Cash strapped, house rich Boomers (and beyond!) are cashing in on their housing windfalls. Office of the Superintendent of Financial Institutions (OSFI) filings show reverse mortgage debt reached a new high in August. The pace of growth is finally leveling out, but it’s still one of the fastest growing segments of debt.
Reverse Mortgage
Reverse mortgages are a way for seniors to tap home equity, without selling their home. Borrowers pledge equity, and receive a loan in either a lump sum or regular payments. Not unlike a home equity line of credit, but there’s no regular repayment schedule. Instead, borrowers generally only have to pay it back at the time of death, default, or sale. Meanwhile, interest quietly racks up in the background, eating away at your equity.
Canadians Owe $3.8 Billion In Reverse Mortgage Debt
Canadian seniors are busy borrowing quite a bit of cash through reverse mortgages. Filings show $3.83 billion in reverse mortgage debt in August, up 1.33% from a month before. This represents an increase of 26.23% from the same month last year. The increase puts the balance at a new record high, with a very, very fast growth rate.
Canadian Reverse Mortgage Debt
The total of reverse mortgage debt held by regulated finacial instituitions, in Canadian dollars.
Source: Regulatory Filings, Better Dwelling.
The growth rate is leveling out, but at a very high level. The 26.23% 12-month growth observed in August is just a few bps lower than the month before. Seniors racked up $50.63 million of reverse mortgage debt in the month, and $796.11 million over the past year.
Canadian Reverse Mortgage Debt Change
The annual percent change of reverse mortgage debt held by regulated finacial instituitions.
Source: Regulatory Filings, Better Dwelling.
The rate at which reverse mortgages are growing is finally beginning to level out. Although it’s leveling out at a high rate of growth. It’s quite possibly the fastest growing segment of debt in the country. Considering the high interest rate, and lack of urgency to pay it off – this will likely persist for a while.
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Are there any statistics on where this money goes? I wonder how much of it re-enters the system through the bank of mom and dad.
I would never, ever go this way….I would prefer to sell. Because, at the end, going this path would be the end……
Wait until the wave of defined-benefit pensions crests and then washes out to sea. This credit product has a rosy future as more and more people retire with insufficient funds and prices for necessities skyrocket above fake inflation figures.
Employer assisted “retirement accounts” are no substitute for defined benefit pensions. Yes, many have done well with their individual investments, but likely just as many have not as they lived pay check to pay check or suffered investment misfortune.
There’s also the wave of corporate shorting of defined benefit pensions to knock folks legs out unexpectedly.
In ten or twenty years, I’m guessing we’ll be still talking about this…and how the parents left the kids no inheritances. Unless you want a dilapidated northern cottage that was abandoned a decade or two ago.
Some thoughts:
– When you say “cash strapped”, how are you arriving at that criteria?
– This is something that rhymes with a cash out, move down buyer whereby less equity is tied up in a home and cash is freed up to play/travel/spend/indulge. Assuming home prices don’t fluctuate, the net effect is roughly (lots of other assumptions in there) the same.
No worries, their 1M dollar house will be worth in five years when they decide to downsize…
/s
The article talks about seniors yet the graphs show financial institutions not defined by age. ??
“Reverse mortgages are a way for seniors to tap home equity, without selling their home.”
Only seniors can legally obtain a reverse mortgage.
What is the issue with seniors drawing down their investment? It’s the same as seniors selling stock in their portfolios. Except, they get to stay in their own home and not risk being getting booted out of their rentals. Once again, BD trying to set to tone for their narrative. You guys sound like a bunch of millennials who missed the real estate boat.
There’s a lot on the pricing mechanics of this, but basically equity holes like this make corrections more likely.
As a service tradesmen I get to see the innerworkings of a lot of homes. Most of housing in Canada is pretty much garbage. Many people are renovating houses that should be torn down. Lipstick on a pig is how I see around 60-75% of Canadian homes.
A lot of people don’t realize there’s a service life to homes. Especially ones built from the 60s onwards. Not made to last a generation.
Sounds like the millenials are pissed what they feel as “their ” inheritance is being spent.
The reverse mortgage is a ticking time bomb. The idea was originally for very old people to use it as a way of not needing to move out. It was also a way for elderly people to pay for things like live-in care or assistance/caregivers.
But now it’s marketed to people as a means of living it up or enjoying life etc. The problem is this money runs out and the life expectancy of old people is getting higher.
How does an 85 year old lady deal with the fact she could be forced to sell. Where will she go?