Screw HELOCs. Canadian homeowners in their golden years have a new favorite way to use their home like an ATM. Office of the Superintendent of Financial Institutions (OSFI) filings show the balance of reverse mortgage debt jumped in April. Reverse mortgage debt is now at a new all-time high, and still posting above 20% growth.
Reverse Mortgages
Reverse mortgages are a way for senior homeowners to tap home equity without selling. Also called an “equity release,” the borrower pledges their home for a lump sum loan or regular payments. Similar to a home equity line of credit (HELOC), but the borrower doesn’t have to make payments. Payments is only typically required if they move, sell, die, or default on the property. In exchange for the “generous” terms, they’re charged a higher interest rate than a typical HELOC.
No payments? Higher interest rates? Sounds like a great deal… for the lenders. Those that elect not to make payments are looking at debt accumulation. Since the rates are higher than a HELOC and you’re not making payments, the debt can snowball pretty fast. If borrowers aren’t careful and are unfamiliar with how interest accumulates, they may find themselves with less equity than they planned.
Canadian Reverse Mortgage Debt Rises Over 28%
Canadians racked up another record month for reverse mortgage debt. Filings show the outstanding balance reached $3.66 billion in April, up 1.24% from the month before. The rise in balance brings the total 28.15% higher than the same month last year. This a new all-time record high, and very large growth at a time when other credit segments are much lower.
Canadian Reverse Mortgage Debt
The total of reverse mortgage debt held by regulated finacial instituitions, in Canadian dollars.
Source: Regulatory Filings, Better Dwelling.
The rate of growth is slowing to the slowest pace in a few years, but it’s still very high. The 12 month change of 28.15% is the lowest number seen since October 2017. This is the sixth consecutive month we’ve seen the 12 month rate of growth decelerate. Even so, the pace of growth is still very, very high. Possibly the fastest growing segment of debt in the country, and hasn’t fallen below 10% in the past eight years.
Canadian Reverse Mortgage Debt Change
The annual percent change of reverse mortgage debt held by regulated finacial instituitions.
Source: Regulatory Filings, Better Dwelling.
The balance of reverse mortgage debt reached a new record high, and growth slowed. The balance itself isn’t very large, but this product is designed for higher than typical growth. Since seniors are often on fixed incomes, and don’t have to make payments – paying off the balance is going to be tricky. As Canada’s population ages, more cash-poor, house-rich retirees are also going to be looking towards this segment.
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Just to put that “small” monthly increase in context. With a mortgage, you will have paid it off in 25 years, paying a little more than you borrowed for the privilege at today’s low rates.
To contrast? The $44.86 million increase in reverse mortgage debt, since people don’t pay these off, at an average of 6% interest over the next 25 years, the increase of $44.86 million will work out to $192.57 million in debt. That’s assuming interest rates never go up again…. in history.
Too bad Homequity Bank is private. Good segment to invest in.
It’s rats leaving a sinking ship over here in Vancouver, but nobody is the MSM is reporting it except for betterdwelling and a handful of small blogs and twitter users dedicated on tracking the biggest real estate dumpster fire in the world at the moment.
And of course, while that fire burns we’re getting ready to pour record high construction numbers on to the flames.
Ever wonder what happens when a 20yr low sales rate, record numbers of new supply, and all three layers of government are trying to reduce prices/speculation combine?
Top it all off with an economy that is 20-30% (depends on which report you read) real estate driven and we’re in for a bit of an overhang … or a hangover
I agree with you both. The one other site I love following is the FlipFlops Twitter account. The owner of that account tracks Vancouver houses from what they were purchased at, what the owner is asking for, and the final sale price. It’s MIND BOGGLING how bad it’s gotten in Vancouver (looking at it from a distance). Millions lost on homes over the last year.
In general, doesn’t Toronto usually lag behind Vancouver for real estate? If I have time, I’ll have to see if there’s a historic comparison between the two cities.
Hey, maybe nothing will happen in Toronto this time around! Maybe it really is different! 😉
I hope FlipFlops start tracking Toronto (not GTA)! No doubt that Vancouver is down a ton so it will be more informative if he does Toronto.
One doesnt track the other. It’s a matter of regulation.
That being said the regulations typically track each other… it’s just a matter of who blinks first.
Right now Toronto looks like it is tracking Vancouver by 8 to 12 months, but Toronto offers a less service oriented, diversified economy. So whatever happens I think Vancouver will he worse off in the short term.