your home longer when you're younger, as opposed to, you know, if you're 80 and you're in your home, you're going to accrue less interest over that period.
Len 09:28
Maybe, explain how the word accrue, I guess for a lot of listeners, will be it's an accounting term, but I understand it. You understand it. But maybe some of them won't.
Rachel 09:41
Good point. When you talk about this all day, and you use mortgage words that you realize that not everyone knows. So, good point. So accrue. So how reverse mortgage works is you start out with a certain amount of money, and let's say you take out a mortgage for 300,000. And your payments, you're not making them out of pocket, so you don't have that big financial burden. But what happens is that a certain amount of interest is charged on that balance that you owe. So, interest is charged on that 300,000 and that just gets added to the amount that you will owe when the mortgage becomes payable. And I'll talk a little bit about when that happens and how that happens, but that interest is charged every month, and when I say accrue, I mean, it's added to the total owed balance of the mortgage. But the great thing about where we are right now, we are in a rising home value environment. So even though that interest is getting added to the balance, the value of your home is also growing. So it's, yes, it's accruing. But also, you know, you're also gaining equity in your home as that value is going up, and so that is actually one of the myths about reverse mortgages, is that at the end of the day, you're not going to have any equity left in your home, or you're going to owe more than your home is worth at the end of the day. So, an interesting stat that I read the other day is that, you know, over 99% of people in Canada who have taken out a reverse mortgage walk away with over 50% of the equity in their home when those mortgages become due. So that is a really good number to have in the back of your head. I mean, that leaves you money to give your kids. It leaves your house there so that no one's going to have to be responsible for any payments on it or money out of pocket. And so another thing that Bloom has done is in the situation, a very, very rare situation where, let's say, it comes time for your home to be sold, or your kids are refinancing the property, Bloom has developed what's called the Home Equity guarantee, so you're only ever going to owe as much as your home is worth at that time. So let's say you owe $300,000 on your mortgage, and when it comes time for that mortgage to become due, your home is only worth 200,000, Bloom is going to eat that extra 100,000, so you're only going to owe that 200,000 because your home is only worth 200,000. So, it's we're going to take that, that burden right off your plate. The homeowners are responsible. The estate's not responsible. The lender will take that, take that risk. For reverse mortgages, you don't have to requalify. It's a really long-term solution. So a lot of people ask, Well, what, how does, how does the lender get paid if no payments are being made? How does a lender make money? At what point does that mortgage get paid back? So there's a few scenarios. So, let's say the homeowner decides to sell. That's fine; the mortgage and the interest that's been added to the balance just gets paid back from whatever, you know, the proceeds of the sale they might want to refinance, or the kids take over the mortgage. And then the other two situations, which we do see, and it's just reality of this, you know, this type of mortgage is if the homeowner, the last homeowner, passes away, or if the last homeowner goes into long-term care. And then, in these scenarios, it operates as a regular mortgage would the estate would take ownership, or the kids, whoever is in charge of that property after the death of the homeowner, they have full ownership. So at Bloom, we're going to work with whoever that is to make sure that it's an easy transition, whether they're looking to sell the property, refinance the property, or whatever they want to do. Bloom certainly does not own that property. So that's one of the misconceptions, is that the bank is going to own your home with a reverse mortgage, and it's just we don't it's the homeowner, and the homeowner's estate owns the property and can do what they want with it.
Len 14:08
Right. Yeah, with the caveat that they have to pay whatever is owed to Bloom.
Rachel 14:15
Yeah, pay whatever is plus the interest.
Len 14:18
Cool, So is that unusual that your company would take that like a loss on a property? Is that a standard thing in?
Rachel 14:27
It is standard across all three companies where we believe so much in the benefits of the reverse mortgage product that we know that most people, the majority of people, 99 point something percent of people are going to walk away with over 50% of that equity. So, as a company, we are comfortable with offering that guarantee and making sure that there's peace of mind with the homeowners, with the kids, with whoever's taking over that estate, that there's peace of mind that no one's going to have to pay out of pocket and that they're never going to owe more than what their property is worth.
Len 15:05
Right, and that goes back to regulating the loan to value kind of based on age. Obviously, you're not going to give somebody at 65 80% of the value of their property because they just made up. You'll be owning that house for free. Most, you would hope.
