CANADIANCENTREFORELDERLAW 1822EastMall,UniversityofBritishColumbia Vancouver,BritishColumbiaV6T1Z1 Voice:(604)8220633Fax:(604)8220144E‐mail:[email protected] Website:www.ccels.ca
ADIVISIONOFTHEBRITISHCOLUMBIALAWINSTITUTE
Backgrounder
CCELReportno.2/BCLIReportno.41—ReportonReverseMortgagesDate:February2006
Areversemortgage isa typeof loansecuredbyamortgageofrealestate.Reversemort‐gagesdifferfromconventionalmortgagesinanumberofways,mostimportantlywithre‐gardtorepaymentandeligibility.Manyolderadultsownmajorassetssuchasrealestateandareunencumberedbyamort‐gage.Uponretirementtheyoftenexperiencediminishedincomes.Lendershavedevelopedreversemortgagestocatertotheseseniors.InBritishColumbia,asinmostotherjurisdic‐tions,onlyseniorcitizensareeligibletoborrowunderareversemortgage.Unlikeconventionalmortgages,reversemortgagesdonotrequireaborrowertomakepe‐riodicrepaymentsofprincipalandinterest.Rather,theloanisrepaidaftertheborrower’sdeathorwhentheborrower’sprincipalresidenceissoldorabandoned.Thoughthereisnorequirementtorepaythegrowinginterestperiodically,theinterestisaddedtotheprinci‐palloanbalanceandcompoundedoverthetermoftheloan.Thiscanmakereversemort‐gagesaveryexpensivewayofborrowing.Theonetimerepaymentuponsaleofthehomeordeathofthehomeownermayrepresentasubstantialamountofaborrower’sequityinthemortgagedproperty.Oftenborrowersinvesttheproceedsinatypeofinvestmentthatprovides incomepaymentsatregular intervalscalledanannuity,orotherasset thatpro‐videsthemwitharegularincome.BritishColumbiadoesnothaveastatutethespecificallyaddressesreversemortgages.Theexistinglawrequiringlenderstodiscloseinformationtoborrowersbeforealoantransac‐tionclosesdonotapplytomostreversemortgages.Thisdoesnotprovideanadequatele‐gal framework for reversemortgages. This report recommends enacting legislation thatwillspecificallyaddressreversemortgages.Theproposedlegislationisfocusedondisclo‐sureandrelatedconsumerprotectionmeasures.Itwillensurethatreversemortgagebor‐rowershave the toolsnecessary toevaluate the legaland financialmeritsof the transac‐tion.
