Older homeowners with significant home equity in several countries around the world are facing similar challenges. Many of them do not have the cash needed to fund their senior years or make needed repairs to their longtime homes. Others simply want to tap the equity to travel or secure investments.
Two weeks ago, I received an email from a reader who owns a home – free and clear of any debt – in Mexico. He has dual citizenship (United States and Mexico) but could not find a company that would give him a reverse mortgage on the Mexican property.
While there are no known reverse mortgages in Mexico at this time, the U.S. does not stand as the lone country to pitch a reverse mortgage concept to its people. Here is a quick overview of some of the places that have offered a similar program:
Canada: Canadian Home Income Plan, or CHIP, is a private company founded in 1986 to provide Canadian seniors with a program developed mostly on an American model. As Canada’s first reverse mortgage program, its introduction followed two years of research into similar successful programs in other countries. Through CHIP, senior homeowners can access between 10% and 40% of their home equity, depending principally on their age and home’s location. CHIP funds are usually paid out as a lump sum.
There are two other Canadian programs: The Home Fund of Credit Reverse Mortgages offered by the Credit Union Central of Ontario and the Fixed Term Reverse Annuity Mortgage offered through Royal Trust.
Australia: Also known “Down Under” as the Equity Release Loan, growth has remained steady and a number of significant lenders remain active in the market. According to a study by Deloitte, the international professional services firm, the market in Australia consisted of more than 42,000 reverse mortgages with total outstanding funding of $3.3 billion. The study was commissioned by the Senior Australians Equity Release Association.
France: Closely related to the concept of reverse mortgages is the French system of viager – a Middle Ages practice that has experienced renewed popularity in Europe. The French government promotes the system as an effective way to reduce dependence on social security programs. It is a private contractual arrangement between the buyer and the seller of a property. The buyer pays the seller a down payment and the remaining amount is payable in the form of monthly payments en viager (i.e., for life). The deal is overseen by a lawyer, notaire or an expert viager who tracks the deal throughout its lifetime.
Sellers are typically widows or widowers, who want to cash in on the value of their property in order to get a big lump sum – the bouquet – and a monthly payment from the buyer for the rest of their lives. The seller remains in the property and the payments are guaranteed. If the seller is 70 years old, for example, the value of the property will be set at about 50 percent. This is called the valeur occupée, or occupied value.
French viager investors tend to be in their late 40s and early 50s, wanting to target a great deal on a retirement home. The overall payment is calculated according to the age of the seller on a scale established by French law.
Singapore: NTUC INCOME, an insurance company, was the first financial institution to introduce a reverse mortgage product in Singapore. However, unlike the “non-recourse” reverse mortgages in the U.S., most of the loans in circulation require borrowers to make up the difference if they outlive the value of their homes. Many citizens live in public housing, reducing the possibilities for a mass reverse mortgage market.
Great Britain: The early attempts, begun more than 70 years ago, carried no consumer protections and became very controversial and fell by the wayside. There has been renewed interest in reverse mortgages, however, because of borrower protections. In addition, the Royal Commission on Long Term Care has encouraged British citizens to take more responsibility for providing for retirement and paying for long-term care. Local authorities, overseen by the Equity Release Council, have been authorized to make loans on the value of the house with the loan being paid on the borrower’s death or eventual sale of the property.
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