Canadian seniors are slowing down on the equity binge, but they’re still tapping quite a bit. Office of the Superintendent of Financial Institutions (OSFI) filings show reverse mortgage debt reached a new high in June. Canadian reverse mortgage debt is decelerating in growth, but is still one of the fastest growing segments of debt.
Reverse Mortgage Debt
A reverse mortgage is an increasingly popular way for seniors to tap their home equity. Lenders will give you a lump sum or regular payments, secured by the equity in your home. They’re similar to a home equity line of credit (HELOC), but no regular payments are not required. Instead, the balance is only generally due in the event of death, sale, or default.
For this privilege, they generally charge a higher fee than a HELOC. Combining no payments and a higher interest rate is a great way to see your home equity vaporize. So it’s always best to thoroughly think a move like this through. Got it? On to the data.
Canadians Owe Over $3.74 Billion In Reverse Mortgage Debt
Canadian reverse mortgage debt printed another all-time high, with huge growth. The outstanding balance of reverse mortgages reached $3.74 billion in June, up 0.6% from the month before. This represents an increase of 26.3% compared to the same month last year. That works out to over $778.9 million in reverse mortgage debt added over the past year.
Canadian Reverse Mortgage Debt
The total of reverse mortgage debt held by regulated finacial instituitions, in Canadian dollars.
Source: Regulatory Filings, Better Dwelling.
There’s Less Reverse Mortgage Growth, But It’s Still HUGE
Canadians are tapping reverse mortgage debt at a slower rate, but it’s still a high rate of growth. The 26.3% 12-month rate of growth seen in June is 42.34% lower than the same month last year. The 12-month increase is the smallest number since October 2017. Even with the slowing growth, it’s growing at nearly seven times the pace of regular mortgage debt.
Canadian Reverse Mortgage Debt Change
The annual percent change of reverse mortgage debt held by regulated finacial instituitions.
Source: Regulatory Filings, Better Dwelling.
Canadian seniors have slowed the reverse mortgage binge, but growth is still high. Aside from the irregular bump on filings over the past year, the general trend is still moving higher. Growth is expected as Canada’s population continues to age, and home equity is used to make up for the rising pension short-falls.
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The government knows the private/public pension short fall is $3 trillion in Canada. They need to inflate home prices so young people can prop up retirement plans.
Of course, by the time we get to retirement, my house will be worth the same as people’s 40 years younger than me, because interest rates will rise above the current flat levels, back to productive levels.
Do mortgages have margin calls? I’m curious what happens if you borrow 30% of the value, and your house goes down 30% in value. You only have 30% equity left, which seems like a fairly risky asset for anyone to hold on book.
Slashing rates and falling yields will help those retirees. 😂
Can’t call in the reverse mortgage as long as the person lives in the property. When they move out or die it’s due.
Reverse Mortgage is a rip off. Should not be allowed.
Can you elaborate? What is your primary objection? Can you suggest a viable alternative that allows seniors to remain in their home?
Mortgages don’t get called but HELCOs are a callable debt product. So if you have a ton of equity and have leveraged up to start a business, invest in crypto, or buy a sweet-seadoo the lender can absolutely come knocking.
Best BD pic ever!
A picture can say a thousand words.
Guys we need to understand the whole system is unsustainable. The whole economy needs to produce goods or services to sustain itself. All the bubbles are just assest values going beyond their true economic worth as production inputs. Everything ultimately comes down to production and productivity of a society.
If you understand that you will understand Canada is f***ked. First most production, innovation entrepreneurship are done by young people. But our current system drains the life blood of our young families in the form of high taxation to keep boomers alive. Force young families to take on very high debt to buy old crappy places to live from boomers who bought it for 1/10th the price. We are basically sucking the blood from our most productive population and transferring their future to the least productive segment.
By the time young people get old they will not have health care because Canada will be a third world country. We have tons of land in Canada, what we need is use what we have excess of to trade for what we need. IE we should be using affordable housing to get and retain Canadian talent to produce world class companies to generate real wealth. Not sucking the younger generation dry to enrich boomers.
Canada will be third world very soon if we don’t stop this housing cancer.
Young families life blood are drained to build equity for boomers.
This is such a great point.
Very well written. All politicians need to see this and understand it
Increase in multi-million listings, maybe the inverted yield curve is having an effect