More Canadian seniors are withdrawing real estate wealth to make ends meet. Office of the Superintendent of Financial Institutions (OSFI) filings show the balance of reverse mortgage debt soaring in October. The annualized pace of growth is now at the highest level it has been in at least 8 years.
Reverse Mortgages
Have all your money in your house, but you need some extra cash to hold you over until the sweet release of death? That’s exactly what reverse mortgages are for – house rich, cash poor seniors. The borrower borrows against the equity in their home, and receives either a lump sum or regular payment. They’re similar to a home equity line of credit (HELOC), but a reverse mortgage is for someone 65 or older, and the borrowing rates are generally higher than a HELOC. Oh yeah, and you don’t have to make payments on these loans.
A reverse mortgage might seem like a good idea, but consider the demographic it targets. Seniors aren’t likely to get a windfall of new income in their golden years. This makes it unlikely they’ll be able to pay back their loan in a timely manner. Since they don’t have to make payments, it may not seem like a problem. However, borrowing at a relatively high rate while not making payments is a quick way to vaporize your net-worth.
Canadian Reverse Mortgage Debt Tops $3.42 Billion
Canadians sent the balance of reverse mortgage debt soaring. There was $3.425 billion in outstanding reverse mortgage debt in October, up 11.57% from the month before. The balance represents a 57.46% annualized pace of growth, a huge jump from last year. Actually, it was a huge jump from any point – setting a new record.
Canadian Reverse Mortgage Debt
The total of reverse mortgage debt held by regulated finacial instituitions, in Canadian dollars.
Source: Regulatory Filings, Better Dwelling.
Both the monthly and annual increase are record setting. The monthly increase is the second largest observed in 8 years of data available. It’s also 844% larger than the median monthly pace of growth. The annual increase is the largest in at least 8 years, and 274% larger than the median pace. It almost looked like Canadians were slowing down, but it made a massive increase instead.
Canadian Reverse Mortgage Debt Change
The annual percent change of reverse mortgage debt held by regulated finacial instituitions.
Source: Regulatory Filings, Better Dwelling.
Reverse mortgage debt is soaring, at a record pace. This comes at a time while other segments of credit are seeing growth taper, and rates are climbing. All of this means reverse mortgages are likely to grow in cost upon renewal, eating equity at a faster rate.
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If you’re thinking of a reverse mortgage, do yourself a favor and just downsize.
If it’s the last of your wealth, you don’t want to be burning through it while you’re still healthy to “enjoy” your house. If anything serious happens, you won’t be able to enjoy your house anyway, and will leave the burden of care on your kids. You’re not only not leaving your kids something, they’ll have to pay for your nursing and long-term care if you don’t die abruptly.
Isn’t this bullish for prices? Since people will be occupying their homes for longer than they normally would?
Nope. Long-term home price appreciation is based on the wealth of the people that live in the homes, not pressure/density like the development industry wants you to think. These homes withdrawing their equity end up selling at distressed values, for little things like they miss a property tax payment. The latter is likely to happen, as your property values rise but your income doesn’t.
Borrowing to live isn’t a very effective way to live long-term. Keep in mind, this isn’t like borrowing to go to university. They aren’t exiting a reverse mortgage with a higher earning potential.
I think if you really thought about it, most Canadians are borrowing to live ….using credit cards, mortgages, helocs, bank of mom and dad, … it’s the Canadian way! Why not use your equity in your home to give yourself a better quality of life for the few remaining years that you have? You earned it and it is yours. And if you are smart about it, you can actually provide yourself with a personalized pension plan, tax free that will not impact your other pensions. And the starting age is 55. Just pray that CRA rules about principal residences don’t get changed by blood sucking politicians and bureaucrats.
The intergenerational wealth transfer of these families will be reduced. It raises the wealth gap. Wealthy families hand down wealth to provide a leg up on earning. Poor families don’t. We now have a ton of wealth, that is going to provide little to no advantage to their next generations.
There’s a reason immigrants are doing better than multi-generation Canadians. We’re used to sacrificing to build long-term value for our families. Generation Greed is used to satisfying their urges – whether that’s at the expense of the environment, workers rights, or their own family’s privilege.
I don’t like the whole, one spouse dies and the other one looses the house with these contracts. Now the surviving spouse has to morne two things simultaneously…not to mention the stress of all the matters that have to be taken care of in a short time frame. That’s a recipe for stroke or heart attack.
This is incorrect. As long as one spouse is living in the home they are not forced to sell or leave
you don’t know the rules about true reverse mortgages in Canada. Please read up on it ,,,there are only 2 true reverse mortgage providers in Canada…HomeEquity Bank and Equitable Bank. Real reverse mortgages are non-recourse debt…meaning that it a shortfall occurs on the sale of the property, those lenders will not go after other assets. Your estate is protected.
There is an old saying that goes like this
DO NOT LIVE BEYOND YOUR MEANS
Like does everyone have a fancy car can we not drive a Honda Civic or Toyota Camry come on people pull your head out of your ass and buy what you can afford
A bit over the top on the comments here. Around me, I see people sitting on $4,000,000 houses. Houses they bought for $250,000 on incomes of $40,000 each. They have modest pensions and do not ‘feel’ wealthy. But they are – so why not take $300,000 or so out of your house and enjoy your wealth why you are alive? (Or give it to your kids for a down payment)?
Your kids will ‘only’ get $3,700,000 million down the road instead of $4,000,000. Nobody will mourn for their loss.
Canadians are sitting on tax-free billions and billions of windfall real estate wealth. It is a staggering number and fairly unique in world history.
Borrowing from yourself and paying someone else a high rate of interest is always a bad idea. ‘Always’ meaning 100% of the time.
Bobby,
I assume that $4,000,000 is in BC right? News flash, that house isn’t worth $4 million anymore. They should be selling and downsizing not taking money out of a home rapidly losing equity.
Good idea…..get a reverse mortgage while your home equity is falling. I’m sure this will end well.
I’ve seen graphs like this in medicine. It looks like compensatory shock. The patient is bleeding out. So where is the 200 pound leech sucking all the capital out of the pockets of ordinary Canadians because this don’t look natural?
Has anyone seen other updates on HELOC stress testing? Wonder if there is any correlation.
Is anyone familiar with Seniors Equity/intelliMortgage, founded by Robert McLister? Their so-called Seniors HELOC appears to (I stress “appears to”) be a sensible combination of a HELOC and a reverse mortgage without the downsides of the latter, and offering an interest rate between that of the two products. Anyone?