Part III CBC Video Case

These questions are based on Canadian Broadcasting Corporation videos that accompany the textbook. In addition to whatever in-class use your instructor may have given them, they're available on this website for online viewing. If directed to do so by your instructor, you can answer the discussion questions online and email the results.
     These videos are intended only for students using the 4th Canadian Edition of Fundamentals of Corporate Finance. To view the video, you'll require a password. Refer to page 472 in your textbook and use the first word appearing in the main text column as both 'username' and 'password.' Use of the word is case-sensitive.
     The free RealPlayer plug-in is required in order to view the videos. If needed, the plug-in can be downloaded from Real.

Reverse Mortgages
The Straightforward World of Reverse Mortgages: A mortgage is a long-term loan allowing an individual or a family to purchase the house in which they are living. A mortgage allows the accumulation of equity with the help of borrowed money.
     A reverse mortgage is a long-term loan allowing an individual or a family to use the previously purchased home to pay for current consumption needs. A reverse mortgage allows the transformation of accumulated equity into current income with the help of borrowed money.
     This video segment explores the world of reverse mortgages. The realistic analysis of all the pros and cons of reverse mortgages requires a sound understanding of time value of money (TVM) calculations. While the appropriateness of such a product is a function of an individual's preferences, the numbers behind reverse mortgages follow very precise and clear rules: those of compounding and discounting.

Additional Resources:
Canadian Home Income Plan
National Reverse Mortgage Lenders Association
Online Reverse Mortgage Calculator
Canadian Mortgages

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View Reverse Mortgages

1		At a time when an ordinary mortgage comes with 7-8% in interest annually, a reverse mortgage comes with at least 10% in interest. Why would anyone pay an additional two percentage points just to get a reverse mortgage?
2		The host of the show emphasizes the speed at which the principal owed by the homeowner grows. The example of a $50,000 reverse mortgage is given. It is shown that in seven years the amount owed doubles and in fourteen years the amount owed quadruples. Is this fact proving that reverse mortgages are taking advantage of unsuspecting senior citizens?
3		What are the disadvantages of reverse mortgages?
4		What do ordinary mortgages and reverse mortgages have in common?