Rachel 15:22
Yeah, exactly, and I think a lot of fear, too, comes from the States because in the States, I know there's a lot of reverse companies that charge exorbitant fees for a homeowner to place a reverse mortgage on their home, whereas we don't, the cost for setup is very inexpensive, and you only have to do it once, so.
Len 15:43
Right? So maybe expand on those. What would be the base costs? I guess.
Rachel 15:48
Yeah, the base costs so, and this is pretty standard across all three. So, for Bloom, though, it's the cost of an appraisal. So, a benefit of Bloom is that we actually order the appraisal upfront. We pay for it upfront. And in the event that a homeowner decides, hey, you know, I don't want to proceed, or if after the appraisal, the value doesn't come in at what we want or need, that cost is not their responsibility. We eat that cost. They walk away with zero risk to them. We're not going to come after them for that cost. If the mortgage does go through and the clients decide to proceed, we deduct a maximum of $350 from the proceeds of the mortgage. So that means that when the mortgage funds, when the mortgage closes, and the homeowner gets all their, you know, existing mortgages paid out, they get the funds that they need, we're just going to deduct that 350 from that, and then we have a very all-inclusive setup fee. So our setup fee is 1,650, but that includes the setup fee, all of the lender legal costs as well as title insurance. So it's all-inclusive on the legal side, so there's no extra cost that the client is going to have to incur for the disparate. Our lawyer is going to take over the disbursements, the registration. Our lawyer is going to make sure that they minimize the cost to the client as much as possible, so that 1,650 covers all of that, including the title insurance. The only additional cost the client would be responsible for is ILA, so Independent Legal Advice. And this is a really, really important step in the process. Nothing is going to, no money is going to be transferred to anyone unless that step is completed, and that is just to protect the homeowner, to make sure that everyone's on the same page, that the mortgage is being done for the right reasons. Everyone is understanding of the terms and conditions of the mortgage, so independent legal advice, plus any just small additional costs that the borrower may incur, is about $500 to $700 on average, including that ILA certificate. So, in total, so the 350 plus 1,650 is 2000 plus 500 to 700, so you're looking at a total cost of 2,500 to $2,700.
Len 18:11
And really, in today's market, pretty much a standard mortgage is costing you almost 15 to 1,800 depending on where you are in the province, for sure, right? So, that's good.
Rachel 18:21
It's on par with closing costs for a regular mortgage, but you only have to do it once, which is great.
Len 18:27
Right, and as it continues, it just continues, right? So, you've touched on some of the Bloom differences. Are there others?
Rachel 18:35
Yeah. absolutely. So, we had the benefit of being the third lender to come into the space. So we came in 2019, and we've been lending Since 2020, end of 2020, beginning of 2021, and we kind of sat back and said, Okay, how can we come in and make things easier and more just, more streamlined approach to this and try to dispel all those misconceptions about reverse margins. So Bloom started off as a FinTech company, which means that they are they have a lot of technology in the background to make things as fast as possible. So we came in and said, Okay, let's make the client process as pain free as we can and as fast as we can, so that, you know, we get from application to getting the homeowner their mortgage within two weeks. So we really tried to get that application to funding within two weeks. We wanted to relieve the burden of any upfront costs from the client as well, so there is absolutely nothing that comes out of pocket, all fees, all costs, whether it's us paying for the appraisal upfront and all the fees coming from proceeds the client is not going to have to pay anything from their pocket. And the other thing is that some of the feedback that we had heard is that homeowners, especially in this population, sometimes, you know, we're dealing with 75,80-85 year olds. I mean, we have no maximum age, so whatever it may be, but we don't want them sitting on the phone calling 1-800 no man's land for hours and not getting someone to speak to and trying to email. So we said, okay, every homeowner that comes through our door, we're going to set them up with someone designated inside Bloom that they have a direct line to email. If that's easier, they can pick up the phone, call them and ask all their questions. If they need a draw, they can call that person. They can get that money in their account within 24 hours at no cost to them. So they have a direct point of contact within Bloom, so they're not, you know, wondering what to do if they have a question, and then, you know, on the broker sideline like this, we make it very tailored to how they want to work, you know, how they want to work on the files. So if it's, you know, they want to refer it in they can. They want to do the full application, they can. It's the same for them, either way.
