Fraud, including various financial scams, is a big problem in Canada. According to the Canadian Anti-Fraud Centre, in 2023 there were over 63,000 reports of fraud, costing its victims almost $570 million.
Increasingly, financial frauds have involved mortgages, including a growth in reverse mortgage scams. With the increase in popularity of reverse mortgages as an effective and secure retirement income solution (in 2023, reverse mortgages grew by 28% year-over-year), it didn’t take long for financial fraudsters to come up with reverse mortgage scams.
Although Boomers are no more likely to fall victim to scammers than any other generation, they’re frequently targeted because they are perceived as easier to swindle. This, coupled with the growing popularity of reverse mortgages, it’s not surprising that the prevalence of reverse mortgage scams is on the rise amongst individuals aged 55+. In this article, we’ll answer the question, are reverse mortgages scams? We’ll also look at the most common reverse mortgage scams, how to spot a reverse mortgage scam and how to protect yourself or your loved ones from becoming a victim.
Are Reverse Mortgages a Scam?
Reverse mortgages themselves, including the CHIP Reverse Mortgage, are not a scam. They provide a legitimate way of borrowing money that’s extremely popular in Canada (over $1 billion in new CHIP Reverse Mortgages are taken out every year).
Taking out a reverse mortgage can be a crucial option for many individuals who are determined to stay in their home, but who don’t have the sufficient income or savings to enjoy the kind of retirement that they’d dreamed of. It allows them to access up to 55% of the value of their home and use that money how they choose, whether it is to boost their retirement income, carry out home renovations, or even take their dream vacation.
Reverse mortgages are particularly popular with retirees because they’re typically easier to qualify for than a regular mortgage since no proof of income is required as there are no monthly mortgage payments. A reverse mortgage provides tax-free funds that won’t affect your government benefits like OAS, allowing you to supplement your income. Furthermore, the funds can be used for any purpose and you don’t have pay back the loan until you move out or sell your home.
The main providers of reverse mortgages in Canada are highly reputable companies. For example, as the leading provider of reverse mortgages in Canada, HomeEquity Bank is a federally regulated Schedule I bank that has been solely focused on serving the needs of Canadians 55+ for over 35+ years. This means that we are regulated by the federal government and must abide by extremely strict rules that control how we can carry out our business. The Better Business Bureau has given HomeEquity Bank its highest rating (A+), which it gives only to the most trustworthy companies. You can find out more about how a CHIP Reverse Mortgage from HomeEquity Bank works here.
However, as with any financial product (such as regular mortgages, credit cards, and HELOCs) criminals find ways to use them for fraudulent purposes.
Reverse mortgage scams are one of the ways that criminals target retirees for their fraudulent schemes. Let’s take a look at the most common reverse mortgage scams and how you can avoid falling victim to them.
Four Common Reverse Mortgage Scam Tactics
As with most scams, reverse mortgage fraud schemes typically begin with an unsolicited offer from someone you don’t know. Scammers might come to your home, call you, or email you using a reverse mortgage as an enticement to access your money. Here are some common reverse mortgage scams to watch out for.
1) The Reverse Mortgage Investment Scam
With this reverse mortgage fraud scheme, fake financial advisors approach retirees with an offer of a supposedly lucrative investment opportunity. They’ll have a very convincing story about how this is a safe investment, often in the form of a fake real estate deal or something similar to a Ponzi scheme, with very high returns.
They’ll then try to persuade you to take out a reverse mortgage to fund the investment (given that the funds from a reverse mortgage can be used for any purpose). However, once you take out a reverse mortgage and hand over the money, the “financial advisor” will disappear with your money.
2) The Contractor Scam
In this reverse mortgage scam example, fraudsters will try to convince you that you need a home improvement, such as a new water heater, furnace, or other renovation work. Typically, the “improvement” they propose isn’t needed, but the scammers can be very persuasive and often use high-pressure tactics to get you to agree to it.
If a potential victim objects that they can’t afford to pay for the work or the appliance, the scammers will suggest that you take out a reverse mortgage to pay for it. They’ll often present this as a perfect solution since you don’t need to make any payments on a reverse mortgage. They may even refer you to a mortgage broker who is part of the scam to get you to sign up to it. Victims end up paying for a service or a piece of equipment they don’t need and get a reverse mortgage they never asked for.
One example of the contractor reverse mortgage scam happened recently in London, Ontario. The victim was approached by a scammer who came to their door and persuaded them to have various products installed in their home, including a water filter and water softener (none of which were actually needed). After the items were installed, the scammer then offered to help the victim make their payments by taking out a high-interest private mortgage.
After scamming the victim into taking out more renovations, the fraudster then convinced them to take out a reverse mortgage to pay off the private mortgage. The scammer was caught when the reverse mortgage sales agent became suspicious and contacted the police.
3) Taking Out a Reverse Mortgage Using Your Identity
One increasingly common reverse mortgage loan scam involves identity theft. A scammer will approach you to get your personal information (such as your chequing account details, date of birth and social insurance number), which they’ll then use to apply for a reverse mortgage in your name.
They often set up a bank account in your name, apply for a reverse mortgage, and then withdraw the funds while you’re completely unaware that it’s happened.
4) Using a Reverse Mortgage to Pay Off Your Other Debts
With this reverse mortgage loan scam, fraudsters approach retired homeowners who have debt issues and present a reverse mortgage as a solution. While reverse mortgage funds can be used to pay off various types of debt (providing a lower rate than high-interest credit cards), these fraudsters are not trying to help you with your debt problems.
Once you sign up for the loan, they’ll arrange the mortgage on your behalf and then keep the money for themselves and disappear without a trace. A woman in Waterloo, Ontario was recently charged with scamming retirees out of over $1 million using this type of reverse mortgage scam.
How to Protect Yourself from Reverse Mortgage Scams
There are several steps you can take to prevent yourself or your loved ones from becoming a victim of reverse mortgage fraud:
- Never sign anything from anyone who has come to your door uninvited.
- Only deal with reputable financial advisors or mortgage agents, preferably do your own research on an advisor or choose someone that is recommended by a friend or family member.
- Don’t be rushed into signing any contract. Take your time and make sure you fully understand what’s involved before signing. Show it to a trusted friend or family member to be certain.
- If someone offers you an investment opportunity or loan that sounds too good to be true, keep well away.
- Never hand out personal or financial information to strangers, including anyone who knocks at your door or calls you unexpectedly.
- Always read the fine print of any contract and ask about fees, commissions and charges.
Ensure That You Only Ever Use a Reputable Lender
Dealing directly with a federally regulated bank, such as HomeEquity Bank, can help ensure that you’ll avoid becoming the victim of a reverse mortgage scam. HomeEquity Bank has been providing reverse mortgages in Canada since 1986 and is a schedule 1 federally regulated bank that has been verified by the Better Business Bureau to provide you with trustworthy, professional advice.
HomeEquity Bank is also committed to helping retirees avoid becoming victims of fraud, including reverse mortgage scams. It has created a selection of anti-fraud resources, including “Catch the scam” videos and articles on emerging scams targeting the elderly.
It’s important to have a reverse mortgage provider you can trust, given how important this type of loan is becoming to Canadian retirees. With a reverse mortgage, you can:
- Boost your retirement income.
- Stay in the home you love for longer.
- Enjoy a better standard of living in retirement.
- Pay for any necessary home renovations.
- Travel more often.
- Feel less financial stress.
Find out how much you could qualify for with a CHIP Reverse Mortgage by calling us at 1-866-522-2447 or by using our reverse mortgage calculator.