Len 21:21
And it's funny coming because of the technology that we already use with the DLC, with the Velocity. Of course, 70 year olds are uploading documents all the time. I jokingly say we've been uploading pictures of our grandkids for years already. Send me a JPEG. I don't care. I can convert it right in the system. But yeah. And simplicity, though, is the key, I think, for just about any product these days; if you have your choice of how you want to communicate with the company, then that's a definite plus. So you do have something that I don't see anywhere else, at least I'm not aware of anywhere else, is that you actually have a MasterCard.
Rachel 22:00
Yeah. Thanks for bringing that, this thing, this we launched in March, and it's been a couple of years of, you know, prepping it for release. And it's so exciting because it's the only project of its kind, and it's the first product to actually come into the space that is different, and it's flexible. So what it is, it's, yes, it has the MasterCard symbol on it. It's not a MasterCard, and I'll explain why. So, it is attached to the total approved limit of the reverse mortgage. So we developed this just to make accessing that home equity as flexible and as easy as possible. So there's a couple of options out there where you get a monthly income, let's say, $2,000 into your account, and it comes in, and you pay interest on it, regardless of if you're using it or not. So what differentiates this card is that it's a card that you can use anywhere you want, grocery stores, gas stations, cash withdrawal, you name it, you can do it. You have a $2,000 access limit, and that $2,000 is, you know, attached to the available equity in your home and the rate on it, and this is why it's not a credit card; the rate on it same rate as the Bloom mortgage. So today, 6.69 it's just like accessing their home equity, but you only pay, you only accrue interest on what you use, when you use it, so all of those transactions and the interest just get added to the total reverse mortgage balance, and you don't have to make payments. So it's just another way to access that equity, but flexibly. So, we developed it with the idea of really promoting responsible spending. So, you know, you have this $2,000 it's available to you if you need it or want it, but you can also it just allows you to get rid of all those high-interest credit cards that you have in your wallet that are 23% that, you know, we have a lot of clients that come in and unfortunately, have been living off of credit for a while because the cost of living so their credit cards are way up there. Their minimum payments are huge. So being able to wipe out all those credit cards and then just have this in addition to the fact that now there's no monthly payments on their mortgage, this just increases their purchasing power by so much, like they're able to really enjoy, enjoy retirement, do the things they want to do. So, with this card, they're not limited to the card. They can also still do withdrawals, lump sum withdrawals from the reverse mortgage. Let's say they want to go on a trip to Italy. They can draw 5-10 grand if they want. Can be in their bank account. But, um, yeah, this card just allows you to have the flexibility to go to a store and use that, and there's no fees for the card.
Len 24:57
Yeah, that's excellent. We're going to Italy next year; five or 10 grand is not going to cut it.
Rachel 25:02
That's true. That's a really good point.
Len 25:07
See Grandma in Vegas with a card. No, you know, those are all some great features that you're obviously unique in the industry. I think that there is a bigger and bigger market for it all the time, of course, right? And what we see is we hadn't ever seen a lot of it, but really, in the last two years, I think we've probably seen more people inquiring at least about it than we ever have, for sure. So.
Rachel 25:32
Absolutely, and you know, mortgage brokers are the first call for that information, right? So it's a lot of mortgage brokers, you know, maybe it's not they haven't done very many and this is the time to educate because education is so key. And getting past those myths and misconceptions about what reverse mortgages, you know, what they were in the States, in the UK, getting past those with facts and getting to the conversation, just able to help so many homeowners that may or may not know about it.
Len 26:03
Yeah, exactly. Well, that's great. That's a pretty good synopsis of what you guys do and who you are, so think we'll end it there. But I appreciate your time this morning.
Rachel 26:13
Thanks, you too.
Len 26:15
I guess it is still morning. So, just thanks again for your time.
Rachel 26:21
Fantastic. Thanks, Glen.
Len 26:23
Thanks for listening today. I hope you found the information that we provided to be useful in your mortgage journey. And remember you can always find our associates at www.brokersforlife.ca/associates. Have a great day.